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Guest Post: Dow 40,000, SPX 4,000: Is This Fed-Fueled Stock Rally Sustainable?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Since stocks rise when the Fed is adding assets and tank when the Fed pauses...
<span font-family:="" verdana,="" sans-serif;"="">Now that financial pundits are claiming the current stock market rally is good to go until 2016, it's appropriate to see where the market will be in 2016 if current trends hold.
Let's start with the well-known correlation between the Federal Reserve's balance sheet and the stock market: stocks rise when the Fed is adding assets and tank when the Fed pauses. (Chart courtesy of STA Wealth Management)
Courtesy of Market Daily Briefing, let's look a little closer at the Fed's ballooning holdings of home mortgages (MBS) and Treasury bonds, and extend those trends into the future:
By mid-2016, the Fed will have nearly doubled its Treasury bonds from $2.16 trillion to over $3.5 trillion, and its mortgage holdings will double from $1.44 trillion to $3 trillion. This would represent about a third of total mortgages outstanding.
Here is the Fed's aggregated balance sheet, with the start of each quantitative easing (QE) program indicated:
Grab a ruler and pencil and extend this trendline--you reach about the same target of Fed assets $6.5 - $7 trillion by 2016:
If the S&P 500 (SPX) continues higher in lockstep with the Fed's expanding balance sheet:
Is that SPX 4,000 in 2016, or is it SPX 5,000? The upward trendline is so steep it's hard to project.
Is this uptrend sustainable? You're kidding, right? Don't fight the Fed, Baby--it's Dow 40,000 or 50,000/SPX 4,000 or 5,000 by 2016, guaranteed.
Please note this is sarcasm, not a forecast.
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Yes
I agree, because when you use your imagination "prices" can be whatever you want them to be.
Of course, the Fed, these "markets", and the dollar would be totally irrelevant by then...
This must be where Morgan Stanley's 2014 in 2014 forecast came from.
Even the most clueless of wives catch on to their husband's affairs when the lies to cover the lies mount exponentially and the contradictions become glaringly obvious. When things do come tumbling down for these husbands it's an instaneous event.
I don't see how the stock market & rigged economy is any different than this more tangible analogy.
<=== Linear charts
<=== Log charts
Which do you prefer for stuff like this?
Wall Street will take their profits before then. Go ahead and buy into this BS. You will have your ass handed to you during their planned "correction".
I want me a double pomo mongo ramp. WTF is the point of being long MOMO on POMO if it's gonna limp dick.
What will they take their profits in? Cash? physical PMs? Do tell. The unions/pensions are being killed, if they kill the 401ks, the bond markets, and currencies, what exactly will all those "profits" and "wealth" be priced in? Moreover, I don't think there will be enough places for "them" to safety hide from the rest of the planet.
Please, enlighten us.
the cash is step 1. Then the cash will be used to buy entire police-forces, cities and vaults full of valuables though probably not a large chunk of gold, given how little is actually kept by individuals.
Step 2: crush your enemies and hear the lamentation of the women.
pretty much.
Please, I know venture capital guys who already have their own police forces and private islands. The booty has already been stolen...
but they don't have a printing press. Those mercs have a price & one who has infinite dollars can't be outbid.
As long as the 401Ks stay safe, the boomers won't care. All they care about is that their retirement funds stay secure.
The Fed, Pentagon, Wall St.....they are already preparing for the Millenials to storm the castle 15 years from now.....that's why DHS bought all of those bullets.
But they know as long as the Fed keeps pumping assets higher, no one will question the system.
That is, until, the system breaks. Again.
strikingly similar to the four-hour viagra charts.
time to call a physician...
If there is any market left in this "market"...this utter capitulation of all bears, utter leverage of all bulls...the belief that Dow XXX is truly acheivable...that is the sign we r done (if this is a "market")...but it likely keeps going cause it ain't a market but a tool
Some unrelated Tuesday morning drone humor:
Hmm... I see the pic in edit mode, but not in the actual thread... here's the link then:
https://pbs.twimg.com/media/BaeD3juIMAAF4Ek.jpg:large
the picture-upload on the menu is just there to tease everyone who isn't a horseman
"No bubbles, yet" - Yellen 2016
Nothing will escape the Fed black hole!
