CPA Gone Mad Issue 15: March 13, 2017
Is This The Beginning of The Final Euphoria?
Do I think we’ve reached the top of the stock market? No. I’ve said numerous times that we need a euphoric rise that makes everyone lose sight that the market could fall, before we get a crash.
I don’t believe we’ve seen that. Yet…
Could this rise since the election be the start of the final euphoric rise? It could be, which is why you need to be protected, while staying invested.
From The Stansberry Digest, “Despite a booming stock market and positive signs for the economy, a new report from equity-research firm Vickers says corporate insiders are selling their own shares at the fastest pace in three years.”
Also from the The Stansberry Digest, “investment bank Goldman Sachs warns that investors are as complacent as they’ve been in at least six years…we’re also seeing signs that individual investors are jumping back into stocks for the first time in years…”
Does this mean a crash is coming tomorrow? I don’t know but from the The Daily Reckoning, “Bank of America draws this sketch of the year ahead: If the Fed raises this month and the market continues under full steam, the remaining bears will hoist the white flag. They’ll pile into riskier equities. That’ll lead to a “melt up” in stocks. And they could “melt up” until summer.
Will the market crash in the summer? I don’t know. But what I do know is this looks a lot like the beginning of euphoria before the crash. The 1% is selling. The 99% are getting excited and buying. Be careful. Allocate your portfolio for protection. And when everyone around you is saying how easy it is to make money in stocks, run for the exits.
This week an article from Bill Bonner’s Diary about many different scenarios that could trigger the pop in the bubble. It usually doesn’t take anything outrageous to begin a crisis.
Welcome to Bubble Land
March 9, 2017Bill Bonner, Chairman, Bonner & Partners
RANCHO SANTANA, NICARAGUA – The markets are quiet.
Stocks are still near record highs. Gold is nearing its 52-week low.
“What do you think?” asked an interviewer who reached us by phone yesterday. “Bank of America predicts a big bear market in the second half of the year. Should investors be worried?”
“Of course they should be worried,” we replied. “But they shouldn’t wait until after June. They should be worried now.”
All News Is Fake News
But before we go on, we warn readers…
As we were speaking, a thought crossed our mind, like a surfer disappearing into the foam. There is not much “truth” to what we had to say. Not that we said anything we didn’t believe… and not that what we said was incorrect…
…but truth is a different matter…
It presumes real knowledge, not just guesswork and suppositions.
All the news in economics is fake news. As for the facts, we don’t believe any of them, unless we made them up ourselves. And the more you are sure that you are right, the more you are doomed.
In economic forecasting, certainty varies proportionally with ignorance: Find someone who knows what will happen and say hello to a moron.
While we’re at it, we’ll give you another principle: Truth diminishes by the square of the distance from it, the time elapsed since it happened, and the scope of it.
The farther you are from an event… the earlier it happened…. and the bigger it was… the less you really know about it. This is important for real investors. It explains why investing from news reports is a losing proposition.
On the other hand, you can gain an advantage by getting very close to the companies you own. (More to come…)
Then, without any further reflection, we laid out the year ahead…
Bubble Land
We continued our interview…
“Markets don’t operate on a timetable. They go up. They go down. When they are near record highs… the best bet is that they will be lower in the near future. When they are near record lows, the best bet is that they will soon be lower.
“The feds have been pushing credit into the markets for the last 30 years. As we get more and more of it – like a guy with a drinking problem – the markets start swaying. They become incoherent, volatile… and unreliable.
“In the last three decades, we’ve seen three 1929-style highs. The first was in 1999 with the dot-com bubble… the second was in 2007 with the bubble in housing and finance. Now we have another bubble spread over several sectors: student debt, auto debt, some housing debt (they’re building $100 million spec houses again)… and tech stocks.
