It’s been up, up and away for the stock market.
Savvy investors are worrying, but they have been worrying
for the last few thousand Dow points.
John Crudele again sounds the tocsin:
So
let’s see: Bubble-like; the highest inflow of cash into stocks since 2000;
companies without earnings or even revenues valued in the billions; and, my
gawd, CNBC finally trying to be honest!
Let me
translate all of this into plain English for you: A lot of people are worried
that stocks are headed for another crash.
And I’m
one of them.
He is not just talking about a garden-variety correction.
Crudele anticipates a crash for the ages:
You
think the market declines in 2007 and 2008 were bad? The next big decline in
the stock market is going to legendary — and gruesome.
Of course, neither he nor anyone else really knows when this
is going to happen. No one knows whether the Dow will hit 25,000 before it
crashes or whether it will crash next week.
For now, investors are riding the wave of Fed liquidity,
fully confident that the Fed has it all under control.
Fewer and fewer people still believe in the Federal government, but the investor class believes, as an article of faith, in the Federal
Reserve.
People keep buying stocks because they believe that nothing
could possibly go wrong. With such sentiment running rampant Crudele is right
to ask what could go wrong. He is looking for the next black swan event.
Right now everyone fears the dreaded taper, the moment when
the Fed decides to cut back on its bond buying. But, as long as investors are
confident that the Fed cannot do so, the party will continue:
The
most obvious danger for stocks is the Federal Reserve. On Wednesday, Ben
Bernanke’s Fed kept its market-rigging $85 billion-a-month bond-buying program
unchanged because the economy isn’t quite right yet.
I’m
hardly the only one who thinks this Fed program, which goes by the innocent
name Quantitative Easing (QE), is the devil itself. But devil or not, it’s the
one thing keeping stocks in heady territory.
The
Fed’s policy-making Open Market Committee said on Wednesday the economy just wasn’t
strong enough for it to stop rigging the bond market, which is being done to
keep interest rates unnaturally low.
Those
low rates, in turn, are sending investors scurrying to stocks despite the fact
that corporate earnings are rising only moderately.
What could go wrong? Glad you asked. Crudele offers his own
speculation. What if, he says, the Fed loses control of long term interest
rates?
Crudele writes:
Rates
on government securities are up substantially over the past five months, even
though they have recently backed off from recent highs. But if the market
defies the Fed again and takes interest rates back up, all bets on QE are off.
I have
no inside knowledge on the thinking of the Chinese, who hold the largest amount
of US debt. But that country can’t be happy with what the Fed has done to its
American investments.
We don’t know whether the trigger will be pulled in Beijing.
But, if you are thinking of what could ruin investors’
rosy scenario, the Fed's losing control of the bond market would certainly be high on the
list.
1 comment:
Stuart,quit bringing us down man!
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