A mere 10% SPX selloff, the minimum to qualify as a correction, would take the US stock markets back to mid-2014 levels. That would wipe out nearly an entire year’s progress! Can you imagine that not seriously scaring complacent traders? At a full-blown 20% correction, which is all but certain, the SPX would be dragged all the way back down to mid-2013 levels. The last two years of the SPX’s progress would vanish.

But since the aberrant stock-market rally in recent years was fueled by extreme Fed easing that is going away, since this resulting bull is so abnormally large and old, since these stock markets are so seriously overvalued, since complacency is off-the-charts high as the super-low VIX fear gauge reveals, and since it has been so incredibly long since the last correction, I doubt any selloff would conveniently stop at 20%.

Before the Fed brazenly attempted to eradicate stock-market cycles, traders understood that bear markets inevitably follow bull markets. The stock markets are forever cyclical, an endless series of bulls followed by bears. And there are very high odds the next bear looms as the Fed starts tightening. A 30% selloff would drag the SPX all the way back to early-2013 levels, erasing the entirety of the Fed’s QE3 levitation.

At 40%, which is nothing special as far as bear markets go, the stock markets would retreat all the way back to early-2011 levels. And at 50%, which is the average size of bear markets at this stage in the great stock-market cycles, the SPX and SPY would plunge all the way back down to late-2009 levels! Even though such 50% full bear markets take a couple years to unfold, the devastation would be breathtaking.

So don’t drink the Kool-Aid with the euphoric stock traders and blind yourself to the dangerous realities of today’s lofty and overextended markets! QE’s new buying is done and the Fed’s balance sheet has already started to shrink. And the end of ZIRP is rapidly approaching. The most extreme easing in the history of the Federal Reserve that so buoyed and goosed US stock markets is rapidly coming to an end.

With the Fed’s late-2014 shift in QE policy already underway and its upcoming late-2015 shift away from ZIRP looming, this central bank is becoming a major downside risk for these stock markets. Only fools would willingly buy high in such a hazardous environment fraught with peril. Rather than piling into stocks high, smart contrarian investors are looking elsewhere to deploy capital in deeply-out-of-favor assets.

Their destination of choice is the despised precious metals, trading near major lows. Not only are the gold seasonals bottoming, but gold actually thrives in rising-rate and higher-rate environments since they are so damaging to stocks. That rekindles demand for alternative investments, which are led by gold. During the Fed’s last rate-hike cycle between June 2004 to June 2006, gold blasted 50% higher!

That was despite the Fed more than quintupling the Federal Funds Rate to 5.25% over that span! And in the 1970s when the Fed had to reverse course from an earlier less-extreme easing, it was forced to hike its FFR from 3.5% in 1971 to an astounding 20.0% by early 1980! And gold skyrocketed 24.3x higher over that span. Gold, silver, and the best of their miners’ stocks are fantastic investments in Fed tightenings!

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The bottom line is the Fed’s massive policy shift from record easing to tightening is a huge downside risk for today’s lofty, overvalued, and overextended stock markets. The Fed has already stopped its new QE bond buying, and its balance sheet that the stock markets closely mirrored in this bull has started to shrink. And despite the dovish FOMC this week, the first rate hikes near that will pound the nails in ZIRP’s coffin.

These Fed-levitated stock markets that have almost magically avoided significant selloffs thanks to QE, ZIRP, and the associated Fed jawboning are in serious trouble when this next tightening cycle arrives. It will prove an extraordinarily-risky time for extraordinarily-anomalous markets. So sell high while you still can, and redeploy some of that capital by buying low in the precious metals which are set to soar.