The Brains Trust-2022, page-1651

Thanks so much for the weekly write ups PB. I enjoy the weekly market catch up.

Thought I’d post a 1 off opinion piece as I see some potential structural changes taking place in markets. I call it the decoupling.

Our market trends have been modified from reserve bank intervention for a long time now, greater than 10 years. So to see things clearly we need to zoom out to a longer time frame.

The change in trend due to reserve back stimulus is very obvious by now. And so is the inflation it is causing. The comments by Jerome over at Jackson hole last week were pivotal, and clear guidance in my opinion that the fed is not going to come riding in to save the day and it is time for markets to do what they are supposed to do on their own.

The markets are battling with this concept, and with the fed itself by threatening a major correction if ridiculously low interest rates and a stimulant environment don’t remain.

Asset prices and especially stock markets have been artificially inflated for a very long time. The reserve bank, fed, and other central banks are in the process of decoupling asset prices from the stimulant environment they experimented with.

It’s going to hurt and it could get messy, but the quicker it happens the sooner we can pick up the pieces.

The market trend without stimulus is shown in blue – IMO this is the real trend still in play.

The stimulus driven trend in red.

I think it’s highly likely the reserve banks will decouple stimulus from supporting asset prices and we will revert back to the historical trend. I see key support at the 5000 mark.

So in summary, I think the RBA, fed and other reserve banks will continue the course to decouple stimulus from asset prices. This will break the current trend, and we will revert back to the long term real trend of markets. 5000 downside target.