Where now?

We have just had one of the most epic short squeezes in market history.  Every tool was used to lift the market;

• Shorts were squeezed relentlessly
• Volatility was sold (biggest squeeze in years)
• Bonds were sold (auction failures hit records)
• Commodities were lifted (relieving banks from defaults)
• Europe went negative and will now buy corporate bonds
• China is now 250% debt to GDP
• The U.S. bailed on rising rates
• Companies bought billions in stock repurchases.
• No new issues brought to the market

What did it accomplish?  Inflation rate nominally positive, and stock prices flat for the year. They woke up gold, silver, and food.  Companies are borrowing in excess of earnings just to reduce their share count and create an appearance of growth in EPS.  Federal Reserve is the only other buyer lifting the market.

So what?  One of two things Will happen.  The Fed's will crank out inflation, but the wrong kind, the one that acts like a tax; food and energy, and we will recreate 2008 and 2011 events, or we just roll over as this is all the market can handle.

For me I think food prices will be the killer of this whole experiment, and will begin with the first crop deficiency reports.  La Nina is proceeding apace, sugar and coffee are following the script.  By June we will see corn, soybeans, and wheat lift.  But the prices will rise farther than expected for the seasonal trade.  China cannot absorb the price increases as food is already trending higher with Jan/Feb up 8%.  I am pretty sure wages are not following that script.  There goes their little experiment in currency devaluation.  I am pounding on this as no one is looking here, yet prices are lifting.  

For next week, we are seasonally weak, and buybacks are in blackout.  Plus we just squeezed the wedge and closed a gap.  Risk reward supports going short.  I have VXX, with my DBA, and JJG. We also should see a let down in oil on a sell the news from the summit of the OPEC thieves.  Over $40 brings U.S. production back online.   Good luck continuing that ramp.  

Good trading this week.