I was chatting with a good friend who works at a pension fund. He said that pensions are historically overweighted in stocks right now. But it looks like the latest push higher in the stock market is coming from hedge funds, who apparently missed a large portion of the “Trump rally.” We determined that the best reason to invest in stocks for both pension and hedge funds is “to avoid looking like an idiot.”
That’s it – that’s the “fundamental” justification for investing in stocks right now is because everyone else is and if your portfolio on Dec 31 is underweighted in stocks you’ll look like an idiot.
That stocks are more overvalued now than at any time in history except maybe 1999 is unequivocally undebatable. However, if the GAAP accounting standards in force in 1999 were applied to current earnings, both the Dow and S&P 500 would be at record valuation levels. I discuss this in more detail in the latest Short Seller’s Journal.
So, chasing stocks higher to avoid looking like a moron makes a lot of sense, right? Currently I can’t find evidence that the Fed is printing money to fuel this stock market so I have to believe that it has relaxed credit standards to enable banks, hedge funds and mutual funds (yes, many mutual funds now have the ability to tap credit lines) to borrow money with which to chase stocks.
Debt/credit behaves just like printed money until the debt has be repaid. So creating credit is de facto printing. But, what happens when debt defaults begin to pick up? This is beginning to happen now in mortgage, auto and credit card debt. Again, I provide proof of concept in the Short Seller’s Journal.
This is perhaps the most dangerous market – both stocks and bonds – in history. It’s the largest money bubble in history that has been blown by the Fed, in conjunction with the ECB, BoE, BoJ and PBoC. Silver Doctors/News Doctors invited me on to its Metals & Markets weekly podcast to discuss why 2017 could witness an historic market collapse: