It’s raining money… so rip off the roof and stay in bed, it’s raining money! It is no wonder the stock market is rising. There is so much liquidity in the market place and with interest rates so low there is no place to go but “risk on” assets.
What this means in simple terms is that central banks are creating another bubble. Just as I first reported in this newsletter back on November 19, 2010,
Playing With Bubbles,
“As the Fed gives us the gift of yet another bubble, investors need to know how to capitalize on this short term phenomenon and how to prepare for the inevitable burst….The Fed has no interest in fixing the root cause, which is lack of demand, just a quick fix to get us past the next election.”
Once again, rather than fix the problem so we can get on with a true recovery and adjust to slower growth from a rapidly aging population and a massively over-indebted population, they are making the same mistakes of the past: creating more money through debt just like they did in 1998 stock market bubble and 2003 real estate bubble. These are the very issues, along with what investors need to do, that are discussed in great depth in Facing Goliath: How to Triumph in the Dangerous Market Ahead. When will these kids learn that the answer to too much debt is not more debt!
Last week I reported that the amount of the growth in liquidity in global systems has become staggering, with the US. Federal Reserve’s $2.9 trillion, the ECB’s (European Central Bank) $3.6 trillion and the BOE’s (Bank of England) $1.1 Trillion. This week, I have expanded the research to include the eight largest central bank balance sheets including Japan and other Eurozone members. When combined they total a whopping $15 trillion and rising. With the entire world’s stock markets currently at a combined $48 trillion, central banks now equal one-third of world equity values. See the chart below.
Now, the good thing about bubbles is that it drives asset prices higher. Investors that know how to participate in the current bubble with the least risk possible and know when to get out, will do well. There are definitely good opportunities out there for nimble investors who know what they’re doing, so be the expert or hire one.
Investor Strategy: Naturally we cannot just sit with money in the bank earning nothing, nor can we afford to stay dormant with an old fashioned buy-and-hold (buy-and-hope) approach. Both are destined for disaster. We must take what the market gives us, when it gives it to us….but without all the risk – Invest for need, not for greed. Investing your hard earned money in the sweet spot is critical. That means getting the very best returns with the least amount of risk possible, and having personal exit strategy.
….That’s where we can help. Our active hands-on approach to managing portfolios can help you manage risk and deliver returns. If you would like to discuss the market, economy or simply get a free second opinion on your portfolio, call me for a free consultation today at (916) 925-8900.
P.S. If you would like a free copy of my recently published report, The Rules of Retirement Have Changed – How to build a rock solid retirement plan, just give us a call.