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Global Financial Markets: The Greatest Ever Global Equity Bull Run is Finally Over!

Amit Goel | 09 Aug, 2017  | Follow Author | Add to my Favourites 
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Our World of Spirituality

In accordance with the wishes of our readers we would want to talk about "hope" today.

Hope and positivity is a state of mind that we consider central to the concept of human and spiritual life, the way we see it. However, depending on where we are in our spiritual journey, "hope" may have many different connotations and implications. If hope to us is not about a certain defined outcome or a possibility; rather, it is about life in general and our continued state of happiness, and of those around us, we are truly evolved beings. For such blessed individuals, hope may not have any genesis or any logic or basis. Hope for them is not a means to an end, not even a good omen. It is almost an end in itself. To them it is a barometer of their spiritual health and they feel blessed and privileged just to be able to live their hope.

On the other hand, if we are sitting at the top of Maslow's need hierarchy, and we have access to practically all of the world's material pleasures, and yet, our hope remains tied to a defined outcome or a certain event, we certainly need spiritual help; we need to seek knowledge, health and consciousness and find true happiness which clearly, and almost by definition, eludes us.

For all of us teeming millions and billions who are still in the midst of their journey up the needs' hierarchy, it is perfectly healthy, and even spiritual, to have our hope tethered to a certain expectation or a certain outcome. We believe that experiencing "ample" amount of worldly and material pleasures is a precondition for most of us to rise above these worldly pleasures and to become truly eligible to seek true happiness and bliss (only super humans like Mother Teresa are  exceptions to this). We, as a humble representative of these billions, seek the following blessings from our readers:

Bless us that, "In the face of an overwhelming defeat (or even death) we should not lose our hope; and in the face of a resounding victory, we should not lose our humility".

While we make the journey up the needs' hierarchy, we would continue to be, at the very least, mindful of our consciousness and our spirituality. This will greatly empower us on our way up and also provide the necessary cushion and strength, as and when we stumble at times, and as we inevitably lose some of our life's battles on the way.

And now back to the markets!

It is not just the end of a bull phase that we ponder about. This is the end of an era in world history and will result in paradigm shifts not just in the financial markets but in just about everything else. We believe that it is not just the US Bull Run since Trump election or the EM Bull Run since January 2017 that has peaked out. It is also the great Bull Run since March 2009 that has come to an end. It is also the even bigger global equity Bull Run since 1984 that is now over. We believe that the Super cycle since 1932 is over too. Even the Grand Super cycle since the South Sea crisis of 1720s has come to an end. In fact, we have come to believe that the Grandest Super cycle Bull Run, that has been on since the dawn of Capitalism/ Mercantilism in the 16th century, is beginning to turn its back on us.

The rise in equities has been so relentless and so overwhelming that we now consider it nothing short of our birthright to be in good times for our entire lifetime. The Great Depression of the 1930s sounds so primitive and so pre-historic; and the current times so sophisticated and so nuanced that an economic depression in the current context seem to be nothing more than a hallucination of the mental wrecks. The Great Recession of 2008-09, which in economic and historic terms was a “blink and you will miss it” type of phenomenon, only strengthened the belief that we are now complete masters of our economic destiny. We have come to believe (history will obviously prove us wrong) that we can now prevent “primitive” phenomena like economic depression from happening through clever and deft maneuvering of our economics and politics (read: Greenspan put, Bernanke put and now the Yellen put).

What we have seen in the last few weeks and alsothe last few months is nothing but a grand finale to this long era of relentless economic boom. And what a spectacle it was! The CBOE VIX has been below 10, no less than 36 times in 2017. To put things in a perspective, VIX has been below 10 a total of 18 times in 23 years from 1993 to2016. This is just one data point which goes to prove how stubborn and complacent this Bull Run has been, particularly so in 2017. There are countless such indicators that we see in the financial markets and we would be happy to share those with you in a separate newsletter.

We believe that the peaks made in recent days by a vast majority of global indices will not be violated in a long long time. These peak levels and the associated dates would probably go down in history as the symbol of an era gone by. For your ready reference, we present a table in the PDF attached below, with these levels and the dates. We expect at least 80% of these indices to not violate these levels for years, if not for ever (some may go a shade higher in next few days though).

