That's what Richard Gere said to Lou Gosset in "An Officer and a Gentleman" and that's what the markets are saying to us as the Fed attempts to force them into a no-lose situation in which there is literally nowhere else to put your money other than equities. The bank won't pay you interest, inflation erodes your cash, bonds pay next to nothing and margin interest has never been lower – why not play equities – you can't lose?
Or can you? As Dave Fry notes in his Dow chart, it's a micro-managed environment for equities and everyone knows "you can't fight the Fed" and bears can certainly attest to that this year as we've had a pretty relentless 3,000-point climb in the Dow. We did run into a spot of trouble in the Summer, but that was fixed in October as GS, NKE and V were added to change the mix, which helped to goose the index another 1,000 points.
One of the hardest things to teach traders is the value of PRESEVING wealth, as opposed to just making more of it. If the market is going to go up and up and up in 2014, then we have hundreds of ways to make much, much more than 23%. I'm just putting together a list of those ideas for our Members and, just like the beginning of 2013, when I had 3 bullish picks on January 5th, we can start 2014 off with some bullish selections as well – especially since we have such lovely support levels (16,000 on the Dow, 1,800 on the S&P, 4,000 on the Nasdaq, 10,000 on the NYSE and 1,100 on the Russell) to let us know when it will be time to get out.
Why not just "go for it" now? Because, like Bitcoin, this market can implode at any time because, like Bitcoin, it's run up on thin volume, wild speculation, rumors based very loosely on facts and, of course, manipulation.
What worries us most about the recent market gains is they have been very much driven by Dollar losses and, as you can see from this very erratic Dollar chart – that's the one thing the fed does not have firm control of. As I often stress, equities are priced in Dollars and the Dollar is down 6.5% since July and the Dow is up 8% – usually it's a 2:1 ratio to the Dollar, so they're not even managing that.
Yet this now near 5-year migration across the global asset plains in search of taller grass and deeper water has had limits, both in price and real growth space. If monetary and fiscal policies cannot produce the real growth that markets are priced for (and they have not), then investors at the margin ? astute active investors like PIMCO, Bridgewater and GMO ? will begin to prefer the comforts of a less risk-oriented migration. If they cannot smell the distant water or sense a taller strand of Serengeti grass, astute investors might move away from traditional risk such as duration as opposed to towards it. Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE.
The image on the left is from a Forbes slide-show titled "High Five, What Stimulus Means for Global Stock Markets." From A Capitalist Tool's perspective, the Fed dilluting your life saving by another 6.5% to prop up the holdings of the top 1% by 8.5% is a clearly winning strategy and they, along with these floor traders, are celebrating it. And why not? It's only other people's money they are playing with.
Germany is backing away from austerity, raising the mininum wage and adding Billions in infrastructure projects. The BOE has pumped $579Bn into the UKs $2.4Tn GDP (25%) since 2009 and the FTSE is up 37.5% so well worth it for those who own stocks.
That, of course, is nothing compared to Japan, where the current $75Bn in monthly stimulus may not be $1Tn ("just" $900Bn a year), but they topped it off with another $189Bn in other stimulus this week for $1.19Tn of 2013 stimulus in a $6Tn economy (20%). When 20% of your GDP is stimulus, who in their right mind can pontificate about the health of your economy?
I guess an optimist would take that as a reason to BUYBUYBUY Bitcoin and keep right on buying the S&P because, after all, the Fed has your back, right? A pessimist might note:
- Weak holiday spending
- Weak Q3 earnings
- Lower Q4 guidance (Shiller p/e now 25 on the S&P, market cap to GDP at record highs, price to revenue at record highs)
- Upcoming debt ceiling
- Rising Oil Prices
- 7% unepmployment (it was 4% in 2007)
But who wants to be a pessimist, especially at Christmas? Better to cash in those stocks and be a market agnostic, spreading a little Christmas cheer and getting ready to shop in January, when we can hopefully buy a few things on sale.