Bubble-Blowing Bull Market Redux
Bubbles. I’ve been saying since 2010 that we’re in a Bubble-Blowing Bull Market, meaning that we weren’t quite in a bubble yet, but that the Bull Market was likely to get us there.
Top 5 causes of all these bubbles
1. 0% interest rates. After the great Y2K stock market bubble popped in 2001-2005 or so, analysts used to filet former Federal Reserve Chairman, Alan Greenspan, for having caused that bubble with his dovish approach to interest rates. He kept rates artificially under historically normal levels, eventually taking them all the way to an unprecedented 1% level as the calendar flipped to the new millennium. For the last five years, every developed nation on the planet has been keeping rates near 1% or even lower. And with interest rates simply being the reflection of the cost of borrowing money for huge corporations, and with the cost of borrowing money for huge corporations being artificially manipulated below their fair value, there’s been trillions of dollars borrowed to finance share buybacks, dividends, and other financial engineering mechanisms.
2. QE. From wikipedia: “A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the monetary base.” Think about what QE truly means then for a moment. QE sends a set amount of money to giant Too Big To Fail banks each month in exchange for some sort of “financial asset” that might or might not be worth whatever the taxpayer is paying for it. Can you imagine running a business knowing that each and every month you will be able to unload your worst inventory for above market prices?
3. Stimulus. Back in 2008, Bush and the Republican side of the Republican Democrat Regime, created an economic stimulus package that included sending a check of a couple hundred bucks each to people not in the top 5% of income earners. In 2009, the Republicans went back to pretending that they are anti-stimulus as Obama and Democrat side of the Republican Democrat Regime created an economic stimulus package of their own. 99% of the stimulus bills that are passed are simply tools for giant corporations to profiteer on taxpayer largesse.
4. Tax policies. We have a 100,000 page tax code full of obsequious and convoluted laws that are not uniformly applied. Every new subsidy, tax break, and/or law that’s proposed and passed in any of the state’s or nation’s capitals around the developed world is done so because some corporation will directly benefit with larger profits. I recently had a Democrat state lobbyist in NM tell me that “unless the potential client has tens of millions of dollars at their disposal,” he wouldn’t be interested in lobbying for them. He considers himself liberal, by the way. Nobody’s lobbying for the benefit of public good these days, so don’t ever believe their hype.
5. New laws. With each new giant governmental spending program that has come out in the last five years, including the aforementioned bond manipulation programs, the Dodd Frank banking system, and Obamacare, we’re spending more taxpayer money that could have and would have gone into something more efficient and productive for our economy and society. These laws were written by corporate attorneys, accountants and lobbyists and they are licenses to steal taxpayer money. If we really wanted to provide universal health care to our nation’s people, we’d pay the health care providers directly. Why does a health insurance company exist at all if the government’s the one writing the check anyway? To profiteer on taxpayer largesse, that’s why.
These manipulations don’t happen in a vacuum of course. Every dollar that is lent out at below the natural rate is another dollar that won’t go to where the market place would have found reasonable risk/return. That’s why these artificial manipulations creating all this long-term malinvestment is so destructive to our economy and society over the long-term. And more to the vacuum point for the the near- and mid-term time frame, we are in a global currency / corporate economic world war. Every government around the world in every developed nation from China to the US to EU to Brazil to Russia are actively mimicking the US artificial manipulation policies and programs.
And this escalating global economic world war is perhaps the sixth bullet point to our list. Most citizens of the world are being even more oppressed by even more damaging policies which continues to lead them to try to put their money in US-based securities and assets. And that is good for our own stock market and economy for the near-term. But when I’ve positioned us for as well as when I’ve talked about the ongoing bubble-blowing bull market we’re going through right now, these factors are a large part of my analysis. The flipside of the bubble blowing bull market good times will be something ugly. But we are not to the flipside yet. These policies are still going strong and will probably continue for at least the next couple years.
We are in the lucky minority who were very early in getting in front of this ongoing stock market bubble. One of the curiouser things about traders and investors is that we easily forget who was saying what when. The guys who attack me presently for preaching the concept of taking profits and preparing for the next crash while the markets are at new all-time highs are often the same guys who used to attack me for positioning for the bubble that’s now here. Do you remember these reports from me?
Thinking it through — the case for a bull market Sept. 1, 2009 | By Cody Willard
A couple ideas on how to trade the Money Supply Bubble Nov. 5, 2009 | By Cody Willard
This ain’t Cisco in 2000 and Apple and Google are not in a bubble Oct. 28, 2010 | By Cody Willard
Get ready for the new tech bubble, the biggest bubble of all time April 7, 2011 | By Cody Willard
The great inflating bubble June 14, 2011 | By Cody Willard
I make a lot of mistakes and I try my best to be objective about my calls, but there’s little question that that our analysis that the Fed and global economic policies were going to inflate a huge stock market bubble, one that is, as you’ll see in the charts below, now here. And while I do think there’s still upside to come in the stock market bubble, I don’t encourage leaving on the table all our chips and hard-earned gains from over the last few years since I returned to trading.
There will be a time and place with better buying opportunities than loading up on these bubblicious stocks at this point in the cycle. That doesn’t mean I’m jumping ship entirely (yet?) but let’s remember headlines like these from just a couple years ago.
World Stocks Fall on Cisco Guidance, Ireland Worries – 123Jump.com – Nov 11, 2010
Sensex falls 296 points as tech stocks get further pounding – Indian Express – Apr 19, 2011
Growth concerns hit stock markets hard – BusinessWeek – Jun 10, 2011
US economic concerns dog world markets – San Diego Union Tribune – Jul 16, 2010
Ride the good times. Prepare for the bad.