Don't worry - stocks have reached what seems to be a permanently high plateau.
Why is it sarcasm? Why wouldn't the Fed continue the same policy they have been following for the last 4 years, and why wouldn't it have the same effect?
because of currency failure.
Thanks for the insight, Mr. Hugh-Smith! I'm gonna invest all my cash in the markets and become rich by 2016!
Party like you're in Harare.
No bubbles until the market realizes it's a bubble. By then it already popped.
I realized it's tagged as sarcasm, but these forecasts (and higher!) are exactly what you'd expect in a hyperinflationary environment.
Yes, Jan 2015 - S&P 4000, 'gold' $700, GLD inventory 200 tons, cup of coffee $15, 1% inflation, 10 year rate 3%, unemployment 8%, with 180 million no longer in the workforce, and the FED 'will probably start tapering next month'.
If the supply lines actually hold, you are probably correct. Sad isn't it?
It really is.
Well done Mr. Hux...you may be far more right than wrong. These sorts of things would be ruled out as ludicrous or fanciful in a novel...only believable in something like an Asimov sci-fi.
I gave it +1 for /sarc only.
IT'S THE PHARAO'S CURSE I TELL YA!!!!!!
Oh it's a curse alright, except it's not the Pharao's. It's his slave's curse which has been plaguing humanity for many centuries.
What was the stock market like in zimbabwe in 2007-2008? That might give us a clue.
http://www.zerohedge.com/article/headlines-2008-zimbabwe-stock-exchange-soars-others-crash
One thing is certain, JPM paying out 11 figure penalties will in no way negatively affect Dimon's 8 figure bonus. He sure won't end up in jail. Knowing this what is the trade here?
Try to get on Dimon's good side and hope he tosses you a few crumbs?
who do i call to get my "fixings"?
Weapons Manufacturers.
The dollar gets pummeled and crude is up 2%. I picked the wrong week to stop sniffing unicorn shit...
Crude Oil 95.81 +1.99 +2.12%
S&P500 weekly doesn't look like it has legs for 2000, nevermind 4000.
http://bullandbearmash.com/chart/sp500-weekly-eighth-straight-week-doji/
These outlandish forecasts are useless - those who trade/invest should focus on tomorrow /next week and not much else.
In a ponzi market, Every day is a fucking DIP
Venezuela has a better market, up over 300% this year alone.
we already know they cant taper without a massive drop in stock prices. Since record high stock prices are the ONLY thing that they can point to thats 'better' during this 'recovery', any big drop or correction is unacceptable. The big question is at what point is 85 bil a month no longer going to be enough. At some point in the future, the bond bubble, student loan bubble, stock bubble, etc is going to pop, at which point the markets go down even with 85 bil a month being created. Yellen will have no choice but go full retard on the printing press to reflate the stock market. after all- its for the children!!!
I've got it! Distribute HFT algo code across a network and let everyone have one DowCoin(tm) for every exponentially increasing number of trades their computer gave CPU time to and ...
oh wait...
Time to BTFD?
in the newly found USSA everything is possible!
As long as the FED has multi-colocated super-cooled clusters with state of the art software between an infinite money supply and the market indexes then yes the markets can go much higher--actually they can go to infinity in a short time should the need arise.
List of famous quotes before and after 1929 stock market crash....
Here's a good one.
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
http://www.gold-eagle.com/article/1927-1933-chart-pompous-prognosticators
All the bearishness on precious metals; the steep sell-off and the divergence from stocks have finally convinced me we're closer and closer to a real bottom in the PMs. Be prepared to buy with both hands.
I'm completely agnostic. What I do know is that the Dow and gold are heading for a 1:1 ratio convergence, and that it certainly isn't going to be anywhere near gold @ $1000.00.
In 1921 the Dow hit a low of 64. It hit 160 5 years later. It then embarked on a rally that lasted for 3 more years peaking at a value of 381 in 1929, culminating in the Crash of 1929 followed by the Great Depression.
In 2009 the Dow hit a low of 6,600. It hit 16,000 5 years later. It may embark on a rally that lasts less than 3 years peaking at a value of 38,000. Only off by a couple of zero's.
Certainly Dow 30,000 and a commensurate level on the S&P, by the end of the decade, no problem. Maybe even by '16/'17.
I can see that happening easily.