The big themes for the market in 2018

I saw this paper and thought it was something every serious investor or trader ought to read, not once but regularly throughout 2018. It is called: “BofA Predicted The Crash: Here's What It Thinks Happens Next”. Here are the big themes from BofA ML

Which brings us back full circle back to Hartnett key 2018 BofAML themes:

• big long = Volatility
• big short = Credit
• big top = Equities
• big rotation = Deflation to Inflation
• big risk = Equity Bubble

In practical terms, here is how the correction will play out in chronological terms:

Correction chronology: XBT…UTIL…GT5…VIX…JNK…EMD…SPX; last Feb dominoes to fall should be DXY, CNY, SOX & EEM.

Regardless what you are doing, please do yourself a favor by reading this paper very carefully and then save it to review it again and again later. If you have followed me for a while, certainly you should not be too surprised by the above themes, right? As I have said several times, investors have been too complacent for too long and high volatility is expected that may come suddenly (big long = Volatility). Right now we are just getting the first dose of high volatility and more sudden spike of VIX will come more frequently later this year and moving forward, especially when VIX comes down to its historically lows around 10 or below. Then the long-term trend for higher interests (big rotation = Deflation to Inflation) and  lower bonds (big short = Credit). All of the these are not good for stocks in the long run (big top = Equities & big risk = Equity Bubble). As I said, this historical bull market is entering into its last phase, the Melt-Up phase that will likely continue for a while. Either later this year or sometime next year, we may finally see its top, followed by a long-lasting bear market. Given how much money has been created by the Fed from the thin air in the past 10 years, the next financial crisis will likely make the 2008/2009 financial crisis like a baby play, which may cause a huge bear stock market for years! Friends, this is a macro trend I have seen and been talking about for some time now and I’m even thinking BofAML were stealing my thoughts (kidding).

Of course I’m not talking about something that will happen immediately but I think it is coming. Don’t take it for granted that we will continue to enjoy fantastic stock returns for another 10 years. It is simply not going to happen without us first experiencing an unprecedentedly painful financial crisis first. Be ready and start to be prepared for the inevitable if you want to survive the next crisis!!