Admittedly this a bit more of a stretch than the long term bull case outlined in the last post. Let's face facts: USA main indexes are in healthy uptrends, 4 of 5 above all pivots, above most weekly moving averages which are all rapidly rising. Other than oil, other key sectors are doing fine. Global indexes are also up and delivering a lot more gains than SPX thus far. So what is the valid bear case?
Without getting into my dabbles in Elliott wave (which have been pretty good btw), the main bear case has to do with central banks. If the bull case is that indexes have made convincing breakouts above prior highs 2013+, the bear case is that this move would not have happened without the trillions of $YELR (dollars, yen, euros, pounds, rembini etc) that were pumped into the system from 2008.
Proponents of ZIRP and QE might say these measures were like training wheels on a bicycle for a youngster. When the kid is old enough to ride, the wheels come off the the journey continues ahead.
Bears would say give me a break, the measures were training wheels, extra stabilizers, cushion on both sides in case of fall, and oh yeah, a motorized cycle so you only had to pretend to pedal! So when all that comes off, there is only one possibility: bike-wreck. To put it mildly.
From the not zero-hedge site Pimco:
What? 25,000 Billion globally? What even is that number? Is it pronounceable? And these accommodations are in process of ending. From the not very bearish Financial Times blog:
Training wheels are coming off. And the stabilizers. And the cushions. And the motor is stopping. Economy will soon have to pedal on its own. The bear case is that this the bicycle will have to take a tumble after getting so much help for so long.
For now, my take is somewhere in between. Stocks are still in healthy uptrends. But I don't buy the pure bullish conclusion that markets are 4.5 years into 15+ years up without a major drop. I don't know how much the market will drop, when it does; but think we will see a major decline decline (-20% or more) sometime in the next 4 years.
For now, ideal scenario remains: relatively mild pullback ~5% or so, then back up to test highs, then we shall see.
ps: So far markets have ignored crazy man at the wheel but you just never know when that is going to get real.