The year 2017 has been stellar for stock market investors. Interestingly, most of the rise has been caused by enthusiasm about the future.
The large reductions in the governmental regulations, hopes that there will be more in the future, hopes that tax cuts will be substantial and fuel future economic growth, and hopes that the efforts of the far left to derail the president’s growth agenda will fail, have all led to the rise in optimism among investors.
Wall Street firms have just issued their forecasts for the stock market in 2018. The forecasts seem to be looking for 10%–15%
The major central banks have pursued a “zero interest rate policy” known as ZIRP, since the financial crisis of 2008-2009. More than $10.5 trillion of artificial credit were created. Has this unprecedented policy, never before seen in history, caused sustainable economic recoveries?
The evidence says: “No way.”
No recession, not even the Great Depression, has seen such anemic economic growth. Looking at it scientifically, instead of as an economist, we must ask, “Have central bank efforts to ‘stimulate’ actually done the opposite?” Has ZIRP actually contributed to global deflation?
During 2013, many smart analysts and money managers voiced their puzzlement of why the stock market continued to rise in spite of the lack of revenue growth of many companies, a stagnating economy, and looming problems in 2014. I wrote in our Wellington Letter that this year it would have been more productive for analysts to just “go with the flow” and head for the golf course each day then to do tedious analysis.
“Timing is Everything”
How much would it be worth to YOU to have the guidance of a highly respected analyst who has predicted every important market decline over the past 35 years?
How much would it be worth to have the analysis of someone who predicted the 20 year bear market in gold in 1981, after having been bullish from 1977 to 1980? It happened! The next gold bull markets started exactly 20 years later and his clients were on board.
China is now experiencing a monumental credit crisis. Loans are basically not available because confidence in repayment has vanished.
This is how the last global crisis started in 2007. I warned about it in my 2007 book, Prelude to Meltdown. The warnings were ignored in 2007, and my observations in this article will probably also be ignored by most people. “Denial” is always a defense mechanism, but not very useful.
To buy stocks right now is to bet on the willingness of the major central banks (that is, Europe, the Federal Reserve, Japan, and China) to create as much money as possible to prevent a stock market and economic disaster.
Prudent analysts say the ratio of a country’s debt to its GDP is already too high for many countries. Our view is that no one knows what is too high.