Stock Market 2018: The Tao vs. Central Banks

I will be the first to admit that invoking the woo-woo of the Tao as the reason to expect a reversal of the stock market in 2018 smacks of Bearish desperation. With everything coming up roses in much of the global economy, there is precious little foundation for calling a tumultuous end to the global Bull Market other than variations of nothing lasts forever.

Invoking the Tao specifically calls for extremes to return or reverse to the opposite polarity: this is expressed in the line from Lao Tzu, The way of the Tao is reversal or Reversal is the movement of Tao.

In other words, extremes of bullishness lead to extremes of bearishness, just as the extremes of bearishness in March 2009 (S&P 500 at 667) led to the current extremes of bullishness (S&P 500 2,600).

Translations of this line add color to the concept:

To return is to complete the movement of the Tao.

Reversion is the action of Tao.

Turning back is Tao’s motion.

Tao moves by returning.

Cyclic reversion is Tao’s movement.

Reversal is the action of Tao.

Polar opposition helps the movement of the Way.

But there is another more subtle interpretation of The way of the Tao is reversal: in this view, only those who have rebelled against the Tao by distorting the natural order of things can push dynamics to extremes. Those who rebel against the Tao by pushing things to extremes will find the Tao will reverse their extreme to the opposite polarity.

Central banks have pushed markets to extremes of liquidity, leverage, moral hazard, low volatility and “the central banks have our back” complacency. We all know they have distorted markets by backstopping losses, buying trillions of dollars in assets, lowering bond yields to negative territory (especially when adjusted for real-world inflation) and making the stock market the signaling device that is supposed to reflect the fundamental robustness of the global economy.

All of these actions pushed against the Tao, and the Tao is about to return to the Bearish polarity. Central banks are quietly trying to back away from their extremes, but it’s too little, too late: a full reversal is now baked in, and whatever central banks do from here on will only make matters worse.

Mess with the Tao, the Tao eventually pushes back, and reverses the entire move. My reading of the tea leaves is 2018 is the year the Tao crushes the central banks’ manipulated markets. The central banks claim omnipotent financial powers, and their comeuppance is overdue.


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  • WillDippel

    As shown in this article, even the Federal Reserve’s own economists question the effectiveness of $4 trillion worth of quantitative easing:

    The risk associated with the Fed’s long-term monetary experiment is likely to prove to have created more problems than it solved in the future.

    • Sparticus

      Oh, it worked … And, it will work until HELL Freezes over because Nobody will ever be allowed to downgrade the US government. If Americans understood this reality they could benefit; but they are destined to be slaves, forever, how sad. The US government has Godlike Status to print and credit to Infinity.

  • Sparticus

    Nothing in the Economy is Good. Americas Soul was Short Sold To Slave Labor by Rich Corrupt Entities.

    Everything is a LIE. Reports …. Statistics … All a Fabrication. Government ( and other corrupt entities) are buying the markets. Corporations have been getting welfare along with the Bankers to BUY their Own Stock. So … It is a WELFARE MARKET.

    To make it short … GOD cannot “crash the markets” because government has made profit by their own hand and nobody is smart enough to see it much less do anything about it. Nobody will downgrade America and Risk Nuclear War. There could even be a nuclear war and the FED put (and short on gold) will come in right on time by HFT and buy the DOW!!! You can get a picture, like on the Terminator where the little kid is looking at the fire in the TV, “only” it would be DOW turning GREEN on a 300 pt RALLY! YAY!!!

    These are the final stages of Rebellion.

  • cstahnke

    I don’t buy it. Loads of people have been predicting bear markets and disasters from the sky media believing that the fundamental didn’t work. The fact that since the 08 crash we’ve not been living in anything like a free-market system. It’s a centrally planned economy but no planned by members off the Central Committee but a boatload of networked algorithms built within a network of central banks, big corporations, international funds and son on. The markets are, within certain parameters, controlled by this system. Theboligarchs running, if I could even use that term allow for some fluidity within the structure of the algorithms and intricacies of game-theory ideas and, as always, are enforced by the source of all power, Mao’s famous barrel of a gun whose very existence creates good order. Meanwhile the endless misdirection of the media keeps everyone fallingnforbevery Machiavellian dlight of hand in the book. On the other hand maybe the current tyranny of algorithms is flawed though it has worked pretty well so far.

  • Lying Sweetly

    Charles, not to argue with what you see but I think the meaning of the tao is better seen as not letting things get out of balance in the first place. Once an imbalance starts, the game is lost in the sense that there will be a correction. With that understanding it is not difficult to predict the future:
    maintain balance => more of the same harmony
    create or allow imbalance => look out! whammy correction ahead

    Tao te ching
    The Tao that can be spoken is not the eternal Tao
    The name that can be named is not the eternal name
    The nameless is the origin of Heaven and Earth
    The named is the mother of myriad things
    Thus, constantly without desire, one observes its essence
    Constantly with desire, one observes its manifestations
    These two emerge together but differ in name
    The unity is said to be the mystery

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  • Sparticus

    People … There is nothing more imbalanced than the US governments books. However, no meaningful downgrades are allowed. The markets only do what the Government allows them to do. Plunge Protection and FED control everything and gold is being shorted by US government proxy. The US government can print money forever and nobody will do anything except bow their heads and mumble something about US government infallibility. Why? Simply, because the us government is the biggest bully in the world and nobody wants to be abused. However, they also have nuclear weapons to insure that nobody tries to pull anything over on it.