Historic Market Blow-Up Is Brewing

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:

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9 thoughts on “Historic Market Blow-Up Is Brewing

  1. let’s not forget that with reported economic growth at miniscule levels (and perhaps overstated but then Corporate sales are only slightly down),

    the “pay up for growth” rule I learned years ago is just “shut up and pay up”.
    GARP-growth at a reasonable price has been thrown aside for now.

    However, if it’s your own money you are investing and tied to buying an entire company, its hard to pay up for no growth. As folks selling small mom and pop businesses what the PE is for a growing solid business. Its not normally double digit.

    A trade? it helps to get inside info on a grand scale and be HFT that can trade a nano second early. Getting plain old inside info is no long a big deal.

  2. Dave, Be careful here, you might be a little bit too far out front
    on this particular market call. You see my associates and I are long
    of equities and stock index futures. We use sophisticated market timing
    tools along with complex computer programs. These tools assure that we
    are on the right side of the market. You can watch me every morning on
    CNBC as I impart upon the masses my market wisdom and savvy.

    All the best, Dennis

  3. Crash yes timeframe who knows? Not possible to know how long they can keep it going because they create money to do what they want.

  4. Have we invented a perpetual machine, creating energy out of NOTHING?

    Have we defeated the laws of thermodynamics?

    Have we defeated the basic laws of physics, I mean @ the most basic level of Newtonian physics?

  5. Predicting is meaningless in a world of manipulation. Dave, the reason you can’t find evidence the Fed is propping up this market is because they are not telling you. They don’t have to disclose anything. Who do you think is propping up this bond market, now that foreign central banks are dumping $350 billion a month? I enjoy your blog.

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