US Stock market continues to set new records, with the latest one being a trend not beaten since 1972.
On tracking the market’s performance in relation to its moving averages, FOREX.com found that S&P 500 had only five closes below its 10-day moving average over the past 70 days, a time frame used because it is the time since the Federal Reserve started expanding its balance sheet. The lowest of such closing was 48 years back in 1972.
Fed Propelling the Stocks Rally
Fed officials have insisted that the latest round of bond buying is “in no sense” quantitative easing. The Fed might believe it so after repeating it enough times but the all-time highs the US stock market have been hitting paints a completely different picture.
“US stocks haven’t seen this consistent of a rally since most of us have been alive,” said Matt Weller, global head of market research at FOREX.com.
Deutsche Bank also notes that since the Fed started buying T-Bills, the S&P 500 went up 1 percentage for every 1 percentage increase in their balance sheet.
“So in that sense, Fed balance sheet expansion has at least been correlated with the increase in the stock market we have seen since October,” said Torsten Slok, chief economist at Deutsche Bank AG.
Also, every time the Fed mentioned cutting down its holdings, the market experienced a major correction.
It’s a “Ponzi Scheme”
Scott Minerd of Guggenheim Investments also fired some shorts against the rallying markets.
In a letter from the World Economic Forum meeting in Davos, Minerd compared the stock market to that of a “ponzi scheme,” which will eventually collapse.
“We will reach a tipping point when investors will awake to the rising tide of defaults and downgrades,” he said. “The timing is hard to predict, but this reminds me a lot of the lead-up to the 2001 and 2002 recession.”
With its liquidity pump in the markets, Guggenheim’s fixed-income chief Anne Walsh said the Fed has created “zombie companies.” This she said may see an outflow of capital as the utility of the money continues to diminish.
However, investors with $1 million or more in their brokerage accounts are, in fact, significantly more bullish than a quarter ago. There has been an increase of 16% in those who expected the market to rise as much as 5% in the first quarter.
And when it will start unraveling, it will fall hard
But the longer this market runs, the harder they will fall when this ends, said Walsh.
And when that will happen, we would need an uncorrelated asset that can’t be printed out of existence.
The world’s leading cryptocurrency is also the best performing asset of the decade with 9,000,000% returns.
“Investors have realized that the central banks have forced them into a high-risk corner and they’re jumping on it,” noted Mati Greenspan, founder of Quantum Economics.