Skip to comments.Warning Signs Flash as Stock Market Soars to Records
Posted on 11/03/2013 10:28:47 AM PST by Brad from Tennessee
For some investors, it feels a lot more like 1999 than 2013.
Third-quarter earnings have not been spectacular. The U.S. isn't expected to grow at anything close to breakneck speed next year. And there are few industries experiencing huge profit expansions.
Despite all that, a number of high-profilemostly technologystocks are soaring. The heady advances are making shareholders of these companies big money, but they're also raising serious questions among some analysts about whether the unusual trading is a troublesome sign for the overall market.
Last week, the Dow Jones Industrial Average set a record on Tuesday, but closed up just 0.29% for the week. The Standard & Poor's 500 stock index also set a record and rose 0.11%.
So far this year, the Dow has climbed 19%, the S&P 500 24% and the Nasdaq 30%.
. . .the recent gains in tech shares are reminiscent of the Internet-led bull market that created huge fortunes but ended in 2000 when the small group of expensive technology stocks that had powered the market higher suddenly collapsed, pulling the entire market down with it.
(Excerpt) Read more at online.wsj.com ...
When your currency is debasing, stocks will be expressed in terms of ‘more dollars’.
Money taken out of the market will go where, real estate? Commodities? Mattresses?
And so will taxes. But pensions will be paid in fewer dollars. Problems are being solved without anyone being the wiser.
What problems are being “solved”?
Unfunded liabilities will draw less because of a devalued dollar.
“The U.S. isn’t expected to grow at anything close to breakneck speed next year.”
How can you do that if your population is at minimum or slightly below replacement levels in its fertility rate?
We don’t manufacture our citizenry like we used to and we sent most of our manufacturing of goods overseas. Only 12% of the economy is manufacturing-based.
You didn't mention precious metals but you didn't have to. In comparing 5-year charts for Gold and the DOW, stocks win.
Money will not be taken out of the stock market, some will leave the bond market which is for suckers. Stocks around the world will likely keep their inflated value while other things like bonds will be locked into current values. Commodities will be limited by word GNP. Some other things will go up, like stuff for the very wealthy.
Keep you expenses low and keep your stocks.
“When your currency is debasing, stocks will be expressed in terms of more dollars.”
Exactly - the difference between now and 1999 is that in 1999 the Fed was not pumping in $85 billion of new base money every month. When I sell my bond to the Fed, I immediately have to start looking for something to do with that money - some other investment - and stocks are definitely at or near the top of that list. Does it create a bubble? Yes. And when will that bubble pop? When the Fed starts cutting back. And when will that be? Who knows... but what has become clear is that investing is no longer about studying the financials of a company, but studying the politicians and bureaucrats in DC.
We enter the time of year where shorts find themselves curled in a fetal position on the floor while everyone else is having a good holiday time. Ask me how I know.
The market has retail investors exactly where it wants them: The market seems very toppy and there isn’t exactly any kind of Macy’s 20% off sale going on. No. You have to rush down to Macy’s at a 1/37th of 1% off sale. The only thing to do is to “already be long”. The number of traders who have beat simply buying and holding SPY (the SP500 index etf) or equivalent with ZERO trades all year is so close to zero it’s not even worth talking about.
The market has withstood each and every glitch thrown at it. End of the world, end of Italy, crappy (un)employment numbers, stagnant GDP numbers, the prospect of consumers getting smoked on their healthcare premia and thus not being to splurge on Chinese crap over Xmas. Instinctively, the dollar should be weakening on QE-forever, but the ten year is back to the 2.5-2.6% area (down from threatening 3% mere weeks ago) and oil is literally crashing.
Very little makes sense, but “making sense” is not “making money”.
Personally...I believe (and...”belief” is not a fundamental) that the market is actually applauding the intensified fascist/corporatist state.
I really have no specific reco. Buying on dips has worked EVERY TIME over the past 4 years. That’s an observation, not a reco.
