Equity markets worldwide were fairly calm this week as US equities consolidated gains at new all-time highs while volatility indicators continued to contract. The standout performer was China (FXI) which rallied 1.4%.

The list of billionaires publicly calling for and betting on a big market drop is worth mentioning because it runs the gamut from world class speculators, macro traders, activist investors, fixed income gurus to old fashioned world bankers. This diverse group included Paul Tudor Jones, George Soros, Carl Icahn, Bill Gross and Lord/Baron Rothschild. This begs the question, what are they thinking and can they all be wrong?

Each of these players have their own perspectives and theories on how the financial world operates so let’s take a look at how they might perceive things through their lenses.

Icahn is looking at high valuations driven by share buybacks and not finding much in the way of massively undervalued companies where he can step in, buy a large stake and force management to restructure and run up the price of the stock. As for the timing of the drop he has no clue. Last I heard timing is critical.

Soros looks at the world through his Reflexivity Theory, which in a nutshell is identifying self-reinforcing market behavior on a grand scale.For physicists and Breaking Bad fans, it’s the Heisenberg principle playing out in the financial markets.

Reflexivity is largely driven by market sentiment, which according to the theory directly impacts the outcome and then creates the bubble. The perception of the markets condition impacts what market players do thus driving the price of an asset up until it becomes unsustainable. Soros essentially looks for huge bubbles and plays according, depending on the what stage they are in.

Negative interest rates are certainly one of them. Right now the world’s markets are driven by the investors willing to pay for a negative return which can only be a profitable strategy if someone else is willing to take a bigger loss in the future. This is taking place in the largest asset class in the world., fixed income. The big question is; can our central bankers diffuse the bubble through dissipation rather than a pop?

Lord Rothschild has a world view as an international banker with multi-generational experience and history to draw upon. His ancestors, from their offices in England, financed Britain and helped the Duke of Wellington defeat Napoleon at Waterloo. The numerous Rothschild banking branches all over the world have always given the Rothschilds an unparalleled world view. Over the past view months, he has been expressing concerns about geo-political risk and has been moving into precious metals. Could this survivor of WWII and the Nazis be overly cautious, considering Brexit, Immigration and the EU, Russia, Turkey and of course the volatile presidential election here?

One ratio the consummate banker may be watching very closely is the steady move up in the TED spread. This is the ratio between US Treasuries and the Libor rate. The LIBOR (London Interbank Offered Rate) rate is set in London and is the rate banks charge each other for overnight lending.

An increase in this rate past certain levels is an indicator of economic stress and a good market timing indicator. Current levels are NOT indicating a sell signal but they have been moving up. On the flipside, Junk bonds have been gaining on US government issued debt and that is clearly a positive.

Paul Tudor Jones developed his trading theories derived from the trading floor (alongside me in the pits at the NY Cotton exchange) and fine-tuned his technical trading over the years with Elliot Wave Theory and other techniques.  He cemented his guru status with a huge short bet in October 1987.

Is he looking at this chart and looking to regain his reputation (this would be almost 30-year anniversary present for himself) that has been recently blemished with poor performance and recent redemptions in his Hedge Fund?

This weekend here in Santa Fe, New Mexico was the Indian Folk Art Festival where collectors of Native American art come from all over the world to buy. Our informal Indian Art Indicator shows discretionary consumer spending is strong.

This weeks’ video we are going to focus on this big picture chart and ways to prepare and capitalize on the next big move by watching price action without any guru’s influence.

Video length: 00:15:49