Saturday, May 18, 2013
Bubble Views
As the regular readers of this site are now fully aware, I am on record as stating that the current rally in the US equity markets is a gigantic Federal-Reserve-induced bubble that has eclipsed all previous equity market bubbles in modern history.
The disconnect between what is going on in this market against what is going on in Main Street, is growing exponentially larger with the passing of each week. You will have the equity perma bulls crying up one reason after another to justify this aberration but the simple fact is that this is what PAPER ASSET INFLATION looks like. In a deliberately created, ZERO INTEREST RATE ENVIRONMENT, investors looking to obtain a return on investment are forced to put capital into stocks. As stated yesterday, the only RISK is the RISK OF NOT BEING IN THE STOCK MARKET.
I cannot state it any more forcefully than that.
Just for the purpose of illustration, I put together a chart of the S&P 500 detailing in graphic form the extent of the growing bubble. The index is shown on the bottom chart. In that chart is a dark blue line which is the 100 Week Moving Average.
In the upper window is the DIFFERENCE between the weekly closing price of the S&P 500 and that same 100 week moving average. There is nothing particularly exotic about this indicator - it is merely a way to measure OVERBOUGHT or OVERSOLD readings.
I think you will find this rather startling. Go back to the year 2000, the year in which the huge speculative bubble in equities popped and which was the catalyst for the now decades+ intervention by the Federal Reserve to create one bubble after another in attempting to deal with the fallout from the enormous bursting that occurred that year. You remember, first we had the equity bubble, then the real estate bubble, then the commodity markets bubble, then the bond bubble and now once again we have the equity bubble, courtesy of these master meddlers known as Central Bankers.
I drew in a horizontal line showing the peak in this indicator which first came in 2000. As you can see, it extends all the way to the current period. At no time prior to this year, did this indicator reach the peak that occurred in the year 2000. Yes, it came close, particularly in early 2011 after QE1 and QE2 had been implemented and run their course, but it failed to reach that prior peak.
Cast your attention upon this week - since QE3 and QE4, a combined $85 BILLION of fresh money creation each and every month by the Fed, the indicator has not only MATCHED the 2000 peak, it has EXCEEDED IT! In other words, this is now an historic bubble even when measured against what many correctly believed then and still do now, was a bubble of epic proportions all the way back in 2000.
Quite frankly, I already believed the current stock market rally was an historical mania. After seeing this graph, nothing can dissuade me from that view. How high this thing can go is anyone's guess because they will always be fools saying, "this time it is different". When this bubble explodes however, and it most certainly will, heaven help us all, as there will not be a single soul to buy it on the way down.
The disconnect between what is going on in this market against what is going on in Main Street, is growing exponentially larger with the passing of each week. You will have the equity perma bulls crying up one reason after another to justify this aberration but the simple fact is that this is what PAPER ASSET INFLATION looks like. In a deliberately created, ZERO INTEREST RATE ENVIRONMENT, investors looking to obtain a return on investment are forced to put capital into stocks. As stated yesterday, the only RISK is the RISK OF NOT BEING IN THE STOCK MARKET.
I cannot state it any more forcefully than that.
Just for the purpose of illustration, I put together a chart of the S&P 500 detailing in graphic form the extent of the growing bubble. The index is shown on the bottom chart. In that chart is a dark blue line which is the 100 Week Moving Average.
In the upper window is the DIFFERENCE between the weekly closing price of the S&P 500 and that same 100 week moving average. There is nothing particularly exotic about this indicator - it is merely a way to measure OVERBOUGHT or OVERSOLD readings.
I think you will find this rather startling. Go back to the year 2000, the year in which the huge speculative bubble in equities popped and which was the catalyst for the now decades+ intervention by the Federal Reserve to create one bubble after another in attempting to deal with the fallout from the enormous bursting that occurred that year. You remember, first we had the equity bubble, then the real estate bubble, then the commodity markets bubble, then the bond bubble and now once again we have the equity bubble, courtesy of these master meddlers known as Central Bankers.
I drew in a horizontal line showing the peak in this indicator which first came in 2000. As you can see, it extends all the way to the current period. At no time prior to this year, did this indicator reach the peak that occurred in the year 2000. Yes, it came close, particularly in early 2011 after QE1 and QE2 had been implemented and run their course, but it failed to reach that prior peak.
Cast your attention upon this week - since QE3 and QE4, a combined $85 BILLION of fresh money creation each and every month by the Fed, the indicator has not only MATCHED the 2000 peak, it has EXCEEDED IT! In other words, this is now an historic bubble even when measured against what many correctly believed then and still do now, was a bubble of epic proportions all the way back in 2000.
Quite frankly, I already believed the current stock market rally was an historical mania. After seeing this graph, nothing can dissuade me from that view. How high this thing can go is anyone's guess because they will always be fools saying, "this time it is different". When this bubble explodes however, and it most certainly will, heaven help us all, as there will not be a single soul to buy it on the way down.
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