I can’t see any good reason NOT to buy SPYders and leave it alone. “Reason” is not operative. The Fed cannot abandon its stance. The mere threat of such drove the DJ down over 1000 points about a month ago. I think we are living in a synthetic environment and it kind of reminds me of the period right after 9/11/2001. The US kind of shut down. Gradually, folks poked their heads out from under their rocks. The ones who did so first, benefitted most. In a far more slo-motion way, I think we are in roughly the same position, though later in the scenario. Like it or not, we have 3 more years of 0bama, and his best advertisement is the relentless rise of the stock market despite truly lackluster economic performance. I acknowledge that unlike that point in time, the market is not now depressed. Indeed it’s at AT highs.
The only thing I can not seem to convince myself of is that there is a reason for this to stop. I don’t see it. I don’t see the preference for the cash that would result from selling stocks. I sure don’t feel it, the charts don’t say it. But bull, bear, skeptic or fanatic, you can never, ever be short during T-giving > Xmas. Never.
When the stock market collapses and the fiat currency is worthless, you will wish you had gold.
All that “Quantitative Easing” is going into inflating stocks...nothing else.
Even back then, the whole "buy gold" argument puzzled me. If the U.S. dollar was really so worthless, then why were all these traders so willing to accept these "soon to be worthless" dollars in exchange for their precious gold bars?
Furthermore, if the doomsday predictions ever came true and the U.S. economy suffered a total collapse, then how would I go about using all those gold bars that I stored up? Would I take a gold bar down to the corner store to buy milk and bread? How would I get my change?
Lastly, if I ever showed up at the corner store with a bar of gold, how likely would it be that somebody would follow me home? I would say very likely.
I guess someday the gloom and doomers will be correct but in the meantime, I've been doubling my net worth on average about every 6-7 years with the stock market (rule of 72 principle combined with dollar cost averaging).
I’m sick of this “DOW’s up, DOW’s down” crap. Fluctuation is normal.
Amounts that are not adjusted for the loss of purchasing power of money are meaningless.
“In comparing 5-year charts for Gold and the DOW, stocks win. “
Same thing was said in 2007-2008...just before a massive stock collapse and many people lost everything.
Gold isn’t an investment. It is a hedge against a collapse.
The fed is propping up the markets with $1+ trillion every year. The stock market is valued at about $15 trillion. The fed has pumped in over $4 trillion, or about 25% of the market’s value. That is a massive pump, entitled to a massive dump. The fed could collapse the markets and easily own half the US economy by buying up another 25% at deflated prices once the dump happens.
Communism by the numbers.
Those who refuse to learn from history are doomed to repeat it.
The health insurance sticker shock will kill holiday spending.
Obama is doing everything to hurt the economy and the fed is artificially creating a stock bubble because with interest rates at artificial ridiculously low rates there is nowhere else for money to go but stocks.
Having said that the statement above is way off. In 1999 there was a tech stock bubble with the average P/E ratio in the 40s. P/E is now 19 which is higher than average but nothing like 1999. Nonetheless the market is being artificially held up so major correction could happen at any moment
The problem is QE can’t be unwound, politically. There’s a chance at ending Maobamacare, because people understand higher premiums, bad websites, losing doctors, etc.
But tapering QE, which is necessary for a stable money supply, will cause a depression. Whoever orders that will be a one-termer. Very few will understand why tapering is needed.
So what happens next will either happen slowly or quickly: higher interest rates and much higher taxes, defaulting state/local governments, loss of reserve currency status. This is the future. Period.
I think Aquila48 and Attention Surplus Disorder have the best description of reality I’ve seen.(IMHO).
Once the Fed’s monopoly money stops, the markets will crash.
“...Money taken out of the market will go where, real estate? Commodities? Mattresses?...”
I have always been pretty dense when it comes to economics,
but I have always remembered two things my daddy taught me
60 years ago when I was a young lad.
As a hobby, I would go through all of the coins I came across
looking for anything unusual, old, and potentially rare.
I would save them, collect them, and trade then at coin shows.
Your post reminded me of those days and the lessons I learned.
1-A thing is worth only what someone else is willing to pay you for it
(it’s true value or fair market value).
I can still remember telling my dad that my coin book said
a dime I found was worth ten dollars, and he said,
“Worth ten dollars to who? To me, it is only worth a dime.”
2-All money has to “sit” somewhere.
If I bought a silver coin,
it was only worth what someone else was wiling to pay me for it.
If I saved up $100 and the bank would pay me 2% interest,
then my $100 was worth $102 to the the bank.
