The important factor at an important top is “liquidity,” and liquidity will now dry up quickly.

The repercussions of a lack of liquidity will be severe in all the markets. Why is that?

Foreign buyers of U.S. Treasurys hedge their exposure to currency risk. That has a cost. Until this week, the return would cover the cost. But now the cost of hedging has soared due to the rising dollar, and that makes the investment in Treasurys unprofitable.

That dries up the significant demand for U.S. Treasurys from abroad. Therefore, the T-bond market plunged this week.

Conclusion: The Fed’s plan to hike interest rates four more times until late 2019 is scary. My bet is that this plan will be interrupted by a credit market crisis. It is more likely that within a year we will see another QE (quantitative easing)..

The repercussions for stocks from what is happening in bonds worldwide are widely underestimated by analysts. This is highly significant, especially for emerging markets and stocks without earnings. Junk bonds will finally be shunned.

Currently the yield difference in the U.S. between junk and investment grade bonds is near a historic low. When the spread widens to levels in a deteriorating financial environment will cause a sharp decline in junk bond prices. And that will adversely affect stocks.

The majority of analysts still mention “the strong economy” as being bullish for stocks. But that is irrelevant at important turns. I have written many times, “watch the credit markets.” The important factor at an important top is “liquidity,” and liquidity will now dry up quickly.

Stocks will be sold to get cash. Thus, the turns in the markets could come very quickly.