| MARKET ROUNDUP | |
| Dow | +14.84 to 16,921.46 |
| S&P 500 | +2.50 to 1,959.48 |
| Nasdaq | -3.51 to 4,359.33 |
| 10-YR Yield | +.009 to 2.622% |
| Gold | +$45.60 to $1,318.30 |
| Crude Oil | +$.64 to $106.62 |
I’ve never been a big fan of the circus. Maybe it’s because I’m afraid of clowns … and I have yet to see a circus without a gaggle of them parading around.
But you can’t help but marvel at the high-wire acts. Here you have a handful of acrobats who can somehow walk across a wire no wider than your finger … and manage not to plunge to the ground! And they do so surrounded by hundreds or thousands of spectators cheering at the top of their lungs!
What brings this up? The stock market, that’s what.
Yesterday’s Federal Reserve meeting prompted yet another melt up in the major stock indices. The Dow, S&P 500 and Nasdaq Composite all took off like a rocket late in the day, in part because the Fed’s Janet Yellen said she didn’t see compelling evidence of a stock market bubble.
Meanwhile, the VIX index of volatility that I’ve been talking about sank to a fresh low dating all the way back to early 2007.
Some investors believe this is the start of a massive, summer melt up that carries stocks much higher. In that line of thinking, the Fed’s top policymakers have shown they simply don’t care as much as other less-powerful colleagues about the surge in complacency.
They don’t care about the explosion in inflation. They don’t care about the stronger growth figures we’re seeing. And they don’t care about anything else. They’re hell-bent on printing us into the biggest equity bubble in history, so you should buy any and all stocks!
But a contrary narrative is also out there. The shorthand version? What the heck is the Fed smoking??
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| The Fed Chair’s remarks yesterday prompted yet another melt up in the major stock indices. |
It’s not just the Consumer Price Index. It’s virtually every indicator of inflation on the planet that’s getting hotter. At the same time, the job market is improving rapidly and the economy is rebounding strongly from its first-quarter stumble.
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“The Fed’s low-rate pledges aren’t worth the paper they’re printed on.” |
This view got a big boost from economic data released not 24 hours after Fed Chairman Janet Yellen took the microphone in Washington. Specifically, we learned that initial jobless claims dropped 6,000 to 312,000 in the most recent week. Continuing jobless claims also dropped, falling to the lowest since October 2007. Overall, American payrolls are on track to grow more in 2014 than in any other year since 1999.
Meanwhile, the Philadelphia Fed manufacturing index surged to 17.8 in June from 15.4 in May. Not only was that well above expectations, it was also the best level since September 2013. The inflation reading embedded in the report — the prices paid sub-index — surged to 35 from 23. That was the highest reading going all the way back to the summer of 2011.
Sooooooo the obvious question is, “Why are interest rates pegged at record lows again?” It simply doesn’t make sense. And that means the Fed’s low-rate pledges aren’t worth the paper they’re printed on. Policymakers will be forced to slash QE and raise interest rates sooner, rather than later. That, in turn, could lead to a melt down in stocks since they’re completely addicted to a never-ending flood of easy money.
I talked about my view on the Fed and where we could be heading yesterday. Now I’m interested in finding out where you come down on this debate.
Do you believe in the melt up or melt down scenarios? Is it possible to find a middle ground? What investing strategy makes the most sense to you in this environment? Share your thoughts in the comment section by going here.
| OUR READERS SPEAK |
In the wake of yesterday’s Fed meeting, where Yellen said all the evidence of rising prices was just “noise,” many of you begged to differ.
Reader Anthony G.said bluntly that “This Fed is behind the curve. The keystrokes and printing presses of this Fed have created skyscrapers, bridges, and roads to nowhere. This artificial prosperity will melt down.”
And Reader Geraldina said it’s so obvious, even her grandson can figure it out. She said: “Everything is downsized in food and prices are raised. It used to be that you could cover a slice of bread with a square of cheese. Not anymore. You need a square and a half.
“My grandson said the other day: ‘That’s ok Grandma, I’ll just eat all the bread around it first then eat the best part with the cheese after.’ Even kids notice! They are smarter than the folks in Washington.”
