Two Trends That Will Force The Fed To Start Buying Stocks

By John Rubino – Re-Blogged From Dollar Collapse

While the Japanese and Swiss central banks have turned themselves into hedge funds by loading up on equities, the US Fed has stuck to supporting the stock market indirectly, by buying bonds. It’s worked, obviously, with all major US indexes at record highs. But it won’t work going forward, thanks to two gathering trends.

First, the main way bond buying supports equities is by lowering interest rates which, among other things, allows corporations to borrow cheaply and use the proceeds to buy back their own stock. Companies avoid paying dividends on the repurchased stock and the government gets capital gains tax revenue from a bull market. From a short-sighted Keynesian perspective, it’s a win-win.

Alas, this New Age public/private partnership on running out of steam. Interest rates have fallen about as far as they can fall and corporations have borrowed about as much as they can borrow. So the buyback binge is topping:

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Gold Juniors’ Q4’16 Fundamentals

By Adam Hamilton – Re-Blogged From Zeal

The junior gold stocks corrected hard in recent weeks, setting them up to blast higher on Wednesday’s less-hawkish-than-expected Fed.  That started to dispel some of the serious bearish sentiment that has been mounting in this sector.  The junior gold miners’ fundamentals justify much-higher stock prices, as evidenced in their recently-reported fourth-quarter operating and financial results.  They remain very bullish.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports.  Required by securities regulators, these quarterly results are exceedingly important for investors and speculators.  They banish all the sentimental distortions surrounding prevailing stock-price levels, revealing the underlying hard fundamental realities.  This greatly helps in re-anchoring perceptions.

After spending decades intensely studying and actively trading this contrarian sector, there is no gold-stock data I look forward to more than their quarterly reports.  These offer a true and clear snapshot of what’s really going on, overcoming all the misconceptions bred by the ever-shifting winds of sentiment.  If you have capital deployed in this sector but don’t watch the quarterlies, you’re shooting yourself in the foot.

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Stock Market Most Overvalued On Record — Worse Than 1929?

By Mark O’Byrne – Re-Blogged From http://www.Silver-Phoenix500.com

The US stock market today has never been more dangerous and overvalued, according to respected Wall Street market analyst John Hussman.

Indeed, Hussman goes as far as to say that “this is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929” as reported by Marketwatch.

For some months now, Hussman of Hussman Funds’ has been warning in his research that investors are ignoring extremely high stock market valuations and are being lulled into a false sense of security by central bank liquidity, massive quantitative easing and zero percent and negative interest rates.

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Here’s What The Market Could Do For The 3rd Time In 17 years

By Michael Pento – Re-Blogged From http://www.PentoPort.com

The major averages continue to set record highs, which provides further evidence that Wall Street is becoming more complacent with the growing dichotomy between equity prices and the underlying strength of the U.S. economy. When investors view the Total market cap to GDP ratio, it becomes strikingly clear that economic growth has not at all kept pace with booming stock values in the past few years.

In fact, this key metric, which oscillated between 50-60% from the mid-seventies to mid-nineties, now stands at an incredible 130%

The reason for this huge discrepancy is clear: massive money printing by the Fed has led to rising asset prices but at the same time has failed to boost productivity. In fact, since Quantitative Easing (QE) began back in November of 2008, the Fed’s balance sheet has grown from $700 billion, to $4.5 trillion today. That is an increase of 540%! Yet, during the same time period U.S. GDP has only managed to increase from $14.5 trillion, to $18.8 trillion; for a comparative measly blip in growth of just 29%.

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Gold Miners’ Q4’16 Fundamentals

By Adam Hamilton – Re-Blogged From http://www.Gold-Eagle.com

The gold miners’ stocks have corrected hard in recent weeks, hammered by a gold pullback driven by soaring Fed-rate-hike odds. Like any considerable selloff, this has spawned serious bearish sentiment. But the gold miners’ underlying operating fundamentals remain quite strong, proving the recent selling was purely psychological. This sector’s just-reported fourth-quarter results are impressive, very bullish.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by securities regulators, these quarterly results are exceedingly important for investors and speculators. They dispel all the sentimental distortions surrounding prevailing stock-price levels, revealing the underlying hard fundamental realities. They serve to re-anchor perceptions.

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Why You Should Be VERY Careful With Stocks Here

By Graham Summers – Re-Blogged From Gains, Pains, & Capital

I want to warn you to be very VERY careful with stocks right now.

