Why the Stock Market Boom Will Continue Until 2015
Stock-Markets / Stocks Bull Market May 17, 2013 - 10:03 AM GMTBy: DailyWealth
Dr. Steve Sjuggerud writes: The stock market boom so far has been incredible... And it isn't ending anytime soon...
The Dow Jones stock index is up 22% since November. It's hitting new all-time highs. And most people are worried that a bust is just around the corner. But those people don't get why the market is going up...
This stock market boom is not about an improving economy, improving home sales, or improving corporate revenues. It is about stimulus from the Federal Reserve.
So the question becomes, when will the Fed's stimulus end?
Here's what you need to know...
The "Bernanke Asset Bubble" is shorthand for my long-term thesis that asset prices – namely U.S. stocks and U.S. housing prices – can and will soar to unimaginable heights, thanks to the Fed's commitment to keeping interest rates low.
You see, low interest rates force investors out of bonds and into stocks and real estate. And the Fed isn't going to let interest rates rise anytime soon.
The Federal Reserve has a "dual mandate" – it's trying to accomplish two things.
It wants to 1) keep prices stable and 2) keep people employed.
The Fed has laid out its specific targets... It wants to see the unemployment rate below 6.5%. And it wants inflation to get up to 2%.
It will keep stimulating the economy until its objectives are met.
Today, the unemployment rate is 7.7%. A survey of 75 economists forecast that the unemployment rate will fall gradually to 6.9% in the fourth quarter of 2014. This works out to unemployment going down by roughly 0.1% a quarter.
And today, the inflation rate (as measured with the Fed's favorite inflation measure, the "core PCE") is 1.1% – well below the Fed's target of 2%. Bloomberg's survey of Wall Street economists says that the inflation rate will still fall short of the Fed's target... with estimates of 1.5% for the fourth quarter of 2013 and 1.85% for the fourth quarter of 2014.
Unless something drastic happens, unemployment is not going to fall fast enough and inflation is not going to rise fast enough to cause the Fed to stop stimulating the economy anytime soon.
The simple conclusion here is that the Fed will continue "juicing" the U.S. stock market at least through the end of 2014. It will not get in the way of this boom.
Don't over-think it. The message is simple: Own U.S. stocks.
This is a 100% Fed-driven stock market. And the Fed stimulus will continue... for a while.
Invest accordingly.
Good investing,
Steve
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Daily Wealth Archive
|
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
