Turn on any television, click on any hyperlink, and you’ll be bombarded with… “versus.” It’s tiring: bulls versus bears, expansion versus recession, and, of course, red versus blue.
Well, we can put these polarizing debates to bed, once and for all… The old rules of economics and approaches to investing – the tired old sacred cows of the pundit class – are rapidly receding in the rearview mirror. And investors who align themselves with that kind of thinking are, to be blunt, doomed.
I’ll show you in a minute how the Fed and its renewed money-printing – $278 billion and counting fast – are pushing us toward what old sailors and cartographers used to call “terra incognita.”
The edge of the map. The Twilight Zone.
Think “Australia in 1603.” Unknown land. “Here be dragons.” Strange territory, indeed.
And just like those early modern explorers found, there are almost unimaginable riches to be had.
There’s peril, too, but I’ll show you why you don’t have to worry about that.
The Fed’s unprecedented – let’s call it what it is, folks – stimulus has created a gravity-defying, absolutely gangbusters market melt-up: a colossal opportunity for making money. One that we may not see again in our lifetimes.
If that sounds strange to you, I agree. The fundamentals don’t support a market like this, but the Fed is the market now, and this market is having a melt-up for the history books.
And I don’t want you to miss a red cent of the profit potential…
This Central Bank Stimulus Is Like Steroids
In case you’re worrying that this is just an opinion rather than empirical, objective fact, let’s just look at the numbers together.
Adjust your eyeglasses, take a seat, and pour a strong martini – you may need it.
In the last 30 days, from Oct. 4 to Nov. 4, the Fed’s balance sheet has jumped by $94 billion.
In the month before, the 30-day total jumped by $184 billion – thanks to a money-printing press firing on afterburners, practically, to bail out the repo and treasury markets.
Folks, this means that in just 60 days, the Fed has pumped, printed, and “accommodated” Wall Street to the tune of $278 billion.
$278 billion created out of thin air.
To put this into perspective, that’s a balance sheet expansion we haven’t seen since Lehman Brothers tanked (and took the markets along with it) in late 2008.
Only this time, markets are hitting new highs, not recovering from record lows. As I said, and as you may very well agree, this feels strange.
The truth investors must come to grips with right now is, love it or hate it, the Fed is powerful and not worth fighting.
And despite what pundits, prompt-readers, and other media and D.C. bobbleheads spew daily, the bottom line is this: The Fed is the market.
If you have any lingering doubts, I’ve just given you 278 billion reasons to reconsider your belief in the good ol’ days of natural, free market capitalism.
The simple truth is those days are gone. Period.
The Fed Put This Steroid Bender on Our Dime
As I mentioned, there are a lot of really, really broken fundamentals and rigged policies behind the modern, post-2008 market backdrop.
Most of us can simply agree on this.
That said, just because something is rigged, corrosive, or ethically and historically wrong doesn’t mean markets can’t melt up on unnatural rather than natural markets.
After all, steroids do work, even if they’re crazy bad for you.
We just have to accept this.
So here we are, and here’s the question: Do any of these appalling symptoms of capitalism’s embarrassing fall from grace really matter to your invested money in this last great bull melt-up?
That is, do markets which are now openly driven by central bank “faking it” really care about corruption at WeWork or Deutsche Bank? Do they give a damn about the rigged game at the Fed? Are the worries about the unfolding disaster that is our real economy?
Sure, we care – all of us who value our country, our money, ethics, and our future want to stay informed and on top of the market’s latest absurdities.
But folks, when I see the Fed printing money like it has in the last 60 days, I can’t help but resign myself to a harsh current reality. And that reality is simple:
If the Fed wants to print trillions more to prop up the stock and bond markets, broken fundamentals, corrupt captains of “industry,” and tanking data… Well, these are no match for a Fed dumping martini after martini into the market party.
The point is as simple as it is bizarre: If the Fed wants to get high, the markets will go up, all else be damned.
We have a duty to ourselves, our families, and our financial well-being to use this to our advantage.
The fancy term for this is a “melt-up,” and we are in a Fed-centric one today.
And if melt-ups are the “new abnormal,” this humbly implies that the fundamentals we track so carefully mean less and less against a determined (and desperate) Fed.
It’s just that crazy out there, just that distorted.
OK, so you might be thinking, “Thanks Matt, for the cold truth, but what the heck does this mean for my money and how to invest it?”
Very good question. So, let’s talk about dragons for a minute…
There Is an Accurate “Map” for These Wild, Unknown Markets
Long ago, the experts said the world was flat. The maps used by sailors stopped at the edges of the oceans, where there were simply the words “Here be dragons.”
In short, no one knew what lay beyond the given maps and seas. It was pure terra incognita. Hence, all the mapmakers and sailors could imagine were dragons ahead.
As for me and my partner Tom Lott (who I’ll introduce shortly; he’s a guy you definitely want to know) or anyone else who spent a lifetime navigating markets, we too must confess that we are facing entirely uncharted waters ahead – a “terra incognita” of central bank intervention – intervention unprecedented in market history, let alone any market textbooks.
Which means no one knows how long such Fed “intervention,” “accommodation,” or “stimulus” can work or last – as we are literally in a world of unknown dragons – truly uncharted waters.
Fortunately, however, we have the expertise and experience to get through any market – even one as bizarre as this one.
Although we may not know what the map of this new central-bank-driven future looks like today, and although uncertainty surrounds all of us, we do know how to sail these markets, whether there are dragons, lions, or central bankers just off the edge.
In the meantime, here’s what informed investors – armed with the unvarnished truth – should be buying.
Our Recommendations Right Now
The S&P 500 will rise for now, as the Fed just bought the stock markets another round of cheap-debt beer to keep the party going.
Of course, if the Fed is openly purchasing T-bills (and it is) it goes almost without saying that short-duration Treasuries are going to go up in price, not down. That’s another easy fat pitch. It’s essentially a Fed “front-run.”
And if the Fed is printing over a trillion dollars to finance its own debt and bail out both short-duration treasury and repo markets, then it’s clear that, over the long term, more printed money means weakening purchasing power for dollars and ultimately a longer trend up for gold and silver.
— Matt Piepenburg
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Source: Money Morning