Dow 50,000? 75,000? 100,000?
As I keep arguing, the Fed is going to create the Mother of All Bubbles in stocks.
The U.S. economy is going to reopen in the near future. While the economic damage is horrific, the uncertainty of when the lockdown will end has been removed. We can now begin to return to some type of economic normalcy — even if it takes months for us to get back to operating at full capacity.
Meanwhile, the Fed is pushing some $4 TRILLION in liquidity into the financial system. That’s an amount of money equal to roughly 25% of U.S. GDP!
Allow me to put that in perspective.
From 2008–2016, the Fed spent roughly $3 trillion. While that amount was equal to about 21% of U.S. GDP in 2008… it’s important to note that the Fed took eight years to do this.
By way of contrast, the Fed is planning on pumping $4 trillion (or roughly 25% of GDP) into the financial system within the next few months.
Heck, it’s already spent $2 trillion in the last SIX WEEKS as its balance sheet shows!
And what’s even crazier is that the $4 trillion is just a rough estimate. The Fed has stated that it plans on using “unlimited funds” for its programs… so the actual amount could be even higher!
Indeed, just a few days ago, Fed Chair Jerome Powell admitted the Fed intends to maintain its enormous quantitative easing (QE) programs even AFTER the U.S. economy has recovered.
Specifically, Powell stated:
“We will be in no hurry to pull back on our asset purchases or on these programs… We will make sure the economy is really on solid footing before we start pulling back. When we pull back we do so very gradually.”
So… we’ve got the U.S. economy re–opening and slowly returning to normal…
And the Fed engaged in the greatest liquidity pump in history throughout this entire process… and even after things are back to normal!
This is going to create the Mother of All Bubbles: a period in which stocks and other risk assets hit levels previously thought unimaginable.
The New Normal
I know this sounds crazy, but that’s the point. Bubbles happen when things get crazy.
What is the correct valuation for stocks when 1) interest rates are at zero while the economy is actually growing, and 2) the Fed is putting trillions of dollars of liquidity into the system every few months?
Dow 50,000? 75,000? 100,000?
The Dow was already approaching 30,000 three months ago… and that was when interest rates were at 2% and the Fed was ENDING its QE programs. Now rates are at ZERO and the Fed is printing $1 TRILLION per month!
You get my point. This is the new normal — an environment in which the Fed is engaged in EMERGENCY–level interventions on a near daily basis.
Get Ahead of the Fed
There’s no way to know when the Mother of All Bubbles is going to burst.
It’s beyond your control.
But you can control how you respond to what the Federal Reserve is doing.
You can choose to sit back and do nothing… or see how to make some money from it.
I’m talking about the potential to collect thousands each week from what my research reveals are massive Fed stock market manipulations.
Editor, Money & Crisis