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Has the Fed Created a Stock Market Bubble?

There you have it; the World Economic Forum is meeting in Davos and all the billionaire investors and hedge fund managers are talking about is the fact that the Federal Reserve is behind the MARKET’S PARABOLIC surge.

The commentary coming out of there is textbook Wealth Research Group material. I want to show you today why the real question you must be asking yourself is whether you’re a LONG-TERM investor, viewing the world like Warren Buffett does, or if you’re a trader, viewing it like billionaire investor Paul Tudor Jones.

The reason I say this is because if you’re an investor, your options are truly limited, few and far between and offer little in the way of extraordinary compounding opportunities, at the moment.

Buffett isn’t sitting on $128B in cash because he has liquidated his portfolio; a long-term investor will NEVER sell equities or ownership stakes in great businesses, bought at good prices, simply because markets are due for a big shakeout.

The way he accumulated this cash position was simply by shying away from making new allocations, whenever profits came in and piled on. I’ve done something similar and now I’ve stuffed the equivalent of 40% of my stock portfolio into the brokerage account as cash.

For every $3 that is invested, $2 is on the sidelines, as liquid cash.

The difference between Berkshire Hathaway’s famed mega-billionaire investor and myself is that I’m also diversifying out of long-term dividend plays and into precious metals, private lending, small-cap stocks and real estate.

The reason is that NO ONE has any idea for how long the Federal Reserve and the other top central banks will continue to POUR trillions of dollars in liquidity into markets.

Courtesy: Zerohedge.com

As you can see, the smart money’s holdings represent a HUGE paradox. On the one hand, they are certain the markets are in a bubble, GROSSLY overpriced, compared with fundamentals. On the other hand, as David Tepper, the billionaire hedge fund mogul and owner of the Carolina Panthers says: “I like riding horses, when they’re running.”

The lesson is clear: IF there’s a bubble – BUT there’s also enough time to jump off the train and not take part of the collision – then 2020 is a time to make SENSATIONAL returns.

In the chart above, you can see that highly experienced investors are betting that the FED will not let the economy contract, if they can help it. They will intervene in the Repurchase Operations (Repo), pump liquidity via QE4 and let inflation run hot, if the consumer gets stronger.

Officially and unequivocally, we are investing in a U.S. stock market that is overly bullish, where investors are buying stocks out of a lack of alternatives, where profits signal that corporations can’t extract more earnings (for the time being), and where leverage is already at a record.

The billionaires’ bet is that there is still a 30%-40% return to be made before the peak is reached. Therefore, you need to be asking yourself if you are IN OR OUT and how much you will be risking.

Take a look at this beautiful chart:

Courtesy: Zerohedge.com

The uptrend is CERTAINLY in place!

As you can see, in 2011, the last mania for gold, the price was 2.3 times above the trend-line support. To replicate that, the price will have to reach $2,750/ounce.

There’s so much more TORQUE to this move and the Davos billionaires are UNUSUALLY bullish. Ray Dalio’s firm leads the bull camp, with Paul Tudor Jones, Guggenheim Fund LONG silver, David Einhorn and Stanley Druckenmiller, among the gold crowd.

The CHIEF reason that they’re now forecasting a breakout into the $1,800’s and above is that they BELIEVE central banks have been cornered into never tightening again.

After the 2013 tantrum and the December 2018 one-month bear market, the verdict is out: Jerome Powell has WEASELED OUT of his promise to normalize rates, and from here on, all the FED can really do is hope the markets don’t become bent out of shape again, forcing more drastic measures.

The FED is like a chef, who’s already poured too much SALT into the soup. Instead of admitting the error, throwing it away and starting anew, he continues experimenting with the recipe, assuring a RECALL.

Courtesy: Zerohedge.com

I have so much more to publish this coming Tuesday on the matter, so I want to present two more important charts that prove that stocks are now, same as other assets, a way to be allocated into anything that isn’t cash.

For one, look at the crashing confidence levels of consumers regarding the economy and the jobs market; this is not LOOKING GOOD.

In an economy that is 69%-based on services and consumerism, this is unacceptable.

But it’s not only that; the DISPARITY between valuations and what corporations are worth is HUGE.

Truly, central banks have distorted pricing mechanisms and everyone is in the BLAST RADIUS.

 

 

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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1 thought on “Has the Fed Created a Stock Market Bubble?

  1. 0bfd66d529a55807
  2. Jimmy MacAfee - January 28, 2020

    Henry Ford, despite his fault, did two things: he paid his workers a wage that brought then up to the level where they could buy their own products, and he gave employees stocks. He also gave his employees a 5 day workweek. Whatever the faults the man had, he helped build the Middle Class. Billionaires at the time did that sort of thing.

    Now people aren’t buying stocks, as my Dad once did; they sometimes have retirement, in accounts managed by others, but personal wealth is not often translated into stocks in Middle America. Where was the transition?

    When Vulture Capitalists like Paul Singer and Mitt Romney bought peoples’ lives for a penny, then sold them for a dime. Romney is an evil squish, and Singer is an evil “Libertarian.” Both call themselves Republican, but neither fit in today’s Republican Party. It was always perplexing when the little people – such as myself – would support low taxation, basically carrying Singer’s water, even though it was against our own interests.

    We are no longer conditioned to purchase stocks, and the author is part of the divestment movement. What benefit is this? Crash the markets, steal from the IRAs, and then buy cheap. That’s the message I’m hearing. Meanwhile, the government is artificially buoying the markets – the author is right in this – but the fundamentals are getting better in some ways: there are more jobs and more wealth is being created. Not just “bubble wealth.”

    But let’s say Trump is removed from office by Mittens and his collaborators (Wimsy Graham, now suddenly eager for “witnesses,” meaning John Bolton.) Let’s say we have a choice between a Singer-supported dope, a Mini Romney or some other Deep State stooge: where will we go?

    Bernie. Sorry. But I want to see Henry Ford’s vision come back to life, and it is completely at odds with Paul Singer’s. And Mitt Romney’s. It’s not just about investments: it’s about enslavement. And Singer is a slave-trader, making his money by ruining lives. Same with most of the billionaire class. And the Democrapic Party.

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