End of “Wall Street Party” Will Be a Catastrophe! Here’s Why (+2K Views)

It is risky to be in markets, but also risky to be out of them. The issue is whether it is less risky to remain on the long-side for a while than it is to leave or  go short (something that few can or should try to do) these overvalued markets. 

So says Monty Pelerin (economicnoise.com) in edited excerpts from his original post* entitled Recognizing The Dangers.

[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Pelerin goes on to say in further edited excerpts:

Readers know my concerns about the dangers of financial markets. By most reasonable measures markets appear to be greatly overvalued. That doesn’t mean there is still not a lot of upside left though.

Anthony Wile (thedailybell.com) expresses his sentiments on this issue in an article** entitled The Bearish – Bullish Conundrum. His thoughts, regarding both options, are similar to mine. He begins below with an observation I could not agree with more:

“…the markets are considerably, fantastically over bought and that whatever happens after this “Wall Street Party” is going to be a sort of catastrophe. One could also argue, however, that it is foolishness to bet decisively against the top banking elites evidently organizing this latest, last blowout. We’ve analyzed what’s been set in place and it doesn’t seem to us that those behind this ploy are ready to declare it over, certainly not yet. The groundwork has been laid, but there is much yet to reap:

• Janet Yellen, the Fed’s uber-dove, has not yet taken office. England’s uber-dove Mark Carney has only just begun his term at the top. Together these formidable easy-money mavens could print tidal waves of money to lubricate Anglosphere equity markets. This is part of a larger coordination of easy money policies affecting Asia, as well.
• The JOBS act allows private firms to advertise opportunities to a global audience, even though purchasers have to be accredited investors. The massive PR effect of the JOBS Act has barely been felt.
• The IPO pipeline is still jammed with warmist and “green” corporate product still waiting to be funded.
• Gold has been hammered down by the same elite banking forces that are forcing markets higher. The pressures on gold via dollar appreciation show no signs of easing any time soon.
• Fracking continues unabated, providing a further “feel good” story about energy resources and the prospect of stable energy prices going forward.

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What could slow the “party” or end it would be significantly higher interest rates; but central banks, coordinated by the Bank for International Settlements, have proven to be effective thus far at controlling dollar-reserve rates despite the torrents of dollars that have been printed over the past half-decade.

Also, it is not as if central banks have stinted on the money printing. While the Fed itself has admitted to something like US$16 trillion distributed post-crisis, mostly in short-term loans (probably not paid back), the actual total is a good deal higher. Close to five years ago, we estimated that central banks would probably print about US$100 trillion to try to prop up the failing system. We figure the total thus far is somewhere around US$50 trillion, though it could be higher. Despite these unimaginable sums, price inflation has certainly not reached hyper levels though, to be sure, the amount of price inflation is considerably understated.

There is no overriding certainty that central banks will lose control of their monetary base in the next month or even in the next year and, if they begin to, there are always stopgap measures such as the US “plunge protection team” which can brazenly – and illegally – go into the market with freshly printed central bank money to stabilize it, as necessary, at least in the short-term.

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At some point there will be a breakdown. Real market forces will reassert themselves but “when” is not easy to discern. I personally know people who are continually trying to sell this market short and are surrendering over and over because the timing is not right.

The IPO market is revving up; top central banking doves are in place; the JOBS Act is ready to pour its promotions on receptive investors around the world; central banks are coordinating money printing in ways never seen before; gold remains down.

It is sensible to predict the demise of this empyrean equity fairy tale but those elite bankers controlling the central banking money printing have different ideas. To sell THEM short is not a good idea, as they have proven to be both brutal and determined over generations and continue to have formidable weaponry that allows them to pursue their goals.

One can make the bearish case with ease in this illogical market but logic may have little to do with it currently and no one can say with any precision when a final crash may come. For now, the punch bowl sits squarely in the center of the table. There may be a good deal of volatility associated with this “party” but I don’t see any sign that someone intends to confiscate the booze as of yet.”

 [Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]

*http://www.economicnoise.com/2014/01/05/recognizing-dangers/ **Source of quote above: http://www.thedailybell.com/editorials/34895/Anthony-Wile-The-BearishBullish-Conundrum/#sthash.niZ1nfLd.dpuf

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