This is a critical update from one of the best financial commentators I know, a good friend of ours, Mr. Tom Beck, who runs PortfolioWealthGlobal.com and we’re excited to share this one with you!
In 2019, the Federal Reserve’s stimulus packages – which SHOCKED the markets, since they represented a full U-turn in terms of policy, compared to the aggressive tightening in 2018 – were one of the primary reasons that the stock market soared by so much.
On multiple occasions throughout 2019, stocks hit new all-time highs. In the 4th quarter, this really intensified and reached historic rally levels. Stocks were green almost on a daily basis.
The FED’s balance sheet expansion is one of the major catalysts, as well as the pro-growth Phase 1 deal that China and the U.S. signed yesterday for the willingness of buyers to pay higher prices.
The result is that the stock market is now the most expensive ever, as far as price/sales ratio goes:
This isn’t a good sign for stocks, nor for the economy, in general. To me, it means that these artificially-low interest rates are causing investment firms to purchase stocks, even though they don’t really want to, as well as prompting CFOs to issue large buyback programs over spending funds on machinery, research and growth.
The lack of viable alternatives for the trillions of dollars in managed money is creating a situation in which fund managers are acting out of necessity, not out of pure reasoning.
Warren Buffett, who isn’t under any pressure to make any moves, has patiently amassed an enormous cash position, which will surely serve shareholders when the time comes to buy big.
As you can see, the FED is not trigger-shy on its unofficial QE4 plan.
Everyone’s been focused on this monetary easing, but the Trump administration is preparing a tsunami of fiscal stimulus in the form of another round of tax cuts for the middle class and lower-income demographics – and they plan to roll it out in 2020!
This means that, on top of the already $1.1T deficit, tax receipts are set to decline dramatically.
The monstrous economic engine, the boom in the markets, the low unemployment rate, the confidence of consumers; all of these are what Trump is banking on to get re-elected.
It seems Trump is looking to make all voters know, right around the time of elections, that he is ready to take drastic measures to let the free enterprise system work, by reducing taxes.
Obviously, if he is re-elected, he’ll have to focus on balancing the budget, which is a whole other major topic.
Yesterday, the impeachment took another step towards the Senate, when the House voted to advance the two articles of impeachment to trial.
It’s coming and it’s happening during an election year. This is a very unique time in American politics, to say the least.
There are many moving parts here and it will be truly fascinating to see how the public reacts and follows these issues, at the same time as the Phase 1 deal taking effect and with the president’s economic advisor, Larry Kudlow, PURPOSELY leaking or teasing, as I see it, a Tax Cut 2.0 later this year.
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As you can see, Goldman Sachs views this as a time of very complacent behavior on the part of investors, who are not considering any potential loose ends with Iran, on the potential of complications on the impeachment front or backlash from the rollback of Repurchase Operations by liquidity-addicted investors.
You can truly notice the elevated risk appetite, when you look at the low yields that investors are willing to accept when lending money in the junk bonds segment.
It’s back to 2007 levels:
It’s clear to see that people are FEELING GOOD, in general. Investors have their guards down and their radars turned off for Black Swan scenarios.
This doesn’t mean that anything imminent is coming, but what it does tell you is that most investors are willing to pay top dollar for their stocks.
It’s a good opportunity to scan the portfolio for any companies which may be receiving too much attention, and you can capitalize by taking profits, partially or totally.
Like I said, we live in an era that is dominated by central banks and we must factor that into our thoughts:
Is this a scary-looking chart or what?
There’s no massive war or terrible crisis happening, yet central banks have put a chokehold on markets. In England, Japan, the European Union, in the states and around the globe, there is too much debt (compared with GDP) on the central bank and government level.
These sorts of things don’t unwind smoothly and with the proposed tax cuts later this year, the budget deficits look grim.
No solutions so far; the bubble intensifies.
Top image: Daily Sounder
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