Those two simple lessons are very inter-related
and they have stuck with me for a long time,
ans sixty years later, they still hold true.
If you own a share of stock,
it does not matter what you paid for it,
the only thing that matters is what someone else will pay YOU for it.
If your money, or my money, or anyone else’s money
does not sit in the stock market, then where does it sit?
Certificate of deposit?
.22 long rifle cartridges?
I try to put my money where “someone else” thinks it has value.
Even back then, the whole “buy gold” argument puzzled me. If the U.S. dollar was really so worthless, then why were all these traders so willing to accept these “soon to be worthless” dollars in exchange for their precious gold bars?
They’re retailers/traders who profit from the transaction. they’re not commodity owners for a living.
We are already in a depression. The government has changed the way unemployment, GDP, and other measurement statistics are calculated to keep the infamous “D” word from the lips of the public. But eventually, QE tapering will begin or no one will show up one day to buy the inflated stocks. One day the whole fairy tale will crash.
The market can drop to zero without a dime being taken out of it. Well, that's a bit extreme, but there's no money to be taken out until there's a buyer.
PM's have more value than fiat. Bubble stocks have value as long as there is a greater fool around. The ups and downs don't really concern me, I accumulate PMs and generally also leave my stocks alone since I chose them for longer term value.
People who leave money in stocks for the longer run are usually into companies that speculate for them (that's what I try to do).
“... people are not investing, but speculating...”
I find that to be an interesting comment, thank you.
If I buy junk morgan silver dollars am I investing or speculating?
All investment is speculation. The only difference is that some people admit it and some don’t. - Gerald Loeb
As long as interest rates remain near zero, the stock market looks attractive.
“Normally a deep recession like the one we had would be followed by an enormous boom. But the reason it hasn’t is not lack of demand or deflation as the Fed believes, but lack of confidence in the soundness of the currency.”
No that ain’t it. If that was it, ie if you thought your money was going to be worth less each day, you would be spending it like there’s not tomorrow. Do you really think your average joe blow (95% of the people) wake up each morning thinking “Oh the dollar is being debased, I better not buy anything”?
My own take on why the economy hasn’t picked up more is for a couple of reasons:
1. The regulatory and political environment (Tax the rich, demonize profits and entrepreneurs, Obamacare is a huge drag, uncertainty about taxes, environmental regulations, etc, etc)
2. Much more difficult to get a loan than in the good old days, due to more stringent lending criteria, thanks in large part to regulations like Dodd-Frank.
Banks have a ton of money, (like a couple trillions in excess reserves with the fed), so basically all the money that the Fed is printing is ending up back with the Fed.
As for whether the dollar is being debased, you have to ask, relative to what. Currencies are just another asset class and they go up and down relative to each other all the time. So if you consider the dollar vs gold, over the past year or so, it’s been gold that has lost significant value vs the dollar. On the other hand, real estate has gained value over the dollar and gold.
I think people make a costly mistake in expecting a currency (whether the dollar or some other) to maintain the same purchasing power over time (whatever that means). Currencies, like all other assets are constantly changing their value relative to other assets.
If you want to maintain purchasing power, your best bet is not just to save dollars but to have a well diversified portfolio that includes many different assets, including the dollar, for you see, once the Fed starts the tapering, you’re going to see stocks take a dive, bonds may dive even more and so will real estate and gold. So your so-called “debased” dollar is going to buy a lot more stocks, bonds, RE and gold. It won’t be looking so debased after all, in fact it may end up being your best “investment”.... for a while at least.
Junk Morgans are savings. Your money is in the mattress but it is 90% silver. They somtimes cost a bit more than junk quarters but that’s often because they are not junk but have a bit of numismatic value.
As for whether the dollar is being debased, you have to ask, relative to what. Currencies are just another asset class and they go up and down relative to each other all the time. So if you consider the dollar vs gold, over the past year or so, it's been gold that has lost significant value vs the dollar. On the other hand, real estate has gained value over the dollar and gold.
Apart from a smallish correction to the overheated RE market, the dollar doesn't buy more of anything. A couple years drop in PM's is an eye blink unless one is speculating, not preserving purchasing power conservatively. Ultimately the rest of the world will accept your PM's not your US fiat.