The central bank already missed the “window of opportunity” for normalizing rates in a manner that doesn’t hamper the recovery. While the big news for the market was the release of the April 27th FOMC minutes which once again suggested the Federal Reserve may be on a path to hike rates sooner rather than later. The reality is simple, with the markets hovering on critical support, a Presidential election just around the corner and no real evidence of economic recovery, the likelihood of a rate hike in June is approaching zero.
“If you have large cap, mid-cap, or small-cap, and the market declines, you are going to have less cap.”
"If we have borrowed more from our future than any time in history and markets value the future, we should be selling at a discount, not a premium to historic valuations... Overconfidence and over valuation always extract a terrible payback."
“Bull markets bail you out of your mistakes. Bear markets make you pay for them.”
“The market does what it should do, just not always when.” – Jesse Livermore
The “bullish case” is currently built primarily on “hope.” Hope the economy will improve in the second half of the year; Hope that earnings will improve in the second half of the year; Hope that oil prices will trade higher even as supply remains elevated; Hope the Fed will not raise interest rates this year; Hope that global Central Banks will “keep on keepin’ on.” Hope that the US Dollar doesn’t rise; Hope that interest rates remain low; Hope that high-yield credit markets remain stable.
Although money supply growth remains historically strong and investors are desperately chasing returns in today’s ZIRP world and are therefore evidently prepared to take much greater risks than they otherwise would, an extremely overvalued market is always highly vulnerable to a change in perceptions. In a sense the rebound may actually turn out to be self-defeating, as it will increase the Fed’s willingness resume tightening policy.
The middle class in America forgot all about the importance of savings and frugality and instead bought into the lie that one’s future would be “taken care of” if only it threw its money into the stock market.
So what do you do? Play the short-term chase the market game or the longer-term wealth devastation game. The choice is yours to make, the consequences will be for all to share. “I will tell you my secret: I never buy at the bottom and I always sell too soon.” – Baron Nathan Rothschild
Even if "this time is different," we don’t expect it will be different enough to sustain valuations at current obscene levels in the absence of favorable market internals. Refrain from placing too much faith in the "fast, furious, prone-to-failure" advances that occasionally clear oversold conditions.
“The typical investor has usually gathered a good deal of half-truths, misconceptions, and just plain bunk about successful investing.” With the month of April winding up the seasonally strong time of the year, earnings season just ahead and economic growth weak, the risks to the downside far outweigh “hope” of higher prices. Or, is “bad news” still the bear market deterrent?
QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.
With April wrapping up the seasonally strong period of the year, the seasonal adjustment boost to economic data coming to an end, and earnings growth remaining elusive – the summer months could prove to be problematic.
It’s sad that “we the people” continue to allow deranged captured academics, under the complete command of the banking cabal, to control the destiny of our country. They have failed for 103 years, but we continue to bow down to these central bankers as if they knew what they were doing. They do know how to debase the currency, obfuscate true inflation, prop up financial markets through monetary manipulation, and generate prodigious amounts of propaganda and misinformation to coverup their true purposes. The people will sit idly by until these deranged rats destroy the world.
"The Fed has a history of tricking it self into believing the economy is stronger than it really is - something that has happened a lot during this recovery. And there is reason to believe it is doing so again. If that’s the case, the Fed could be living in denial about its ability to raise interest rates... ‘The road we’re on is coming to an end,'”