The Stock And Gold Markets: One’s Looking Good, The Other Not So Good

The Dow Jones’ last all-time high (BEV Zero) was on August 7, and as for much of the past year, the Dow continues refusing to correct more than just a few percentage points, if that. Come this December, it will be two years since the Dow Jones has corrected anywhere near its BEV -7.5% red line in the BEV chart below, and that seems odd to me. 

But maybe that’s just me worrying unnecessarily about excessive bullishness in this market. Gallup’s poll of investors’ optimism is at a high not seen since September 2000, seventeen years ago. However, I suspect September 2017 will prove to be as a good time to exit the market as was September 2000, even if most investors seem to disagree.

This advance isn’t going to go on forever, but it may go on for longer than I believe it can. This is especially true considering who the big bulls are in this market; central banks such as the Federal Reserve have a political interest in keeping this market near its all-time high.

It takes buying to make a market go higher, and buying takes money, and money is something central banks never have to worry about or so most people believe. What central banks worry about is the “credibility” of their “monetary policy.” As we rapidly approach 2018, apparently “credibility” is something the Federal Reserve isn’t concerned about.

But maybe looking at “monetary policy” like that is viewing it from a pre credit-crisis point of view, when evaluating “monetary policy” was from a point of view of guarding the integrity of the currency these central banks managed, and damn everything else. I know that wasn’t the reality of pre-2008 “monetary policy”, but that was how the theory went, that centrals banks were responsible for taking the punch bowl away when the party really got going and all that.

In the post credit crisis world, is it possible that the credibility of current “monetary policy” is now seen as the willingness of central banks to maintain the inflated values in the stock and bond markets? You know – keeping the party’s punch bowl full of “liquidity” no matter how obnoxiously intoxicated some people get. You had best believe it is.

The US Debt limit has once again been increased, now to over $20 trillion dollars. This is something that has dire implications for the future purchasing power of the US dollar. Yet the FOMC refuses to raise interest rates sufficiently to punish both politicians and market speculators for their irrational behavior, and I doubt they ever will until Mr. Bear forces them to.

I’m just looking at the Dow Jones BEV chart above; the Dow Jones’ inability to have a proper correction, and the yield for the T-bond below where since last March its yield has declined 54 basis points, and all this just seems odd. 

Why would anyone lend money to the US Government for a term of twenty years by buying this bond, while asking for less than a 2.5% yield? This is the irrational behavior I’m talking about.

It was just in October 2008 when the US National Debt increased to over ten trillion dollars, and now nine years later, it’s doubled to over twenty trillion dollars?  Nine years from now will the US Treasury be forty trillion dollars in debt?I don’t think so because this freight-train of debt is going to derail long before that.

I can’t set a date for this but we’ll all know when it happens. This bond will then yield something in the double digits when the markets finally recognize what the Republican and Democratic parties, and their creature the Federal Reserve have done: made monopoly money out of the once all-mighty US dollar. And don’t expect these malignant narcissists to say “I’m sorry” when it happens. Their first impulse will be to tell the voters not to panic as they declare martial law.