The common narrative is that the US is entering a golden age in its economy and that this growth will drive stocks ever higher.

The reality is that GDP growth has collapsed. The third quarter of last year (3Q16) was the quarter everyone thought signaled a new beginning with growth of 3.5%. However, the very next quarter’s growth (4Q16) collapsed to 1.9%.

And thus far this quarter 1Q17 is tracking at 1.8%

Put simply, growth is NOT coming soon if at all. Even Trump’s top economic advisor has admitted that GDP growth of 3% is unlikely until the end of 2018.

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Dow Euphoria

By GE Christenson – Re-Blogged From The Deviant Investor

Following President Trump’s speech the Dow Jones Industrial Average (Dow) easily broke 21,000, and closed at another all-time high – 21,115.

The Dow closed up for the 12th consecutive day on Monday February 27, another three decade record.

Excel calculated the Dow’s daily Relative Strength Index (RSI – 14 period), a technical timing oscillator. It reached 97.75 (maximum = 100.00) on March 1, an exceptionally “over-bought” reading that has occurred nine times since 1950.

The weekly RSI also reached a very high “over-bought” reading as of March 3, the end of last week.

Margin debt recently registered an all-time high on the NY exchange. Price to earnings ratios have risen into “nosebleed” territory, and the last 1% correction in the S&P was in November – a long time ago. Many other market extremes and highs in confidence indexes are evident.

YES, THE EUPHORIA IS PALPABLE!

The Dow reached new highs the normal way – levitated through the creation of massive unpayable debt and the expectation of huge profits (for traders). Daily sentiment has reached a peak and indicates we are at or near a top.

Official national debt is nearly $20 trillion. Regardless, President Trump promised something for everyone:

  • More military spending, which will create larger deficits and more debt;
  • Middle-class tax relief; (Larger deficits and more debt…)
  • $1 trillion infrastructure spending; (More debt…)
  • Education bill for more school choice etc.; (More debt…)
  • The Wall; (More debt…)
  • And more promises that require massively more debt.

The Dow likes more debt, until reality strikes.

Previous Peaks in the Dow: (National debt in $ billions.)

Date                      Dow          Official National Debt          Ratio Dow to Debt

Jan. 1973              1,067                   450                                      2.37

Aug. 1987             2,746                 2,330                                     1.18

Jan. 2000            11,750                 5,776                                     2.03

Oct. 2007            14,198                 9,055                                     1.57

Mar. 2017            21,115               19,960                                     1.06

To keep the Dow rising, create debt and don’t worry, be happy…

But it takes more debt to buy each Dow point than it did several decades ago. How much debt will be needed to levitate the Dow to 30,000? Will it require $40 trillion in debt? And what are the consequences of massively more debt? Stagflation is on the horizon.

Consequences of the spending problem according to Ron Paul:

“That leaves only one solution: printing money out of thin air.” [But] “printing money out of thin air destroys the currency, hastening a US economic collapse and placing a very cruel tax on the working and middle classes as well.”

His solution for US government policy:

“… end the US military empire overseas, cut taxes and regulations at home, end the welfare magnet for illegal immigration, and end the drug war. And then get out of the way.”

These ideas will encounter fierce resistance, so much that his plan is clearly “dead on arrival.”

CREATE MORE DEBT!

More debt is guaranteed by a century of fiat currency devaluations, a borrow-and-spend congress, the executive branch, central banks that love debt, and an economy that runs on debt and credit. Expect continued dollar devaluation and more Dow highs after a nasty correction/crash.

While the Dow corrects and the U. S. economy struggles in a fiat currency induced coma, gold and silver prices will rise.

CONCLUSIONS

  • The Dow has reached another all-time high powered by borrow and spend euphoria. A bubble in search of a pin… Read Speculative Blow-offs.
  • By many measures including daily sentiment, P/E ratios, technical indicators, and consecutive daily highs, the Dow is peaking and due to correct. Perhaps the correction/crash will occur soon, or near the next Fed meeting, or after the March 15 budget ceiling deadline, or whenever the HFT machines decide to crash the market.
  • Expect massively more “money printing” and debt creation.
  • Ever-increasing spending and more debt and currency in circulation will push the price of gold to new highs. Fear and panic will eventually force withdrawal of “funny money” from the stock markets and bond markets. Some of that fearful money will purchase gold and silver for safety, preservation of capital, and protection against further devaluation of fiat currencies.
  • The stock and bond markets will correct but the debts will remain.
  • Gold and silver will surge higher, probably through the balance of this decade.

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