Not Done Rising
“We are starting 2013 long stocks in Paul’s Virtual Value Portfolio with no covered call writing hedges for one reason – the Federal Reserve’s and other central banks’ plans to continue printing money into existence while debasing their currencies. This does not solve any problems such as too much wasteful spending, a perverse tax code, and a rushed-through fiscal deal that does not reduce the growing debt burden.” (Comfortably Bullish)
But stocks are one vehicle to help protect wealth during a time of money printing, zero rates, and devaluation of currency.
Ambrose Evans-Pritchard had argued that the world’s central banks are racing to drive down their currencies, and that will increase asset prices. He warned, “Bears beware. A monetary revolution is underway:”
The side-effects of this currency warfare — or ‘beggar-thy-neighbour’ policy as it was known in the 1930s — is an escalating leakage of monetary stimulus into the global system.
So don’t fight the Fed, and never fight the world’s central banks on multiple fronts…
The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 — mindful though I am of flagging volume and a wicked 12-year triple top… (Stocks to soar as world money catches fire, Calvinst Europe left behind – Telegraph)
In Lights, Camera, Rally?, Paul Price opined,
With the backdrop of very low interest rates, the overall ‘should-be’ P/E of the stock market increases because the alternative ‘safe’ investments are paying such low yields. Stocks become more desirable. This dynamic makes higher risk assets, such stocks, look even more attractive. And that’s exactly what the Federal Reserve wants.
The Fed is artificially holding interest rates down with its successive quantitative easing programs (QE1, QE2, QE3, QEternity….) and its Zero Interest Rate Policy (ZIRP). Part of Ben Bernanke’s plan (or plot, some might say) is to compel investors to buy “risk-on” assets, such as equities and commodities – while interest rates are hovering near zero and the dollar is continually losing value.”
The Fed’s Zero Interest Rate Policy should support higher multiples going forward. It may be cliche to say ‘Don’t fight the Fed.’ But essentially, we are not going to fight the Fed.
Our Conclusion: the Fed’s Zero Interest Rate Policy should support higher multiples going forward.
This week, in “Dow 20,000 Only a Matter of Time,” Econmatters suggested that we should be invested due to the growing money supply and currency in circulation, and the printing press phenomenon. Money is being created to chase assets, and that will inflate prices. Accordingly, the Dow will blow past 15,000, 16,000, 17,000 and so on based upon the currency creation effects alone. The fact is that markets are liquid, capital will flow in and out, and there will be occasional major pullbacks. “Those who fail to time the market will suffer losses at times. Make no mistake, though, Dow 20,000 is a foregone conclusion...
“Watch how the market performs once we break through the 14,200 level, and start putting in new highs in the other indexes. The pace can really take off once markets are in unchartered territory, and we can start taking 1000 point monthly clips that will leave you speechless… We are on the verge of taking that next leg up in the Dow, in fact, we should set a new high pretty soon; enjoy the ride as this breakout has been a long time coming.” (Dow 20,000 Only a Matter of Time)
In Cis Bam! Fed Drives Massive Liquidity Surge, Treasury Says Thank You Ma’am, Lee Adler, discussing his Composite Liquidity Indicator, wrote, "The composite liquidity indicator surged upward last week, driven by the huge Fed settlement of its monthly forward MBS (mortgage backed security) purchases. [That is, money is flowing from the Fed to the Primary Dealers, in exchange for the MBS the Primary Dealers are selling to the Fed.] This always takes place in the 8 day period surrounding mid month.
"Most components [of the composite liquidity indicator] had sympathetic upmoves on a smaller scale. The factors that slowed the rise in the indicator over the prior 3 weeks have receded as expected. The trend to the upside should continue at a breakneck pace as each new round of Fed cash hits the market and flows into the banking system."
Glimpse into the Future: Bloomberg Reports Biggest Story of All Backwards As Fed Blows Dangerous Deposit Bubble:
"QE will continue to drive stock prices higher until it ends. By stopping it, the Fed will deprive the dealers and their hedge fund clients of the fuel needed to keep stock prices up. We will likely come to the brink again, have a market crash correcting some excesses, wash, rinse and repeat. If we do not take corrective action against those in power perpetrating massive financial frauds and making policy to benefit the powerful, we will slowly descend toward the dissolution of civil society."
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