The market is hotting up.
But not here, not in Australia. Not yet anyway.
That will come. You can bank on it.
But for now things are really hotting up in the US market. Two of the main indices are at record highs, and still the money keeps pouring into the market.
What can stop it?
Bloomberg News reports:
‘Investors are pouring more money into stock mutual funds in the U.S. than they have in 13 years, attracted by a market near record highs and stung by bond losses that would deepen if interest rates keep rising.‘
This is an argument few have looked at. Most of the talk about rising interest rates centres on why it would be bad news for stocks.
Rising interest rates can be bad news for stocks because they create competition for dividend stocks. If an investor can get – say – a 4% yield on a savings account they’re less likely to accept – say – a 4% yield on stocks, which have more risk.
That typically means stock prices will fall unless companies can increase dividends at the same time that finance costs are rising.
But what about the flipside? If interest rates go up, that means bond prices fall. That means big investors may cut back their bond exposure…and that could cause a surge into stocks.
That reasoning is partly why stocks have been so volatile. Big investors don’t know whether interest rates are good for stocks or bad for stocks.
Incidentally, the constant rising and falling market is a big reason our publisher, Port Phillip Publishing, has invested in a ‘black box’ directional trading system developed by former Telstra engineer Brian Jagger.
Unlike most trading systems, you don’t need to be ‘on call’ for the latest trade alert. You just check your email at the same time every morning, enter the trade and that’s it, you get to enjoy the rest of your day without checking in on the market.
You can find out more about this no-nonsense, purely technical trading system here.
But back to the news about record inflows into stock mutual funds (the US equivalent of managed funds). The knee-jerk reaction is to say, ‘Well, here comes the top of the market.’
And it could be. But that view ignores one point. Who’s to say fund inflows won’t hit another record next month, and the month after that?
The same goes for a stock index. Whenever an index hits a new high some folks are quick to say that’s the top of the market. They forget that when the market hit the previous high that was a record too, but it didn’t stop stocks going even higher.
We will agree with one thing. When stocks keep taking out a new high, it makes sense to be cautious. But it’s still not time to rush for the exit.
For instance, in the past few weeks, three of our Revolutionary Tech Investor stock tips have registered 100% gains, and one has got close to the mark. They’ve slipped back from those highs in recent days, but we see that slip as little more than a short-term bump on the road to higher stock prices.
And it’s all thanks to cheap money. It’s flowing through the economy, pushing up asset prices and pushing up consumer prices.
Another report from Bloomberg highlights the impact of cheap money:
‘A year ago, New Jersey contractor Michael Mroz’s customers were focused on saving money when renovating kitchens and baths, he said. Now, with a resurgence of home equity lending, they’re ready to pay for the best.
‘“People don’t want granite countertops – they want marble costing at least 25 percent more,” said Mroz, owner of Michael Robert Construction in Westfield, an affluent town less than an hour’s commute to Manhattan. “Money is so cheap today, people can splurge on $1,000 faucets.”‘
Make no mistake, not everyone benefits from cheap money, rising asset prices and rising consumer prices.
It’s not a coincidence that folks in the Manhattan commuter belt – most likely financial services professionals – are those getting the benefit of the US Federal Reserve’s cheap money policies.
It’s hard to imagine the average working class New Jersey resident splashing out on thousand dollar taps.
But it’s not so hard to imagine a Wall Street banker, fund manager or trader splashing out on marble bench tops, $1,000 taps, and perhaps even gold plated toilets.
This is just one more real example of where the money flows when central banks print it.
And this is exactly why we say you need to be a part of it. Sure, you can get angry, say it’s crazy and refuse to play along as this asset bubble grows. Or you can follow the money flow. As the old saying goes, ‘Don’t get angry, get even.’
Right now that means putting your money where Wall Street is putting its money – in stocks.
US stock prices are surging. It’s time to get set, because it’s only a matter of time before this flows through to the Aussie stock market.
Cheers,
Kris+
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