The state of the economy.....

[Faust]

The recent stock market rally was air. So is this sell-off. Here is an article I would like to see printed in a major news source - "The recent stock market rally does not in any way correspond to the real economic situation since the recession of 2008, and is mostly the result of American government printing unprecedented amounts of money to which Wall St. has access at near-zero interest rate." All traditional stock valuations like P/E ratios have gone out the window. Just look at all these unicorns around. If you told their valuations to any stock analyst worth his shirtsleeves in the 90s they'd laugh in your face.

[Arkady]

Absolutely, I would venture the real fun is yet to come as these are let's say "trigger indicators" rather than triggers.

From Bridgewater's letter to its clients today:

"That's where we find ourselves now—i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high. As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias. Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.

That is what we are most focused on. We believe that is more important than the cyclical influences that the Fed is apparently paying more attention to...

...
While we don't know if we have just passed the key turning point, we think that it should now be apparent that the risks of deflationary contractions are increasing relative to the risks of inflationary expansion because of these secular forces. These long-term debt cycle forces are clearly having big effects on China, oil producers, and emerging countries which are overly indebted in dollars and holding a huge amount of dollar assets—at the same time as the world is holding large leveraged long positions.

While, in our opinion, the Fed has over-emphasized the importance of the "cyclical" (i.e., the short-term debt/business cycle) and underweighted the importance of the "secular" (i.e., the long-term debt/supercycle), they will react to what happens. Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required."