SP 500 and NDX Futures Daily Charts

When the Wall Street liquidity addicts get their daily fix from Bernanke, they can ignore the news from Portugal on sovereign debt default, and the other ominous warning signs in the financial and political systems.

It's a cynical game, in the vein of the financial fraud that has replaced an efficient capital allocation system in the US.

You will not hear economists talk about this problem, just as they did not discuss the pervasive fraud in the mortgage backed securities market before it caused a financial collapse. It is safer to explain what just happened after it is completely obvious to everyone, over and done. And yet they still call for the same old remedies, of either stimulus or tax cuts for trickle down effects, both pointless options when the system is broken.

The Fed and the Treasury think they can support the economy by keeping the stock market up.   The wiseguys on Wall Street will continue to encourage and take advantage this policy error, transferring the wealth generated by debasing the public money into their own pockets, while the regulators are paid to look the other way. It is very remniscent of the failing Soviet empire and the rise of the oligarchs.

That is what is happening now.  This is why gold and silver continue to rise despite the best efforts of the financial engineers to halt this 'alarm system.'

There is a day coming in the not too distant future when many will realize the situation as it really is, and then there will be a panic.

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SP 500 and NDX Futures Daily Charts

I think there is a good chance of a 15 to 20% correction in US equities sometime between now and the end of July. I am not at all sure of the timing, in part because the Fed is adding enormous amounts of liquidity which seeks out beta, AND the volumes remain light, so this liquidity can do its work in a relatively straightfoward manner.

But as with all sugar high bubbles, this one is going to pop. We are in bubble territory, so a trigger event is able to quickly deflate the stock indices. The higher stocks go, the less of a trigger event will be required. It could also come as a series of event that together bear enough weight to shake the Fed's policy errors back to some more realistic base level.

Most of the economic discussion I read is either complete book-talking puffery, or naively pedantic. I wonder how many bubbles it will take before this Ancien Régime of crony capitalism is overthrown, and how difficult this transition might be.