The markets are moving higher this morning as we had not one but two Central Bank interventions on Friday: 1) a surprise interest rate cut from China’s Central Bank and 2) ECB President Mario Draghi implying that he might buy sovereign bonds.
The simplest rendering of the markets today is that the Central Banks are in a race to devalue their currencies. The current winners in this scheme are Japan, which recently increased its QE program and the ECB, which has cut interest rates to negative (meaning you get charged to keep your money in Euros in a European bank).
In contrast, the US Federal Reserve has recently ended its QE programs. And the US Dollar is yielding 0.25%. All of this is US Dollar positive… which is, generally speaking, negative for commodities.
Stocks are in their own world as they have been since early 2013. The longer-term trendline for this bull market is around 1400. But we’ve been going near vertical for two years now.
We all know this is a stock market bubble. You cannot have the market drop 7% and then rally an even larger 10% in less than month based solely on a single non-voting Fed President’s comments and NOT be in a bubble.
We all know HOW this will end (the bubble will burst), but the question is WHEN it will end. In that regard, no one knows the answer. But when even a stock market cheerleader like Warren Buffett is sitting on record amounts of cash you know that there are few opportunities to find value.
Take note and prepare.
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