Zero Sum Without QE

In the long run, asset prices are determined by the amount of liquidity flowing in the system.  With Fed quantitative tightening and a reduction in ECB and BOJ QE, the sum of central bank balance sheets are not expanding anymore.  That makes global asset markets a zero sum game, as money from one sector takes money away from another section. 

In 2018, it has been money flowing out of fixed income and emerging markets and going towards US stocks.  Unlike what you saw from 2009 to 2017, when it was a positive sum game, as the central bank balance sheet expansion pushed global asset prices higher for real estate, bonds, stocks, and commodities.  Now, its really just real estate and US stocks going higher, with the Fed no longer doing QE and with the other central banks reducing the quantity of asset purchases.  

So if US stocks are to keep going higher, it is going to be at the expense of one of the other asset classes, or regions. There is no longer the rising tide lifting all boats.  Sure, in the short term, you can have everything going higher together, stocks, bonds, commodities, etc.  But without an expanding pool of money chasing financial assets, it will lead to sharper selloffs out of the blue like the drop we saw in February.  Based on the high level of the US stock indices and the growing optimism that I am seeing now that SPX has made all time highs and broken the previous high at 2872, SPX is vulnerable to a sharp selloff down to 2700 in the next 2 months.  With the cheapness of SPX puts here, I am tempted to buy October puts in the coming weeks to play for a sharp correction.