The bulls have been in complete control of this market since December. I can go on and on about why this market will move lower, but the truth is, the market will go down when it is ready to go down. Does that mean I think this market will just continue higher? No, not at all!! Have I been early with when I thought the market would roll over? Absolutely! If I was to think this would be the last time I will be wrong with the markets, that would just be foolish. It is not the first time and it will not be the last time.
But maybe the bulls who believe the Fed will never let this market down, are being just as foolish. I have read over and over that NOW is the best time to buy stocks when comparing them to bonds. In a normal free market, I would NOT have a leg to stand on arguing against that thinking. Normally, when bonds are at these levels, money will leave them for riskier assets like the stock market, which would normally move the stock market higher.
But there is a problem with this thinking. Bonds are at these levels, because the Fed has to KEEP them at these levels. If money starts leaving bonds to jump into the stock market, interest rates will sky rocket. There is a somewhere in the range of a 300 trillion dollar derivative trade that is held by our 5 largest banks. which are tied to interest rates staying low. So how can the money leave the bond market and fly into the stock market, without blowing up out 5 major banks? Another issue with the belief that money is going to come from the bond market and into the stock market, is the people who are invested in bonds and their age. Any financial adviser knows the ratio for bonds to stocks, which depends on age.
Many people who are invested in bonds are entering or already in their retirement years. To leave bonds and jump into risk assets, is usually not on their minds. Return of investor is sometimes more important than return on investment. So for every talk head that comes out and says stocks are cheap compared to bonds, I say "be careful what they wish for" as Ben has a much more important purpose here-and it is NOT the stock market!! It is to keep interest rates at low levels-NO MATTER what it takes. If he fails, there is a very good chance we will see our banking system as well as the world's banking system blow up in smoke.
Some believe qe3 is going to be the next thing to lift the stock market even higher. We saw the stock market jump some 1% last week when he mentioned he had the qe3 bazooka in his pocket. Would our Fed chairman dare to launch qe3 with commodity prices where they are? If he did, we would see oil shoot up to 150-200 and gas most likely spike to $6 a gallon. My guess, he would see inflation coming around the corner so fast, he would pull the plug before he even was able to launch any type of qe3.
So no, I do not believe that is even close to being in the same room as the table some think it is on right now. We are now in a situation where the talk of more quantitative easing has lifted the indexes back to levels right at the previous bubbles.
But maybe the bulls who believe the Fed will never let this market down, are being just as foolish. I have read over and over that NOW is the best time to buy stocks when comparing them to bonds. In a normal free market, I would NOT have a leg to stand on arguing against that thinking. Normally, when bonds are at these levels, money will leave them for riskier assets like the stock market, which would normally move the stock market higher.
But there is a problem with this thinking. Bonds are at these levels, because the Fed has to KEEP them at these levels. If money starts leaving bonds to jump into the stock market, interest rates will sky rocket. There is a somewhere in the range of a 300 trillion dollar derivative trade that is held by our 5 largest banks. which are tied to interest rates staying low. So how can the money leave the bond market and fly into the stock market, without blowing up out 5 major banks? Another issue with the belief that money is going to come from the bond market and into the stock market, is the people who are invested in bonds and their age. Any financial adviser knows the ratio for bonds to stocks, which depends on age.
Many people who are invested in bonds are entering or already in their retirement years. To leave bonds and jump into risk assets, is usually not on their minds. Return of investor is sometimes more important than return on investment. So for every talk head that comes out and says stocks are cheap compared to bonds, I say "be careful what they wish for" as Ben has a much more important purpose here-and it is NOT the stock market!! It is to keep interest rates at low levels-NO MATTER what it takes. If he fails, there is a very good chance we will see our banking system as well as the world's banking system blow up in smoke.
Some believe qe3 is going to be the next thing to lift the stock market even higher. We saw the stock market jump some 1% last week when he mentioned he had the qe3 bazooka in his pocket. Would our Fed chairman dare to launch qe3 with commodity prices where they are? If he did, we would see oil shoot up to 150-200 and gas most likely spike to $6 a gallon. My guess, he would see inflation coming around the corner so fast, he would pull the plug before he even was able to launch any type of qe3.
So no, I do not believe that is even close to being in the same room as the table some think it is on right now. We are now in a situation where the talk of more quantitative easing has lifted the indexes back to levels right at the previous bubbles.
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