Conversation from Daneric blog (one of the best for sure)
How, if at all, should the year-long, massive outflow of retail money from the market play into our perceptions of what certain waves SHOULD look/feel like?
I don't know exactly how things will play out, but just based on where the mutual fund cash levels are (historically low at about 3.5-4%), I think the point of recognition will be swift. By the time people realize it might be time to be in cash they might close redemptions at many of the mutual funds because it would cause forced liquidation. That panic should be the meat of minor 3 of intermediate 1 and take us down close to the 666 lows, maybe 750 or so. Then we can probably experience the last hurrah rally with the government and fed using everything left in their arsenal to produce intermediate 2 up and then everything falls apart in intermediate 3 down. That might be where the bond market bursts and everything goes into commodities and maybe cash. It would be the deflation followed by hyper inflation in commodity prices as people lose faith in the currency. It will dawn on them that they aren't going to get paid back in anything worth something. Either they won't get paid back or the dollars they get paid back with will be worthless (that's how the bond bubble will likely play out). Stocks will be crushed just like they were in Argentina, Iceland, and other government debt defaults.
