Well, right on cue, it looks like the endless creation of fake money by the Fed has now poisoned both the stock market and the bond market. The Dow was down 1,000 (3%) points in two days and the Nasdaq down 7% in two weeks.
Gold and silver are also falling in sympathy. This was expected short term, but the outlook for the precious metals look excellent as I will discuss later.
Is this what the 16th century Swiss doctor Paracelsus ordered? It certainly looks like it. He told us that too high a dosage of anything is toxic. And with a world flooded with toxic money with little value, the levels of poison have reached extremes.
The toxic financial system needs to be cleansed but as we have warned many times, this will have dire consequences for the world.
FRANTIC STOCK BUYING BEFORE THE MUSIC STOPS
Buy high and sell low is the mantra of many investors. And as the stock market surges – buy more! And when it falls, buy still more.
But this time, the method of always being long, which has been fool proof for decades and underwritten by the Fed, will fail hopelessly. Whether investors buy on strength or buy the dips, they will get slaughtered.
As often the case at the end of a cycle, we have in recent weeks seen frantic buying of anything that moves just like with tech stocks in 1999-2000.
Just look at the incredible 16 week inflow to stocks of $414 billion. This is 2X the 2018 peak of $200b and an all-time record.
Investors are clearly jumping on the bandwagon just before the music stops.
There are many indicators that point to a market top currently and a secular bear market for many year as I have pointed out in recent newsletters.
The graph below is a clear red flag for stocks. It shows that all the higher highs since October 2017 have not been confirmed by momentum indicators (bearish divergence). So in spite of the Dow having gone up almost 6,000 points since Oct 2017, the RSI (Relative Strength Index) has shown lower tops for each new high in the Dow. That is very bearish.
There are a number of other technical indicators pointing to a top at this time.
TOXIC SPECULATION AND HELICOPTER MONEY
Coming back to toxic speculation, this caused the crash of the sub-prime market in 2006-9 when the global financial system was minutes from implosion. This led to the Great Financial Crisis. But an economics professor from Princeton University, who was chairman of the Fed at the time, “saved the world.” It was Helicopter Ben of course.
But Bernanke didn’t save the world. All he did was to take the orders of his masters, the heads of the major investment banks like JP Morgan, Goldman Sachs and Morgan Stanley. These banks had everything at stake. They were on the verge of bankruptcy and only a massive rescue mission by the Fed and other central banks could save them.
The rest is history. $10s of trillions of loans and guarantees later the US banks and the world were handed a stay of execution. And even that year in 2008, the bankers received the same mega bonuses as the previous year! Hmmm….
The 2006-9 crisis was never resolved and today, over 14 years since it started, the world is being hit by a crisis which is more than twice as big in debt terms with global debt up from $125 trillion in 2006 to $280t today.
The problem is that as debt has doubled, risk has gone up exponentially. And this time, the old cure of just printing worthless money will have ZERO effect on solving the problem.
But it will lead to the final collapse of the dollar and other currencies, massive problems in the financial system and hyperinflation.
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