Clear and Present Danger!

By: Chris Vermeulen | Sat, Sep 24, 2016
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The cycle since 2009 has been different from other market cycles, throughout history, in only one significant manner. That having been said, it is the Global Central Banks that have intentionally pushed interest rates to zero and below. This encouraged investors to speculate in the equity markets which have now become 'dangerously overvalued, overbought,' as well as 'over bullish' extremes according to all measures. In my opinion, this has "deferred" and not eliminated the disruptive unwinding of this "speculative" episode.

They have encouraged a "historic expansion" of public and private debt burdens with equity market overvaluations that rivals only those of the 1929 and 2000 extremes on reliable valuation measures. These brazen experimental policies, of Central Banks, have amplified the sensitivity of the global financial markets to "economic disruptions" and "distortions of value" in relation to investor risk aversion.

It is very clear that a zero interest rate policy has encouraged yield-seeking speculation by investors. As I have previously discussed, in many of my past articles, I detailed that monetary easing "in and of itself" does not "support" the financial markets. 'Easy money' merely stimulates speculation while investors are already inclined to embrace even more risk. The actions of the FEDs' aggressive and persistent 'easing' will fail to prevent this "market collapse".

Any financial professional who has any understanding of how securities are priced, should know that elevating the price that investors pay for financial securities does not increase "aggregate wealth". A financial security (stocks) are nothing but a claim to some future set of cash flows. The actual "wealth" is embroiled in those future cash flows and the value-added production that generates them. Every security that is issued MUST be held by someone until that security is retired. Therefore, elevating the current price which investors pay for a given set of future cash flows simply brings forward investment returns that would have otherwise been earned later on. The FED is leaving "poorly-compensated" risk, on the table, for the future!

The total debt of the United States has reached gigantic proportions well beyond 2008: http://www.thegoldandoilguy.com/will-investments-hold-next-financial-crisis-will-far-worse-200809/

The crisis ended precisely when, in the second week of March of 2009, the Financial Accounting Standards Board (FASB) responded to Congressional pressure and changed rule FAS157 so as to remove the requirement for banks and other financial institutions to mark their assets to market value. The mere stroke of a pen has eliminated any chance of widespread defaults by making balance sheets look financially stronger. The new balance sheets may be great, in the short-term, but ultimately have become weapons of "mass destruction".


The Race to Debase Continues...

As of September 2nd, 2016, the BLSBS "disappoints" with a print of just 151,000 "jobs". This will eliminate the possibility of a FED FUNDS increase, however, do not be surprised if some FED officials emerge to tell you otherwise, as we are already experiencing some counter-intuitive moves within several of the "markets".

The true unemployment rate is ACTUALLY U-6! Consequently, the U-6 rate more accurately reflects a natural, non-technical understanding of what it means to be unemployed. Including discouraged workers, underemployed workers and other people who exist on the margins of the labor market, the U-6 rate provides a broad spectrum of the "underutilization" of labor within the country. In this sense, the U-6 rate is the TRUE unemployment rate which is close to 10%.


U-6 Unemployment Rate

Unemployment Rate U6


Concluding Thoughts:

In short, this incredible bull market is stocks which we have embraced since 2009 is quickly nearing its end. The FED's mass easy money policies, stock buyback programs, accounting rule changes have simply masked/covered up most of the financial mess people, business and global economies are in.

Eventually all these tactics to cover-up and kick the financial-can down the road will start to fail. One they start failing things will get really ugly fast for the entire economy for those not knowing how to avoid and profit from market weakness.

 


If you would like to learn more about how to take advantage and profit from tough times, follow me at www.TheGoldAndOilGuy.com

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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