“Just like 1999, we’re seeing another tech bubble, with just the four leading stocks – the ‘FANGs’ (Facebook, Amazon, Netflix, and Google) – worth more than $1.5 trillion. These prices only make sense in a bubble. Earnings will never catch up.
“And guess what? These stocks represent half of the entire gain from the stock market over the last year.
“Yes, we’re in Bubble Land. And bubbles are always on the lookout for a pin.
“In the next few weeks, there will be plenty of them.
“First, they’ll brush up against a debt ceiling. Then, we’re going to see a fierce and nasty argument about medical care in the U.S. The Republican majority is probably going to break into factions, thanks to the deep contradictions between Trump, the conservatives, and the party hacks.
“There is also the Fed’s rate hike coming up. And the tax cuts – which were supposed to light a fire under the economy – will most likely be extinguished by partisan swamp fighting… and a ballooning deficit.”
Here Comes QE4
“Hey, I thought Trump’s first order of business was to drain the swamp,” came the follow-up question. “What happened to that?”
“Not going to happen,” we replied. “That is only something you could do if you could get the entire nation behind you… right at the beginning.
“You’d have to move fast, keep the insiders off-balance, and speak directly to the people about things that really matter. You’d have to go on TV… something similar to de Gaulle’s famous 1961 speech.
“A coup by a quartet of retired generals began in Algeria. De Gaulle got wind of it, put on his uniform (he was in his 70s and had been retired from the army for many years), and went on TV.
“He explained the threat… appealed to the French to help him protect la République… and the traitors were arrested. The coup was over.
“Team Trump might have pulled off a similar feat in January or February. But the opportunity for real change was squandered with silly tweets. And that assumes they even wanted to do such a thing, which is unlikely.
“Now, here’s what will happen. Sooner or later – in the first half or the second – one of these pins is going to connect with the bubble. For the third time this century, the stock market is going to fall… hard. This time will be worse than it was before… because the economy is much weaker and there’s much more debt.
“GDP growth, for example, has been running at less than half the rate it was before the 2000 crash. Federal debt is three times as high. The 10-year Treasury note yielded more than 6% back then. Now businesses have gotten used to less than 1%.
“Corporate earnings were growing at over 7% per year back then. Now they’re falling.
“This next crisis has the makings of a real doozy. We could see U.S. Treasury yields go negative as people rush for safety. And we’ll see stocks crash to half their prices today.
“And we know what the feds will do, too. They’ll come in with QE4 and a bunch of other measures to try to trick up the market.”
True? Not a word. Right? Maybe.
Regards,
Bill
http://bonnerandpartners.com/welcome-to-bubble-land/
In 1978, Bill Bonner founded what is now the largest underground research network on the planet.
Bill also co-wrote two New York Times bestselling books, Financial Reckoning Day and Empire of Debt, In his latest book, Hormegeddon, Bill describes what happens when you get too much of a good thing in the sphere of public policy, economics and business.
This new newsletter is unlike anything else published in America today. Now in this industry, Bill Bonner has agreed to share his secrets and insights every month.
It’s like having a super-wealthy uncle share his best ideas, insights and wisdom about business, relationships, investments, trends, developments, ideas and more.
Just like Bill’s new book, Hormegeddon, this new newsletter, The Bill Bonner Letter, could only be written by a man with his wealth, accomplishments, and experience. Someone who has started businesses all over the world… who has employed thousands of employees… who has made investments on 5 continents… who owns hundreds of thousands of acres of land… who travels well over 100,000 air miles every year… who has acquired more than two dozen businesses… launched over 1,000 products… and sees a dozen different business deals cross his desk every single week.
Bill isn’t a stock-picker. He’s not going to build a portfolio for you to follow. Instead, he shares insights and ideas about how the business and financial worlds REALLY work. He identifies big opportunities. He shows you where average investors are making big mistakes. He details opportunities he’s interested in personally, and what’s going on with his global business. In short, Bill opens a window to the world of the wealthy that you simply won’t find anywhere else.
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