Since QE 3 ended in October 2014, stocks have traded in a large range between roughly 2,130 and 1800 on the S&P 500.
During this time, whenever stocks began to breakdown in a serious way, a clear intervention was staged in which someone manipulated the markets higher. Regardless of whether you are a bull or a bear, none of those rallies felt normal or sane in any way.
No one panic buys every single day at the exact same time for days on end.
Which brings us to today. Stocks have broken out of the trading range to the upside hitting new all-time highs.
They are doing this despite the US entering a recession, China continuing to devalue the Yuan, Italy facing a banking crisis, etc.
The explanation the bulls are giving for the breakout is that stocks supposedly hitting all time highs because with $13 trillion in bonds posting negative yields, stocks’ 2.4% or so in dividends are extremely attractive from a yield perspective.
Yes, we’ve reached the point at which investors are buying stocks for yield and bonds for capital gains.
This is extremely problematic in that it implies that all equity purchases are being driven by a “once in history” bond bubble.
· German bond yields are negative out to nearly 10 years.
· Japanese bond yields are negative out to 10 years.
· Swiss bond yields are negative out to 50 years.
These are completely unsustainable developments. Buying stocks for their yield because bonds are at their lowest yields in 5000 years is like switching to cigarettes from crack for health purposes.
At some point something will break in the bond markets. Central Banks are attempting to corner the asset class that is the benchmark for the risk-free rate globally.
Put another way, investors are willing to PAY for the right to lend to these Governments for up to and even over a decade. At some point something is going to break here. When it does, stocks will implode below the 2008 lows. It’s only a matter of time.
A Crash is coming... and the time to prepare is NOW, before it hits.
On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.
In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.
We are giving away just 1,000 copies of this report for FREE to the public.
To pick up yours, swing by:
Chief Market Strategist
Phoenix Capital Research