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Will A Bear Market By Proxy Roll Out of China?

The Composite Liquidity Indicator has been flat in recent weeks as it skirts the high set in January. Stock prices have mimicked that rangebound pattern with a temporary blip to the downside interjected last week.  The index is moving toward its 39 week moving average.

Macro Liquidity

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The Fed has committed to “normalize” its balance sheet. While I view that as a questionable proposition, it does seem more likely that this indicator will remain flat, than that the Fed would resume QE, which would push macroliquidity to new highs.

The question now is whether sentiment alone could cause enough margin liquidation to begin to reduce total liquidity. So far that has not happened, but the situation in China is a wild card. The authorities are desperately trying to stop the capital destruction that has been occurring there in recent months.  A key issue is that the restriction of liquidation there will force the big players in that market to liquidate what they can, where they can, when they can, in the rest of the world. That could cause a bear market by proxy, which has already manifest itself in commodities and emerging markets, and may yet bring pain to The Last Ponzi Game Standing, the US markets.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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