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1/10/2018

It’s been a while but the Market Doctor team just had to jump back into to this crazy marketplace we left some months ago.  If you remember our last post….we warned of the dangers of constant zero interest rate scenarios and the existence of a one way stock market, resulting from the forces of mal-investment.

So what is transpiring in this crazy market?  Let’s see….a few rate hikes that did absolutely nothing to the longer end of the curve and provided nothing in returns to the average saver.  What has this done for equities?...provided investors one of the only outlets to generate returns.  The positive tone in stocks was enormously exacerbated by the passing of the recent tax plan (this actually provided some fundamental fill to the huge bubble that was forming), however the search for positive returns has just turned up the heat to stocks well beyond fundamentals.

Another indicator that is depicting this lust for returns anywhere has been the massive surge in crypto currency land.  Yes, one can argue that the digital transformation of business processes that has been underway throughout the globe spilled over into currency transactions, however the shear speculative flows looking to cash in on massive crypto appreciations has been mind boggling.

The bottom line…flat interest rates around the globe are propelling funds to stocks and crypto, where the argument to flat rates has been the assertion of lack of inflation by monetary officials.   This leads to the other major problem…way too much emphasis on an inflation index.  Remember, inflation is a gauge of higher costs of living.  As a US consumer…ask yourself the question…have your expenses gone up over the past few years more than 1 to 2%?  I know you’re getting a real kick out of that.

Also remember the fact that as debt of countries increases…the pressure was usually for interest rates to rise??  What the heck happened to that theory?  Debt has been exploding but somehow interest rates remain mute.  10 year treasury yields popped up a few basis points today….and everybody is talking about it….let’s see what happens.  Where should 10 year yields be?? We don’t want to freak anybody out right  now by answering that.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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