BALTIMORE – What’s that in the distance? It looks like a cloud of dust barely visible on the horizon.
It’s the relief column, sent from Ft. Fed!
And yes, it is still a long way off…
As far as anyone can see, there’s no need for relief now. U.S. stocks are near their all-time high. Unemployment has rarely been so low. The economy is said to be picking up speed.
So the feds have put down their guns and taken out their picnic baskets.
Some are taking a nice snooze in the warm sun of Dow 26,000. Others are enjoying the canapés… and gaily talking about how they whipped the Crash of 1987… the Dot-Com Bust of 2000… and the Global Financial Crisis of 2008.
Others are looking ahead… at how they will use this upbeat economy to “normalize” interest rates.
Another bear market coming?
“Bring it on!” they say.
Thus, with the confidence of the damned, do investors and their guardians in the financial Establishment await the next opportunity to “buy the dip.”
But here at the Diary, we are plagued by doubt, worry, and unrequited mischief.
Is it that easy?
What will the feds use for ammunition to fight the next downturn? What if investors aren’t as smart as they think they are?
In this, the Year of Our Lord 2018, practically everyone with money in stocks looks in the mirror and sees a genius. Practically every day of 2017 added IQ points.
As Jeff Clark at GoldSilver.com reports:
The Dow hit a record high 71 times last year. On average, a new high was hit more frequently than once a week.
For the first time ever in its almost 90-year history, the S&P 500 rose every month in 2017. And historically, there have only been four years with gains in 11 months of the year.
The S&P 500’s largest pullback in 2017 was 2.8%, the smallest since 1995.
To start 2018, the S&P 500 has risen in each of the five trading sessions, hitting a new record high every day. The last time the index opened the year with at least five straight record highs was 1964.
The CAPE ratio [which compares today’s stock prices with the past 10 years of inflation-adjusted earnings] has now matched its 1999 level, the second-highest reading in more than 100 years of data. The only higher reading for the CAPE ratio was in 1929.
“But what about when prices go down?” we ask the imaginary investor.
“Stop worrying. If prices turn down, I’ll sell,” comes the answer.
“To whom?” we wonder.
For the last 30 years, the answer to that question was the same: to the feds!
After each crisis, the feds and their central bank cronies came blasting into the market with armloads of cash. QE! TARP! Cash for Clunkers!
Interest rates almost vanished; asset prices rose.
And today, there are scarcely any interest rates left to cut.
And as for fiscal stimulus – more government deficit spending – that cannon was fired three weeks ago, when the tax bill passed.
Whether it will do good or harm, we don’t know. But what we do know is that the cannon is now out of service.
So when the next battle starts, the poor grunts out on the investment ground – with support neither from the Fed nor from Congress – could find it hard going.
The first attack is likely to be repulsed by buy-the-dippers. But the next charge is bound to get palms sweating and knees rattling. Investors will soon realize that they have no covering artillery fire. They will panic.
That is where the 30-year fantasy should end. Stocks should lose $10 trillion. Bonds should lose $20 trillion. Other defaults, failures, and markdowns should wipe out another $10 trillion or so.
Then, with debt, assets, and IQs deflated down to reasonable levels, the whole loopy idea of making people rich by adding phony “liquidity” can be discarded.
We can return to sound money and an honest economy, with prices discovered in free markets.
But that’s not going to happen. There’s no Reagan in the White House… and no Paul Volcker at the Fed.
And even if there were leaders of their caliber today, it is highly unlikely that they could hold their positions when this battle begins. Instead, they will be overrun, overruled, and outgunned by the Deep State.
President Trump will demand action. Spend more on infrastructure! Build a wall! More ships for the Navy! And bailouts for his pals on Wall Street.
Congress will promise a vast “shovel-ready” infrastructure program… another tax cut… and trillion-dollar-plus deficits.
And the Fed, bless its puny, black heart, will have no interest rates to cut… and no real money to use as ammunition.
But that won’t stop it. With flags waving… pipers piping… and drums beating… the relief column will appear.
“We’ll print the money!” the brave central bankers will say.
And once again, with the ersatz courage of a screw-loose patriot, the Fed will come to the rescue…
…and cause the biggest financial disaster in U.S. history.
More to come…
By Chris Lowe, Editor at Large, Bonner & Partners
It certainly has been a rip-roaring bull market…
Today’s chart looks at the performance of the S&P 500 going back 20 years.
As you can see, between its peak in October 2007 and its trough in March 2009, the S&P 500 plunged 57%.
But despite the panic selling of 2008 and early 2009, today, the index is 79% above its 2007 peak.
– Chris Lowe
Is the Trump Rally a Myth?
A common narrative today is that stocks are rallying after President Trump’s tax cuts. But could the so-called “Trump Rally” be nothing more than wishful thinking?
Chris Mayer: Do This One Thing in 2018
Regular readers know that Chris Mayer is one of Bill’s top analysts. As investors look ahead to the rest of the year, Chris reveals the one thing to do to thrive in 2018.
Will Political Correctness Kill America’s Competitive Edge?
In the technology sector, American and Chinese companies are in pitched competition. What could cause the U.S. to lose out to the Chinese? According to one Silicon Valley investor, it’s political correctness.
In the mailbag, readers consider if stocks could fall 80% from here…
I had a similar “revelation” a couple of months ago. I suspect we are on the same page. However, I merely point out that if you own stocks, and YOU get the benefit of the taxes, then those that don’t own stocks pay. I wrote a song about that. I called it, “I’d rather be a hammer than a nail.”
– Anthony M.
My research… your research… no one’s research is of any value today.
– Ron C.
As much as I support your bearish views on the financial markets, I’d like to point out a couple of things not mentioned so far. Perhaps if you thought about it, you could share your thoughts with us.
Has the money exiting the bond market been going into the stock market since late last year? We were always told that bond investors are smarter than stock investors, so I can’t see smart investors moving money into not-so-smart places. But things have not exactly been “normal” for a while. Anybody (smart or dumb) can be caught up in the “stock market never goes down again” hype.
Secondly, we were also told that sentiment works in the opposite direction because when everybody is bullish and has already bought, there are no buyers left to propel prices. But here lies the problem: Central bankers are neither bullish nor bearish. They don’t really care where the market is at; they are buying for the sake of buying. So in a way, there are still buyers left.
– Stephen L.
Then, another reader picks up the conversation on immigration…
What one of your readers, Carl Q., says about unskilled migrants going to America to get welfare is equally – if not more – true here in the UK! I agree entirely with his solution. But under our stupid, “politically correct” government here, and with a far-left opposition party, you know where will freeze over before that happens! Guess it’s the same for you.
– Joseph C.
Legendary speculator Doug Casey says we are just at the start of a massive bull market. And smart investors stand to make a fortune.
But it’s not a bull market for stocks, bonds, or even cryptocurrencies. It’s this.