Phoenix Capital Research's blog
This confluence of indicators tells us point blank that stocks are in a bubble. If I know this, I can assure you that Ben Bernanke and the Fed know it. And this is why the Fed is in deep trouble. I guarantee you Bernanke is hoping he can get to the exit as Fed Chairman before the stuff hits the fan.
Investors take note, the market has numeous red flags for stocks. If you're not prepared for a correction, now is the time to do so.
Definitely a sector to watch. Given the record number of Gold shorts outstanding, it the precious metal begins to pick up again, the rally could be absolutely explosive.
A false breakout occurs when the market breaks out of a technical formation in one direction then fails to follow through on the move. Looking at the rising wedge pattern in the S&P 500 this appears to be happening now.
Based on over 100 years’ worth of data, anyone who is looking to invest for the long term by buying the market today can expect, at best, a 4% real return per year over the next 20 years (this includes both dividends and capital appreciation after inflation).
Against this economic slowdown, stocks are priced quite richly. There is a word for when markets are totally disconnected from reality: it’s a bubble.
So the Fed is essentially handcuffed at this point. Increasing QE in any way risks a Japan-bond market style rout.
As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%... despite the Bank of Japan funneling $19 billion into it to hold things together.
If this plan fails to bring about economic growth in Japan, or worse still fails to bring about growth and unleashes inflation, then it’s GAME OVER for Central Bankers. Their one great claim “we’re not doing enough QE” will have been proven to be total bunk.
If Japan’s bond market implodes, then global Central Bank efforts to hold the system together will have proven a failure.
So much for the “recovery” theory. If you look at the real economy, things are getting worse and worse. When even Wal-Mart reports that people are spending less (remember that corporate email that February sales were a “disaster”?) you KNOW things are bad.
Bill Gross, who manages the world’s largest bond fund, has indicated that the 30+ year old super cycle bull market in bonds has ended. This is very bad news for the markets.
Investors, take note… stocks are always the last to “get it.” This bubble will end as all bubbles do: in disaster.
The market is beyond overstretched. We have not had a 5% correction in six months. Stocks have gone almost straight up for 89 days (we haven’t had a 3+day correction in that long). This is an all time record. The last time stocks rallied without a 3+ day correction was in the buildup to the Crash of 1987.
The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.