The Fed-Induced Stock Market Bubble Continues

NEW YORK (TheStreet) -- The stock market remains fundamentally overvalued and the weekly charts for the major averages are overbought except for the Dow Industrial Average. New all time highs or multi-year highs were set as October came to an end.

The stock market has been trading under the cloud of a ValuEngine valuation warning since mid-May and today we show that 77% of all stocks overvalued, which is well above the 65% warning threshold. Technically, three attempts to confirm cycle highs were thwarted as all five major averages did not shift to having negative weekly chart. We enter November with four of the five with overbought 12x3x3 weekly slow stochastic with readings above 80.00.

As I have been saying; 'if you cannot confirm cycle highs, new highs will follow.' My market pulse shows the latest market highs and the upside potential to risky levels and the downside risk to value levels.

The stock market is like being at the craps table, with the player using loaded dice. Those betting the line will make money as long as the loaded dice are used. At some point, the pit boss will pull the dice and the win streak will end.

As investors, we have to be cognizant of the actions of the pit boss, aka Washington. The Fed is doing the bidding of the WH as opposed to being an independent entity preserving the stability of the currency. The goal is to prop up Wall Street and the government. But at some point, that will change, and we must be ready to pull out.

It is definitely a bubble in the stock market. It’s the only place for an investor to make a reasonable return at this moment, and the risk is far less so long as the fed continues 85b bond purchases per month.

I’m certainly no pro at this, but it strikes me that the Fed simply can’t continue creating an enormous amount of money without inflation eventually taking off. One thing holding inflation back is that the government has such a narrow definition of it anymore that it is hard to accurately judge it. So, it’s really sleight-of-hand inflation reduction and not really holding the line on inflation.

Another thing hold inflation down is what is in actuality a very weak economy, an economy without confidence, a nation without confidence, a nation on welfare, and a nation more unemployed than employed. This results in a lack of national wealth, and without wealth no one spends.

In order sell what they do sell, producers and retailers must suppress prices, innovation, R&D, and quality. That way they keep prices down.

It isn’t exactly a depression in the classic sense, but the backward track of price, quality, and opportunity means there is a regression going on.

In short, the nation is going backward, and things are getting worse and worse month by month.

Retire early and get a lump sum if you can. Your paper is going to take a nosedive at some point in the future...I’d say after this mid-term election or after the next election.

Obama would love to let the bubbles burst if republicans win both houses of Congress, or barring that, if republicans win the 2016 presidency.

“Another thing hold inflation down is what is in actuality a very weak economy, an economy without confidence, a nation without confidence, a nation on welfare, and a nation more unemployed than employed. This results in a lack of national wealth, and without wealth no one spends.”

The middle class continues to be economically raped. And this will become very evident by next spring when mcconnellcare is in full flower. People who are spending their money on inflated medical insurance will not be spending it on other things.

In the mean time, the Fed will continue if not accelerate their slow destruction of the currency.

It’s never right to be short (or pessimistic) the first day of any month. This is when new funds flow into many equities.

That said, there’s really nothing the market has not seen at this point: End of the world, end of Italy, full-on corporate co-opting of the “grand bargain” of supporting 0bama et al in exchange for sanctioned monopoly status (eg; fascism) and, all snark aside, good dividend payments in the case of many stocks. What’s gonna derail things now? Ans: End of QE and that has been assured not to be happening. So there’s no upside to betting on the downside.

Logic really doesn’t apply, IMO. I believe the most powerful force in the market (after the Fed, which is relentlessly pumping equity prices via its QE actions) is “performance envy”. Funds cannot be out of this. IMO this is the general status of the market: The only thing to “be” is “already long”. And IMO this is the condition Wall St wants the world (meaning you and I) to be in the very most: Can’t wait to get in, no matter how apparently high.

I’m a natural pessimist but it has not paid at all this year, except for very, very brief periods....while someone who simply bought SPY 1/1/13 and made zero trades all year has devastated my performance.

There was a time when the stock market was used by US corporations to raise money, through the issuance of stock, so the money could be invested in productive assets - factories, ships, machinery, railroads, etc. The productive assets would employ labor and raw materials to produce products with value greater than the value of the inputs. The incremental value (profit) would be redeployed by the company to expand by purchasing more assets or returned to the stockholders in the form of dividends. The market was all about creating real wealth through the efficient conversion of financial assets (money invested) into productive assets.

Note the assets funded through equity were long term assets. Machinery, equipment, railroads, ships, airplanes, etc. had productive lives measured in decades. Stock investors expected long term income streams generated from the profits of assets that would be deployed for decades.

Efficient equity markets worked well for the United States in the 19th and early 20th centuries, allowing it to build the greatest industrial infrastructure in the world and the world’s greatest economy. It also made the American people the most prosperous on the planet.

Today’s stock market is a casino for speculation in various forms of paper instruments. If you liquidate the most of the American companies issuing the paper you will not find hard assets (factories and equipment) that can be redeployed to produce things of value. Instead you will find office buildings for housing administrators, legal contracts with foreign factories producing products for the company, and possibly some information technology equipment that isn’t leased or outsourced. Today’s companies are shells, not productive engines. The assets underlying them are primarily intangible (i.e. pieces of paper).

It is ironic that 100 years ago we had a currency backed by gold and the most productive industrial base the world had ever seen. Today we have a digital currency and shell companies renting the productive assets of other nations.

The fact is, our nation does not have the manufacturing infrastructure in place to fight World War II again, much less fight a protracted 21st century war. If China chose to stop exporting to the US today, our economy would grind to a halt within a year. It would take decades to rebuild the industrial infrastructure that has been shut down and sold off over the past 20 years assuming you could raise the capital. However, when the economy collapses the dollar will be worthless. With the dollar worthless, there will be no domestic money to fund the building of an economy backed by tangible productive assets. It will require massive amounts of foreign investment to build the factories, transportation systems, and other infrastructure required to make the US productive again.

The question is, when will China pull the plug and how will they do it?

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