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More thoughts on the “Emperor Has No Clothes” theory of the US economy…

The Great Disconnect: I continue to marvel at what appears to be a fundamental disconnect between the U.S. capital markets, particularly the equity markets, and the economy they putatively reflect. Since bottoming in early March, the major stock market indices have advanced by 50% or more; the Nasdaq composite is up over 70% from its March 9 close of 1268.64. To be certain, the furious rally in the U.S. capital markets isn’t an equity-only—or even U.S.-only—affair.

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…Recommend something that has been done twice before, and both times led to disaster, including being a major contributor to The Great Depression.

(Great article I thought you might like to check out…)

http://market-ticker.org/archives/1510-Waterboard-JP-Morgan-and-The-Mortgage-Bankers-Assn.html

We have enjoyed a heck of a run in stocks, but the foundations are in my view rotten, and when we start to really pay the piper things are going to get ugly.

I have been teaching and using my proprietary liquidity pool theory for a number of years now, but never has it been more applicable then last month in the Forex market. Just about every traditional setup I saw triggered, then was taken out and shot.

I have had so many emails and questions which all come down to the same question… “why is this happening to me.. are they targeting me personally? ” The answer is NO…you just ran afoul of a liquidity pool inversion.

To better explain this concept, I have created the following videos…Enjoy!

Here is the second part of the video, where I go to the blackboard to explain why liquidity pool inversions happen…

I have been noticing the extreme relative weakness in the Great British Pound in recent months, and I think today we now know why this currency pair has been sucking wind….

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

This is epic news… I have long postulated that World War Three will be an economic war that is fought perhaps without a shot being fired between China and the US. If the dollar is abandoned, in my view that is the equivalent to the National Socialist German Worker’s Party (Nazi) invasion of Poland (Ironically in Sept-Oct) in 1939. This aggressive act began the conflict that would become World War Two, but more importantly as those of you who have studied history know, it started a period of intense isolationist and anti war debate in the US.

Our governments weakness and inaction emboldened the axis powers and they advanced across Europe virtually unchecked until the crippling surprise attack on Pear Harbor in 1941 brought he US grudgingly into the conflict.

Our government’s actions on the world stage recently mirror the domestic narcissism and projected weakness of the 30’s. The almost TOTALLY unreported give up of sovereignty at the G-20 will embolden those abroad to try to push the envelope while the US is struggling, and I predict that we will see a number of foreign policy outrages and power grabs on the world stage in the years to come.

http://thehill.com/opinion/columnists/dick-morris/60763-surrendering-sovereignty

The nuclear option in this economic war for china would be a trade embargo which would cripple us in the US (Goodbye Wall-Mart!) until we could reinvent the US manufacturing sector. (JUST LIKE World War Two!) The US Nuclear option would be to default on the 2+ Trillion dollars of US debt that China holds, so watch carefully if China and other countries start unloading their US debt in order to eliminate this strategic option…

So, how does this all relate to trading? Think of the world markets as a dirty puddle into which the big players throw rocks… If my predictions are correct, the rocks are about to become small boulders! This “Change” will produce TONS of movement. If this “dump the dollar” move goes through, can you imagine the consequences for the Forex market and it’s dollar denominated pairs?

I think the next few years are going to be epic ones for traders…Fasten your seatbelts, and get ready to ride some big trends!