Is this a market bubble?
When stocks go vertical as investors ignore technical, fundamental and economic evidence trouble is brewing.
The central bank-fueled market fantasy continues as stocks keep ignoring all the technical, fundamental, and economic catalysts saying caution is warranted. Even long-dated VIX contracts remain buoyant as the volatility term structure steepens -- a harbinger of downtrends. Sentiment has reached a bullish extreme, with newsletter writers recommending their largest net long positioning in the Nasdaq since July 2000.
That's right folks: We're looking at dot-com bubble levels of market idiocy.
Then, it was the belief that slapping ".com" on any mediocre business idea was a license to mint money. Now, the belief that that central bank interventions will solve all the structural ills that still plague us: Excess indebtedness, structural budget deficits, stagnant wages, dilapidated infrastructure, and an employment-to-population ratio mired at early 1980s levels.
Not just here, but around the world.
That the European Central Bank's commitment to "do whatever it takes" via unlimited bond purchases will solve the loss of competitiveness of economies like Greece, an imploding real estate market in Spain, and youth unemployment in Portugal amid signs Germany -- the center of strength in the Eurozone -- is falling into a recession.
Or that the Bank of Japan's announcement Tuesday of a 2% inflation target will end its multi-decade debt-deflation malaise caused by zombie banks, massive government indebtedness, an insular culture, and a rapidly greying workforce.
Or that yesterday's comments from the Bank of England -- that it could embark on its own competitive devaluation as it warns of a currency war -- will erase huge household debt loads and signs the country is falling, yet again, into recession.
This is fiat currency manipulation and maltreatment on a scale the world has never seen. It's a sign that global policymakers are acting in desperation.
They are scared that the normal business cycle is trying to run its course, pushing the economy down into a natural pullback after a multi-year expansion. But, since the required improvements haven't happened, the housing market hasn't fully recovered, consumer balance sheets haven't healed, government deficits haven't closed, they cannot allow it to happen.
So they are trying, as we enter the sixth year of 0% interest rates, to use more cheap money to stave of recession by juicing the stock market. Fed chairman Ben Bernanke has repeatedly pointed to the Russell 2000 small cap index as a measure of his success.
They are not succeeding in helping the real economy. Many rich-world economies are already in technical recessions. And here at home, the Citigroup Economic Surprise Index has crashed through the zero line as the economic data continues to disappoint as the stock market disconnects from reality. Such as the big miss in yesterday's Richmond Fed manufacturing report.
With more taxation and spending cuts coming out of Washington very soon, spiked with the drama of a possible government shutdown, a loss of consumer confidence, and the 1.5% GDP hit from the fiscal cliff deal, the United States could see an outright economic contraction this year.
Clearly, the stock market and bullish investors aren't considering this line of thinking at all.
They just see cheap money being pumped into a system already drowning in liquidity. And they see that as rerating equities higher despite a stalling of earnings and revenue growth; ignoring the problems this monetary stimulus is causing, from a massive accumulation of excess reserves at the Fed to a decline in net interest margins at financial institutions to signs of excessive risk taking by the likes of JPMorgan (JPM).
Eventually, with crude oil marching towards the $100 a barrel level, inflation concerns will also enter.
Which is why I've moved into precious metals and the related mining stocks -- an area of the market that's been forgotten over the last few months and is poised for a turnaround. Today, I'm adding Golden Star Resources (GSS) and Silver Wheaton (SLW) to my Edge Letter Sample Portfolio.
Disclosure: Anthony has recommended GSS and SLW to his clients.
Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
I usually keep my nose out of here, but I seem to remember a conversation on the Titanic.
Passenger, "Is it true we're sinking?"
Steward, "No Sir. This ship can't possibly sink."
Passenger, "Can you tell me what that gurgling noise is then?"
10,000 Baby Boomers retiring every day........... Get the premium from your mutual funds while the banks still have enough QE money to keep it inflated....... JMHO
After all this is about where the market should have been if the banks and politicians where not crooks.
Hi Anthony; One thing for sure this is a party and a half. I am still short MSFT, COST, CMCSA and have been for almost a month and they are still very close to where I shorted them then. The consumer still hasn't scoured out the spending and lifestyle habits of the last 40 years or so. Lifelong habits are difficult to break. And as I was saying on Cramers blog the Arbitrage of the Asian economies are still at work lowering Americans wages and Lifestyles as we sleep. Fake everything in America now. From an administration denying everything about the dangers from massive money printing to the liberal medias role in acting out gun violence. Am I old and cynical like I was warned I would be 25 years ago? I remember my boss telling me some 25 years ago. "When you get old you have seen things so many times the truth can't help but sneak through", and that is what being cynical really means. JMHO
With no fundamental change over the last 2 months (e.g. the fiscal cliff hanging over our heads), Anthony has reversed fields long to short, short to long, equities to precious metals and back again) several times.
I think his technical analysis hasn't worked in a while. That is why the "market is broken".
The idea isn't to argue with the market, it is to make recommendations that will do well in the market in the near future. If it is irrational, then your tools better keep up with the market.
Of course, eventually, it will go down. And precious metals will rise again. But maybe not for 6 months. In 6 months he will reverse course 6 more times...just watch
Great article again Anthony !!!
Don't worry about all the haters of your recent doom trend in writing. You are right.
You are in good company with Robert Shiller, Peter Schiff, etc.
I've been noticing all my bills going up and listening to others complain about the same. Bills going up, income coming down.
The mucky muck window dwellers are just raising prices to cover their loss. They aren't taking a pay cut, no way. They will just lay it on the backs of the middle class so that they can continue living their same self indulging mucky muck life style while everyone else pays for it. The Wall Street Main Street reality gap will snap.....And when it does, it ain't going to be pretty.
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