Sitting on a Knife Edge

There is no question that the battle the FED has been fighting is deflation since the deleveraging started in 2008.  In essence the FED has absorbed 3 trillion dollars of overleveraged assets and are now coming to the end of their ability to take on more as the availability of debt intruments will cease to exist in mid 2014 (from a recent Bloomberg article).  So what do they do, commodity indices, oil, and even gold are well off their highs, and the dollar is at multi year lows.  Deflation is in the lead.

Yet the stock market continues its move into fairyland, how could anyone not be long, the FED has everyone believing they are omnipotent, have indisputable control, and even more importantly will give everyone clues on when to get out and sell to someone. 

In my opinion we are not looking at a 5 percent correction here, we are looking at something greater than the 20 percent correction that ones sees in normal unmanipulated markets, more likely we are looking at something embracing the power of three, a 60 percent decline over the next three years.  I am sticking to my belief that by 2017 we will see markets below the 2009 lows.

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