Jan 1, 2014 – the start of the Great Deflationary Collapse

With Ben starting his Fed taper this month, I am reminded of the story of the little Dutch boy who put his finger in the dyke to save the people from drowning in the sea water.   In that case there was a happy outcome, but I fear it won’t be such a good ending for the Fed (or the markets).  The people will drown in debt default when Janet takes over and really gets going!

Already, my Trades for 2014 are off to a flying start.  Here they are:

Short Stock Indexes

Long US Dollar

Long Gold/Short stocks

Although I remain medium to long-term bearish on Treasuries, I believe they could stage a counter-trend rally from here.  Bearish sentiment is getting extreme and if stocks get moving to the downside, T-Bonds will rally.

Also, with the sudden flight to safety in the New Year, the yen will rally and I have taken profits on my long USD/JY.  When this flight to safety gets into its stride later this year, precious metals, the US dollar and yen will be beneficiaries.

EUR/USD

Here is the action showing great short-term EWs:

We could see a small bounce from here up to the underside of my tramline, but that should be it – and a great place to enter shorts.  I believe we are on our way to my 1.33 target.