How long can this rally last?

Is today’s rally in stocks something you can count on and invest in with profitable results?

Or is it likely to end soon — most likely, just as you put YOUR money on the table?

Among the thousands of investors flocking to Las Vegas for the Money Show this week — in workshops, during cocktails and around the hotel’s gambling tables — this is the big question being asked over and over again.

It’s the same question debated on Yahoo! Finance, CNBC, and in the halls of big Wall Street firms.

It’s also the same question I hear from friends in Germany, Japan, Russia, China, Brazil and even Vietnam.

Everyone wants to know. Many venture to guess. But no one has an unimpeachable answer.

So let’s zero in on …

What We DO Know about the U.S.

Stock Market with Reasonable Certainty

First, we know that it’s going up, making new all-time highs and doing so consistently. Regardless of what dangers may lie below the surface or beyond the horizon, that’s obvious and undeniable. It’s a trend.

Second, we know that such trends are driven by economic forces — whether known or unknowable — that perpetuate themselves. Like objects in motion, they tend to stay in motion. Like politicians in power, they want to remain in power. And as long as all that continues, there’s money to be made.

But we also know that most stocks are going up for all the wrong reasons:

Reason #1. Flight capital.

Global investors rush into U.S. stocks not because the U.S. economy is particularly strong (it definitely isn’t!), but primarily because other economies are unusually weak AND uniquely dangerous: Greece, Spain, Italy, France, and even Germany — not to mention hot spots in the Middle East.

Reason #2. The “nothing-better” syndrome.

With interest rates at their lowest levels in history, many yield-seeking investors view U.S. stocks as the only place to go. That’s why solid stocks with reliable dividends — seen as “bond alternatives” — have been among the outstanding performers.

Reason #3. Central bank money printing.

The U.S. Fed is printing $85 billion per month and has promised to continue until unemployment falls dramatically, an event not likely anytime soon.

Adjusting for the size of its economy, the Bank of Japan is printing at the equivalent of double that rate, also promising to keep it up for years to come.

Even the European Central Bank, which was traditionally more conservative due to Germany’s fears of hyperinflation, has thrown in the towel and joined the party.

Here’s the key: The central banks are using this torrent of paper money to BUY financial assets and stuff them in their own balance sheet — mostly bonds and mortgage-backed securities, but also stocks and other investments that, until just recently, had forever been taboo for central banks.

Is this the first time in history a central bank has gone to these lengths to goose up the economy or help keep politicians in power?

No.

* In the German Weimar Republic, the Reich bank printed trillions of marks into the ashes of World War I …

So did the Kuomintang’s Bank of China after World War II, and  …

* Ditto for the Bank of Brazil under President Kubitschek to finance his master plan for the construction of a grandiose new capital, Brasilia.

But those were idiosyncratic idiocies that were largely isolated; they were not replicated globally.

Today, what’s totally unprecedented is that ALL the major central banks of the world have checked into the same insane asylum …  and all of them seem to agree that THEY are the “new normal.”

Meanwhile, what’s even more ironic is that it’s the former money-printing champions of the world that are now watching this new insanity from the sidelines with the most fear and disdain:

* German central bankers who have protested powerlessly from day one …

* Chinese central bankers who have piled up the biggest hoard of paper currency (U.S. dollars) in the history of money …

* And even Brazilian central bankers who complain bitterly about wave after wave of unwanted dollars — and euros — washing up on their shores.

But here’s what’s even crazier …

The “new normal” central bank

psychotics of the U.S., Europe and Japan

are running out of assets to buy!

Their first “buy” targets were new government bonds issued to finance federal budget deficits.

But now, despite deficits which are still close to the largest in history, they’re printing so much money, they can’t find enough supplies of new bonds. So like car buyers shopping for out-of-circulation models, they’re now buying previously-owned merchandise in the used bond market (the so-called secondary market).

