Today the stock market, as measured by the Dow Jones Industrial Average, hit an all-time high of 14,283 (intraday basis; closing at 14,253). A broader measure of stocks, the S&P 500 index, also seems to be doing well as it closed at 1539, nearing its all-time high.
So all is well in Obama’s economy, right? People are confident, great time to invest in stocks, right? Not necessarily.
The economy’s fundamentals remain poor. I believe that the Federal Reserve Bank’s “Quantitative Easing” program, which pumps around $85 billion per month of newly-printed money into the financial markets, causes the stock market to go up irrationally.
People know that America’s economic fundamentals are poor; but if the Fed is pumping so much money into the markets, then the markets are going to do well ‘no matter what’, at least for awhile. Realizing this, people feel a pull to join the party – after all, everyone else is doing it – and that makes markets go up even more.
I don’t see how it can end well. I see it as another market bubble. When the Fed stops QE – and it will have to, eventually – the stock market seems more than likely to crash. Bubbles are terrific fun, while they last. That is the phase we’re in now: the drug-QE-induced euphoria.
Moreover, what’s really going on here is (I believe) a process of inflation. I’ll explain. [Read more…]