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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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GUEST PIECE: Lior Gantz Sees Dollar Bear Market In 2020

Guest Piece by Lior Gantz of WealthResearchGroup.com:

The price of gold has hit an all-time high in Euros and a 40-yr high in Japanese Yen. Gold started climbing in December 2015 (four years and one month ago) and is now up 55%, since then. During this time, (1) the FED was tightening, (2) inflation was low, (3) the stock market SOARED, (4) the dollar was hitting ALL-TIME highs and other commodities didn’t participate in a rally.

In other words, gold’s price gains a few days ago from $1,053 to $1,610 is extremely weird, to put it mildly. In the 1970s, when gold quadrupled by a factor of 24, from $35 to $850, inflation was soaring. In the 2000s, when it rose from $250 to $1,915, interest rates were slashed, China boomed, oil went from $10/barrel to over $150 and the U.S. markets traded sideways for 8 years.

This current bull market is unique. Many seasoned billionaires are indicating that this current environment is totally confusing to them. Ray Dalio, for example, the pioneer of Risk Parity, suffered his 1st full-year loss in 19 years. In 28 years, Dalio has only lost money for investors in four calendar years. What’s even odder is that the S&P 500 has just closed on its best year since 2013.

As individual investors, we are freed from the nuisance of performing on a quarterly basis or an annual basis. We look at markets in increments of 5-10 years and allow investments to mature. Ideally, our active income generated from our main career compounds fast, so that we can add new funds to our portfolios every single month.

I stick with these 16 Life-Principles to experience a BLOWOUT year!

Courtesy: Zerohedge.com

As you can see above, through organic trends, such as demographics and productivity, as well as through the successful economic measures of the Trump administration, the U.S. economy has reached an exceptional point. Historically, this happens before recessions and before market peaks and wage growth is higher than unemployment rates.

As you can see, this is predictive of yield curve steepening, which is the most reliable recessionary indicator that economists use.

The Dow Jones eclipsed 29,000 points this past week for the 1st time ever. About 55% of Americans, or 181 million citizens, have ZERO exposure to stocks. To them, this means that others are getting wealthier, but the way for them to own equities is getting more distanced. At $27/hour – the average worker compensation across all industries – you’d have to work over 1,000 hours to own one point of the Dow Jones Industrial Average.

Nearly half of the workforce earns roughly $30K/annum, so you can see how most families find it IMPOSSIBLE to create the secondary wealth engine called passive income stream.

2020 started good for stocks. When the initial trading week begins this way, the S&P 500 finishes up on 82 out of every 100 years. On top of that, the average return is over 13%.

Like I said, this looks to be another year of generous market returns, BUT with a dollar bear market attached to it!

Courtesy: Zerohedge.com

In a few days, China and the U.S. will officially sign the Phase 1 deal. To my knowledge, we were the FIRST to draw the correlation between the dollar bear market and the trade deal.

As we see it, The European Central Bank and the Bank of Japan will EASE far less than the FED will in 2020, so the dollar will continue to head down. In fact, on a technical analysis basis, its 50-DMA just did a Death Cross.

This, of course, is good for commodities and the valuation of mining stocks.

Lastly, I want to make sure you understand that while more price gains are highly likely to come this year, the stock market is TRULY expensive:

Courtesy: Zerohedge.com

As you can see, when this ratio reaches a PEAK, both in 1971, 2000 and today (most likely), gold prices go UP, UP AND AWAY.

Gold has been one of the best investments of the past 19 years, up more than 600%.

After its best year since 2010, this could be a PIVOTAL time for it to gain double digits, which will result in $1,700/ounce at some point during 2020.

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