What’s even more alarming is that, for many months now, the U.S. central bank in particular — the Federal Reserve — has been loading up with bonds that are not even issued by the U.S. Treasury Department — bonds, that, by rights, should be off limits to the Fed: Mortgage-backed securities.

Remember: These were the instruments that drove the housing boom and fueled the housing bust. These were among the main things that were called “toxic assets.”

Has everyone forgotten that term?

Does everyone have the same mental block regarding the fact that the assets central banks are stuffing into their balance sheets today are the same kind of toxic assets that sunk the world’s largest banks and poisoned the balance sheets of thousands of financial institutions just a few years ago?

Fortunately, not. There is actually a small minority of voices that remember …

Richard Fisher, president of the Federal Reserve Bank of Dallas, has just warned his fellow central bankers to slow down its purchases of mortgage-backed securities, or else. In fact, at this rate, he says, the Fed could soon be buying ONE HUNDRED PERCENT of that market, which can only lead to “disruption” (his euphemism for disorder and disaster).

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, is so worried about the risks of the Fed’s money printing, he’s boldly breaking from this peers and advocating they pull back as early as next month.

But these soft voices are being drowned out by the cheers on Wall Street.

Worse, Ben Bernanke and his solid core of supporters at the Fed are thumbing their noses at them; at best, damning them with faint praise.

Your Big Dilemma

This convergence of strange forces presents you with a very unique dilemma:

* You have some of the biggest profit opportunities in many years as long as the money printing continues and markets continue moving higher, plus, at the same time …

* We will have to confront some of the most frightening future outcomes in history, when and if central bankers ultimately stop rolling the printing presses.

Our job at Weiss Research is to guide you through this mine field. And it’s not nearly as difficult as it may appear.

There ARE some simple ways to find stocks that have relative safety, as we have pointed out here repeatedly. It’s called safety-first stock ratings, and we happen to be the ones who developed the only ones.

There are very simple, tried-and-tested tactics you can use to help avoid future losses, and they all tie back to a single four-letter word that most of Wall Street seems to shun: SELL.

There is also a unique, wonderful investment that, in today’s whacky world, most people consider not to be an investment at all: CASH.

And fortunately, when the time is right, we can also use a previously beloved tactic that most investors have unfortunately learned to hate: HEDGES.

We give you specific buy-and-sell instructions in our investment newsletters and services. But we also give you valuable guidance and empowerment tools in our free reports and articles, such as those highlighted below.

Good luck and God bless!

Martin

 

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EDITOR’S PICKS What MY home buying experience can teach YOU about today’s real estate market by Mike Larson After an odyssey that lasted more than a year, my wife and I finally got over the finish line this week. We finally closed on the purchase of our new house. A Simple, Yet Powerful Model for Calculating Expected Investment Returns by Bill Hall In my April 10 Money and Markets column, I explained that the first building block all successful investors must have to grow their next egg is a Better Investment Model. This means kicking the concept of luck to the curb and fine-tuning your investment process so you can confidently apply it to any future investments you make. Property and Casualty Bond Quality Tumbles to Record Low by Weiss Ratings Two numbers sum up the emerging crisis facing property and casualty (P&C) insurers: record low net yield on invested assets and a record high level of junk bonds.

THIS WEEK’S TOP STORIES Is the Fed’s Punchbowl Running on Empty? by Mike Burnick A recent Wall Street Journal article caused a stir in financial markets this week. “Fed Maps Exit From Stimulus” proclaimed the headline written by reporter Jon Hilsenrath, who many believe has the inside scoop on Federal Reserve policy. A Commodity Play to Counteract the Summer Swoon by Douglas Davenport Even if you’re a novice investor, you’re probably familiar with the age-old saying, “Sell in May and go away.” In short, it means that the May through October season each year is often a dead period in the markets. WWIII has already started … by Larry Edelson A few days ago, a colleague I was talking to asked me if I foresaw the world ever entering a stage of war that could be called World War III. My answer shocked him. I told him — in no uncertain terms — that WWIII has already started.

 

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