Investors Cheer More Money Printing And No Spending Cuts
As the stock market makes new highs, people all around are asking “Why?”, and with good reason. Today’s jobs # was a good one, but for the most part the market is absolutely addicted to continued stimulus, which I write extensively about in this newsletter. However, there is also another piece to the puzzle: austerity through spending cuts.
Every dollar, or Euro not spent, is one not available in the economy. The fear has been that cuts not only here in the U.S., but also in Europe, would kill economies. But voters are fighting back. In the Italian Elections last week, their public voted against the responsible fiscal policies of Mario Monti and his goal of balancing their budget. Instead, they split their ballots among a slew of other “contenders”, from the irresponsible to the outright silly. Among the candidates included were the disgraced former prime minister, Silvio Berlusconi, and comedian Beppe Grillo (Italy’s Stephen Colbert) who actually got 25% of the vote through a platform on nothing more than contempt for politicians.
I still don’t understand how you can allow the people to vote on something that is essential, albeit painful. After all, who’s going to vote for pain? Nevertheless, they did, and the whole idea of forced spending cuts has been thrown into disarray. From this, we are seeing a backlash against austerity from other broke European countries, as well as here at home. What we’re left with is more free money printing accompanied with the spending habits of a drunken sailor. This is music to the market’s ears, that is until the money runs out, the hangover sets in, and we’re left with a debt that would rival the greatest of the Banana Republics. These are the prophesies I discussed in Facing Goliath- How To Triumph In The Dangerous Market Ahead, and they are coming true before our very eyes.
So, when you add all this in with the Feds QE programs, artificially low interest rates, and a public that is getting more optimistic but not yet complacent (complacency will be the death of this rally), you get no place else to go with money but stocks. This is actually all going as planned, as I have been saying on my radio show for months, the market would be making new highs in the first quarter. My concern is what happens when the party’s over. When that happens, it’s going to get painful in a hurry. Even though we are well overdue for a correction, I am still expecting higher highs ahead. However, fight that urge to throw panic to the wind, as we could be in for a dismal bear market come summer. Rest assured, I will actively adjust client portfolios accordingly.
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