We also believe that the global financial markets are now starting a phase which will mark the beginning of the end of the great Bull Run. We expect to see a 15-20% kind of correction across equity indices within the next 10 weeks. Of this, the next 6 weeks are the ones to really watch out for.

EM carry trade to end in tears, yet again

The EM carry trade has, eventually, always ended in tears over the last 3 decades. The fate will probably be the same this time around. In fact, the sheer conviction and the air of infallibility about the EM carry trade participants this time, is something like we have never seen before. We kind of agree with them when they say that it’s going to be different this time. That difference however, is not that the carry trade this time will go on for ever (something that they totally believe in). The difference is that this time, it will not end in tears of water, but of blood! The time to exit is NOW!

We expect EM currencies to lose about 10-15% against USD over the next 3 months. EM currencies of countries like India, South Africa, Mexico, Brazil, Indonesia, Philippines and South Korea may be among the worst affected.

We also expect a selloff in the bond markets of all EM countries. The sell off could be particularly intense in countries where the 10 year government bond yields are in excess of 5%. The usual suspects include India, Indonesia, Brazil, Turkey, South Africa, Mexico, Russia and Colombia.

The Dollar is not toilet paper; not yet!       

US dollar has become a very convenient and potent weapon, of late, for the rampaging “risk on” bulls. Every major fall in dollar is cheered by the US equity markets, because the earnings of American companies get a boost by a cheaper dollar. And guess what; it works well for other geographies too. This is because with their rising currencies, even more money gushes into their financial markets from overseas, and creates an even bigger bubble in their already inflated equity and debt markets. Never before in the history of financial markets has such a conveniently synergistic, opportunistic and self fulfilling prophecy been taken to such insane extremes as it’s been done this time around. The consequent outsized gains across geographies are being relished by traders the world over. “Free Lunches”, it seems, are not a taboo any more in the financial markets!

The bills for those lavish “Free Lunches” will finally be presented, after all. That time, in our opinion, has arrived. This would come in the form of a sharp rise in the dollar index, which will inevitably accompany the ensuing wave of global “risk off”. When the global “risk off" wave reaches its crescendo, the currency markets would hear the threatening roar of the lion (read: US dollar) in a jungle; or experience the havoc wreaked by an elephant in a china shop.

We expect the dollar index to climb back to 98-99 levels from the current 93 levels. The worst affected currencies will be Euro, AUD, CAD and almost all EM currencies. This flow of money back to the US will accentuate the negative feedback loop between the world’s currency and equity markets and roil both the equity and the debt markets the world over.    

Crypto currencies: End of the Road

Crypto currencies, particularly the Bitcoin, started off as virtual alternatives to fiat currencies, many of which, in 2009, looked doomed because of zero interest rates and the relentless quantitative easing. However, of late, many of these virtual currencies have evolved into being safe havens for the unobtrusive denizens of the dark web. Their rampant misuse as mediums of exchange for the nefarious activities of extortionists and criminal hackers is surely going to attract regulatory attention.  With the rising dollar index and the imminent fears of a multilateral regulatory crackdown, we expect crypto currencies to get the rough end of the stick over the next one year. A 90% fall will certainly not be out of line.

EM Equities: Massive under-performance ahead 

EM equities have had a dream run in the last seven months. This trend however, seems to have come to an end last week and we do not see most of the EMs making higher highs in the coming days. Over the next 6 weeks, the fall in EM equities could be much more compelling and stark than their Developed world counterparts. While some may get away with a mere 10-15% fall, many others may have to brace themselves for a 20% or even 25% fall.

VIX has bottomed out forever!

We waited a quarter of a century (since 1993) for VIX to come below 9. It did that about 10 days back for the first time after December of 1993. We believe that we may have to wait for at least a 100 years, if not for ever, for the VIX to come below 9 ever again. 

Industrial Commodities: Sharp falls ahead

We are getting extremely bearish on Industrial commodities because of multiple factors. Over the last few months, they have had multiple home runs thanks to the falling Dollar index, the great “risk on” rally the world over and great data from China and pretty much everywhere else. The Bull Run in industrial commodities seems to have completely run its course by now. As each of the above positive factors reverse, industrial commodities are slated to begin their most severe bearish phase post January 2016. We see declines of 15-25% over the next 3 months.

The Probability Distribution:

We would assign a probability of 90% to a massive “risk off” phase happening over the next 6 weeks. The probability that a mere correction will happen instead of a full blown reversal is about 9%; the balance 1% being the chances of markets going yet higher over this period.