But Reader Larry Mc D. said rates simply can’t go up given all the debt weighing down on our economy. His take: “The Fed understands only too well that every percentage point it raises rates means $175 billion added to the annual deficit due to increased interest payments … Returning rates to historical levels would devastate the fragile economy, bankrupt the country and destroy Main Street. The Fed will continue to print money and hold down rates a la Japan because the alternative in not acceptable.”
Well, my position should be fairly clear to you. The Fed may not want to raise rates. But it is going to have to given the inflation and growth outlook for the U.S. and elsewhere. But as always, I’d love to hear more of your opinions and thoughts at the website. Click here to add your two cents!
| OTHER DEVELOPMENTS OF THE DAY |
 What the world needs now is not love sweet love. It’s another smartphone — this time from Amazon.com. So after viewing this video and reading about it, what do you think? Worth the money? Better or worse than the iPhone or competing phones from Samsung? Let me know.
The stock popped nicely after the company beat earnings-per-share estimates by 4 cents. Revenue surged 10 percent to around $33 billion, helped along by the firm’s acquisition of Harris Teeter.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 32 comments }
Why is Larry Edelson waiting 4 days before telling us his opinion on what the approximate $45.00 increase in the price of gold means short and long term?
could it be because the velocity of money is still very low?
The crony capitalism in the world economy makes a soft landing from the 5 year melt up unlikely. Most projects were politically determined with no profit – loss basis. I expect a big melt down from a lot of malinvestment.
Mike Didn’t you tell us last year to sell all our stocks. If I did that I would have missed one of the biggest runs in history!!
I vote for both: melt up through July followed by a melt down in August-October. Markets always go farther than people can believe: Up and Down.
The crony capitalism in the world economy makes a soft landing from the 5 year melt up unlikely. Most projects were politically determined with no profit – loss basis. I expect a big melt down.
I think low interest rates are good for investors,because companies can borrow the money ultra low and than can huge buyback their own stocks and so the EPS and the share price of stocks goes much more up.I dont think that will come any melt down.
Don’t forget the recent 15% reduction in the width of toilet paper rolls and reduction in the size and thickness of tissues. Before long we may have to resort to leaves; watch out for poison ivy.
I believe the “melt up will continue to October and then we’ll see some major sell programs in the equity markets, unless geo-political developments hasten the “correction” that’s been waiting to happen with all indexes heavily extended north.
Can’t figure a strategy here. I have too much cash, earning way too little. I have relatively large amount in real estate equity and plan to move within 2 years to a new house. Higher rates are inevitable. If higher rates hurt stocks and real estate, do I lose more holding cash during inflation, to use it during lower Real Estate and stock prices, or deploy it now, avoiding inflation damage, but taking a likely hit when markets fall?
Yes you will get hurt.. When the music stops well you probably read my earlier email.
Once again Larry Edelson has hit the mark, both for gold/silver and for the US markets.
This guy is good at what he does. Listen to him and act on his advice. You will make money.
This is going to end badly .. I have seen this before. When the music stops I feel sorry for the people who can not find a chair and there will be many who get hurt., but wait. If you are a big corporation the goverment(tax payer) will bail them out. I have seen this before. Act II in the last 5 years.
I don’t understand how a government can be in such denial of facts. At LEAST 5 different financial letters and analysts have continually (and justly) criticized the current administration for its fiscal irresponsibility which will impact the savings and investments of almost ALL Americans. Obama is out of his league if he truly believes that the involvement of America in the middle east will haver ANY influence as to what these warring people have ALWAYS lived by. You CANNOT ‘Give” people democracy. They don’t want it and they don’t understand it. If the administration believes that printing money will fix all our ills, then they (the administration haven’t learned ANYTHING from past lessons.
Obama knows exactly what he is doing. To control the country he needs poverty. Overload the system until it implodes then offer the great government solution to a population without guns if possible. All tyrants come into power on a wave of popularity. Look at history.
Why would Obama want the poor to stay poor? Get educated & that’s the biggest problem we have.
YES,YES,YES!! This is the master plan and we are well on the way to achieving Obama’s primary goal. What I still want to know is who is the master manipulator behind Obama. He had NO credentials when he was nominated but he somehow got elected and reelected – it makes no sense even with his appeal to the poor. Oprah had a big hand in the election but there had to be a master manipulator. Even Oprah abandoned him in the reelection when she realized Obama’s efforts to keep the poor down.
