I've been reading negative articles on daily basis. From Oz to US there has been fear mongering and doom happening in MSM and on blogs. Everyone in this world are talking about tapering of fed and they have started speaking the eventual crash that is bound to happen in matter of months and could witness the situation or scenario that would be much worse than 2008. I'm not well versed in Economics ( Not in anything, but that is different) and I don't know much about economies of world. With this kind of negative sentiment there is a possibility of huge rally and its right in the corner. If you have intention to short the market it would be better to wait for couple of days before going to short the market.
Trends and charts simply looks negative. I don't have any debate on that. But I always think like " There are always trends in the markets and there is Federal Reserve".
I'd like to present couple of scenarios on the market. If fed tapers we could witness a crash that could make 2008 as a laughable one because there would be huge long unwinding which is much more dangerous than shorts in the markets. After long winding we could witness shorts that could tear the markets. Dow could very much go to the place where it has started at 2009. Few of the pundits ( whom I have great respect and they are highly educated, highly experienced and have lot of sense in their opinion) believe that Dow could correct not more than 20% and I simply differ with them purely on the basis of sentiment. Sentiment is important for the markets and if fed tapers it would simply break the sentiment across the world and there would be nothing but a " Global Sell off". I don't expect anything less than that. We could witness huge problem in mortgages and bond markets that could add further pain and could possibly face liquidity crisis which would contribute to insolvency of the system. I don't have second thought in this issue and this is going to happen only because of sentiment and sentiment is much powerful than common sense. All these things are known to everyone in the world and I'm not writing anything intelligent or unique that is not known to world. Unprecedented crisis is bound to happen if fed tapers their commitments from the markets.
On other side. Fed have been watching the action in the global markets. All EM currencies have depreciated almost 10% against USD and bond markets have been sold off. Central banks of EMS are simply waiting to see how things pan out and they simply don't know how to respond in the markets. Fed understands that this is not just going to be a carnage in stock markets but its going to carnage in all asset classes across the world. If EM currencies witness huge sell off it would eventually affect the profits of Fortune 500 companies that are having operations across the world and particularly in Emerging Countries. Secondly just put yourself in the shoes of Ben Bernanke. He simply supported the markets and has made things calm in mortgage, debt and capital markets for the past 5 years. Without witnessing comfortable unemployment rate, Inflation and GDP its simply unnecessary to withdraw support from the system and Fed would never do that. They simply don't want to see everything in dust in matter of months. They can't accept things going to dust because they have worked hard for the past 5 years and they simply can't afford to allow to go burst in matter of months or even minutes. Fed simply understand that sentiment itself would simply create a catastrophe and they know that their hard work would be put in vain in minutes.
It could atleast take a decade for fed to taper the markets. As of now I don't see any evidence or need for the fed to taper the markets.
Important Note: Withdrawing QE and tapering are completely different. Please don't compare tapering with Withdrawal of QE.
Meaning - We could probably witness huge rally of 5% before getting sold off!
Disclosure: I've taken position and I could probably make profits on rally as well as on sell off. I can't simply afford to sit in my opinion of continuing the support,because I won't get bail out from Fed. I've already taken the position.