KRUGER INSIGHTS MONDAY, NOVEMBER 18, 2013

Joel Kruger 

The Gravy Train - Everyone is wondering when this equity gravy train will show any form of stalling out, with the market continuing to find bids to fresh record highs. The fundamentals have already been rendered meaningless for some time and the only thing that matters is monetary policy expectations. And just when you think every ounce of dovishness has been priced in, amazingly, more of it seems to surface. So when will it end? When or if will we ever see a market that loses its hypersensitivity to sneezes from central bankers? Or when will we see a market that has finally priced in all the dovishness there is to be priced in? I thought we had reached that point a few months back, and yet clearly we have not. But the more this relentless bid tone persists, the more I worry about the severe risk of a more intensified liquidation in asset prices. Back in 2008, central bankers were forced to take historic measures in response to a bubble that had burst, only to create another bubble today in the form of this unwavering escalation in equity prices.

Profits Anyone? - The bottom line is that the global economy is still far from out of the woods, and central bankers have continued with these emergency monetary policy measures because they believe things are still not good. So to sit comfortably with a risk correlated asset at record highs in the face of this fact should be more than unsettling. At this point, I believe market participants should think long and hard about additional upside prospects from free money central bank incentives, and should probably say thank you and look to realize these profits. Whether this will ever happen remains to be seen. On the currency front, there really isn't anything too exciting going on. Most currencies are locked within a consolidation, and the only real mover of note is the Yen. USD/JPY has broken out of multi-week triangle, and the move should open the door for an eventual retest and break of the 2013 high at 103.75. Still, I would be careful buying at current levels, and favor buying the major pair into the next dip that results in some oversold intraday studies. Given what I believe could be a pullback in risk assets in the sessions ahead, I would be concerned that this pullback could open renewed short-term demand for Yen on traditional correlations. Overall, I still favor buying the buck across the board on any dips.