Bears: Lonely at the bottom 

Bears have been so completely massacred this time around that when a bear is unable to camouflage his real identity (believe us when we tell you that they just have to these days) any more, his business associates start worrying about his solvency! It has become hard to even imagine a bear who is not bankrupt or is, at the very least, not in serious financial difficulties. We cannot think of any parallel to this phenomenon in the history of global financial markets. Most of the bears have happily converted into bulls over the last few months and seem to be now basking in the glory of their new found wisdom (and success).

The very few surviving bears are absolute diehards and will probably end up multiplying their capital, or what is left of it, at least a 100 times over the next few years. Yes, you figured it out. Somebody would need to put in a paltry sum of US$ 10 Billion to be the only Trillionaire ever to walk this planet!

We believe that the bulls are nowhere near as much of a genius, as invincible or as infallible as they seem to be after these eight and a half years of scorching Bull Run; nor are the remaining bears as foolish or as dumb witted or as hapless as seem to be, at this point. In fact, we believe that the biggest mean reversion in the history of financial markets is not going to happen on the global equity indices; rather it is going to happen in the general assessment of the capability quotient of bulls/bears!

On the sidelines - Is China going to be the next global super power???

With the American influence in global politics clearly on the wane under Trump, there have been many suggestions that China may gradually ease into the position that US seems to be vacating. We find the suggestion quite laughable.

First things first; nobody can take away from the fact that, considering its size and population, China's economic rise of last four decades is absolutely unprecedented in world history. However, it would be pertinent to point out that no country in history has ever become a global superpower without being at the cutting edge of innovation, technology and enterprise. This was true of the Greeks, the Romans, the Arabs, the Dutch, the English and finally the Americans. When we checked last, China was not yet at the cutting edge of innovation and technology, except may be when they are designing the cheapest copycat version of a recent American invention! When we checked last, China also didn’t seem to be at the cutting edge of enterprise, except, may be, when they are playing at the Macau casinos! Probability of China becoming a global superpower anytime over the next 500 years is about as high as that of US becoming a banana republic! We may wish to believe it, but it’s not gonna happen; with or without Trump. In the meanwhile, the kids from the most influential American families will continue to learn Mandarin. And, if they are lucky enough to have a grandfather named Trump, they may even get to recite poems in Mandarin to the visiting Chinese President!

On the sidelines - End of the road for the Republican Party??

The Trump presidency will cost the Republican Party very dearly. The fact that under their watch, a complete ass of a man got elected to the White House and the fact that he is allowed to disgrace the entire American civilization with such callous impunity will reverberate through the country’s politics and society for a long long time. Many of the Congressional Republicans have started to shun him and his shenanigans, as is evident from the recent Russian sanctions bill, and also from the proposed bill that would make it practically impossible for Trump to fire Mueller. Most others are still choosing to stand behind Trump only because the Trump’s voter base, even though on the downhill, is still more or less intact. The ensuing markets’ fall, among a million other factors, will further erode this already eroding base and that is when crap is really going to hit the fan for Republicans. We expect more and more Republicans to turn against Trump with every passing week, worsening the existing political logjam many times over. To put things in a perspective, Republican Party had enough problems of their own even before Trump happened, especially with their deep divisions between the Moderates, the Conservatives and the Tea party. We believe that the after effects of Trump presidency will be the last nail in their collective coffin.

We were initially toying with the idea of a split in the Republican Party, but a deeper dive into the US and the world history tells us that Republicans need not bother with this idea at all. Instead, the party will very soon begin a multi-decade decline and will eventually drive itself into an oblivion of irrelevance. In fact it is the Democrats, who will eventually have to split into two different parties. This is because the American political system needs at least two mainstream parties, and the Republican Party may be anything but a mainstream party after a few decades. By that time, we believe that the western world would have decidedly turned leftist in any case. Hence, we expect the Democratic party to eventually split into two; a relatively moderate left version; and a relatively extreme left version. Expect these trends to play out over the next few decades!


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About Amit Goel

Amit Goel is Cofounder & Director of, a premier financial services group with a pan India presence and a global footprint. Amit specialises in Macro Economic Research and medium to long term forecasting of trends in various asset classes particularly Equities, Bonds and Commodities.

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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