Jac is right and my response is to his comments.
Let the makket go where it goes. It’s time to buy mining stocks & metals
While the FED’s never ending QE should be inflationary, and some of those turkeys are coming home to roost, the state of the world means the US Stock Market is still the best place for safe investments. So that is partly what is propping up this market, not just low returns on bonds. Cutting Federal spending (sequestration) along with lower wage rates, are deflationary. So when do all these forces balance out, or when does one become predominant? That is the $64,000 question.
It is getting is scary but you have to trust your positions & hang in there! I’m back in Silver but don’t get too greedy
Anyone who tries to catch the lows and sell the highs of the market will probably lose a lot of money. Better to look for good companies, as Warren Buffet does, and buy them when they are not over priced. Takes patience.
‘Hickory, dickory, dock
My PM’s are more then a rock
When the clock strikes two
I weep for you
Who don’t think they will buy me a flock’
Ladies and gentlemens. Listen please. Interest rates have been and will remain low for several more years. When rates are low in a “bull” market, the only thing that will end the bull run are much higher rates. We’ll get to that point towards the end of this decade, but until then we will see no new bear market. The fed was raising rates from 2003 to 2007 with still a rising stock market. It was when rates went past 5.5% did the bubble burst. Rates are zero now. We have a long way to go. It will not take 5% fed rates to end the bull, but you get the idea of where we are in this stage of the crisis and then where we must go to enter the next stage. This has occurred the same way throughout history.
‘Know your enemy, 1,000 battles, 1,000 victories’
Sun Tzu
‘Know your history. 1,000 decisions, 0 regrets’
Andrew Dice Clay
“History doesn’t always repeat itself, but it certainly does rhyme’
Mark Twain
P.s.
By “0 regrets”, I certainly don’t mean you will make all the right decisions. What I do mean is that by having such good discernment, you will be able to easily shake off the few bad investments you make in light of all the good decisions that come to full fruition and by most especially the few decisions that more then exceed your initial expectations. God sipped to you all.
Hahaha! I meant to write . . . GODSPEED to you all!
:D
A melt up because of exponential technology advances and the fact that the stock market has traded up and down but mostly sideways since the year 2000 and is due to continue the trek higher. Look at a graph of the S&P for the past 30 years.
Just like you said it. They (FED) is doing tight robe. And I think this is melt-up. Question is: will (FED) keep balance?
The Fed is like Dinosaur Rex who ruled the land because of its sheer size, and ability to do whatever it wanted. Unfortunately, due to its narcissistic disorder, Rex never recognized the reality of turmoil it caused by its own actions, nor the possible unintended consequences arising from its behavior. The Fed’s proclamation of increasing inflation being just “noise”, is expected reaction from anyone who rejects reality from the world around them. Are you kidding me, wake up and smell the roses: rates and the market will melt UP, albeit with a short term correction down.
With interest rates dropping around the world, raising US rates will be difficult even with rising inflation.
Mike-
Do you really believe the actual unemployment rate is dropping? Do you really believe the job numbers are real? Get out of the office Mike and travel into real America like we do and see what’s going on.
Right on, Marty!
Larry McD has it right – we are in a bind and we do not know how to get out……
The foundation of our fiscal problems is that we adopted a mathematically impossible debt based monetary system with the implementation of the Federal Reserve Act in 1913. It is the cleverest Ponzi Scheme ever devised by man that absolutely guarantee’s “winners and losers” because interest is never created, only debt which grows exponentially until it is impossible to service even at near zero rates like we have now.
It is a recipe designed for perpetual debt. It allows the designers, (the 1%) to skim the cream from the top while making most of the rest of us life long debt slaves while holding out through the delusion of the “magic of compounding” we can all get rich? Simple mathematics blows that sky high, if we could all get rich by having our money work for us instead of being a “producer” ourselves, pray tell WHO would be left to PAY the interest that supposedly can make everyone rich? The interest has to come from somewhere, and since it is never created by a debt based fiat system, it can only continue as long as enough people are willing to take on ever increasing levels of debt.
If you dig deep enough you will find the answer to “meltups and meltdowns” which are merely a manifestation of what has been dubbed “business cycles” caused by a badly flawed monetary system that has been hijacked by well hidden elites pulling strings in the background.