Rodney Johnson | Friday, May 03, 2013 >>
It’s happened. The Dow broke through the 15,000 mark.
I can only imagine the string of four letter words going through Harry’s mind right now…
He’s in a conference in Orlando, working with business owners and entrepreneurs, but I know he has an eye on his phone, watching the broad market indices hit new highs.
I’ve no doubt he’s railing against the Fed, the ECB, and the BoJ, as each entity (along with other large central banks) has a hand in driving equity prices to crazy highs in the face of anemic economic numbers, all the while siphoning off value from savers and bondholders.
His anger is not abstract.
He’s not ticked because banksters are causing a huge bubble… he’s ticked because of what comes next, and what that means to you and everyday investors.
Stability creates its own instability. It is a weird statement, but it has a lot of power…
Hyman Minsky described the process well. He pointed out that, over time, stability (or the lack of volatility) creates instability because people become accustomed to the status quo and then take on more risk than they should.
Oh, the markets are going up again? Of course they are. The Fed is printing $85 billion a month to make sure of it.
Are the manufacturing and trade numbers bad? No worries, the markets are going up again anyway; the Fed is making sure of it.
Is the European Union (EU) is in recession? No problem, the ECB has pledged to take care of it, and the markets are going up again…
At this point we all know the game. Whatever happens, wherever on the planet it happens, the markets won’t go down because the Fed doesn’t want them to. Right up until the system collapses on itself, that is.
Right up until people realize that we added jobs, but fewer jobs than the number of people who joined the labor force.
Right up until people realize that we added 278,000 part-time jobs because people couldn’t find full-time work.
Right up until people realize that unemployment in the EU is now over 12% and going higher.
Right up until people recognize that the EU is in recession.
But until then, the markets are marching higher, propped up by the central banks around the world, who continually tell us not to worry, because they’re here to make sure nothing bad ever happens.
The longer this situation goes on, the worse the eventual downturn becomes. THAT is what makes Harry so angry.
This knowledge is not lost on central bankers. They are not dumb. Why would they continually feed crack to an addict, when the obvious but painful choice should be detox?
Because no one wants to be the person to pull the plug. No one wants to be the person who acknowledges the actual size and scope of the debt crisis that never went away, but was just pushed under the rug and hidden by trillions of newly printed dollars, yen, and euro.
With the markets at new highs today, the path isn’t clear. How long can central banks keep up the charade? How long will people blindly follow the pied pipers of finance? We don’t know, but we don’t want to be hanging around to find out!
We maintain tight control over our portfolio in Boom & Bust, holding equities that are gaining while the craziness lasts, but focusing mostly on income producing securities that give us some cushion. The goal is to make money while we can, and yet remain vigilant as we watch for the signs to get out.
And we maintain our view that cracks will appear in the markets this summer.
There is definitely greater danger ahead.
P.S. Harry will be on CNBC at 4:40pm EST today, where he’ll talk about the market break through resistance. Be sure to listen.
Admin Note:If you reserved your copy of our Demographics School Audio Kit, don’t worry… we haven’t forgotten you. Our production team is rushing to finalize the rendering and whatever other technical stuff they needed to do to get it ready for you (technology is not my strongest trait so I leave it to the experts). We’ll be sending these out to you early next week, so keep an eye open for them.
Ahead of the Curve with Adam O’Dell
The 200-day moving average of prices is probably the most widely-watched indicator in the market.