The Federal Reserve has become a bubble machine. “Misalignment of prices” is the new term used by Janet Yellen, the next Fed Chairman. Since the year 2000, The Fed’s balance sheet has gone from a few hundred Billion to about $4 Trillion (Okay, $385 Trillion to be precise). The stock market is now in “bubble” status and the only question is when will it burst. When panic sets in, there will be epic losses in everyone’s portfolio. The current interest rate of zero has forced money managers to deploy cash into the stock market. The price-earnings ratio are becoming unrealistic for individual stocks. There is a euphoria setting in that will bring the individual investors back into the market, similar to tech bubble in the late 1990’s, only larger. It now appears the Dow will continue its rise for a short time.
What will be the “needle” to burst this bubble? I have no idea. How much higher can the Dow go? Higher than I can determine. When will it burst? Only Our Heavenly Father knows. This is the time to seek HIS wisdom, understanding, knowledge, and skill. We are in the final stages of the calm before the storm.
The graph below tracks the S & P stock index with the Fed’s balance sheet growth:
Once the stock market took a dive in 2008, the Fed pumped money into the system and has continued propping up the market ever since. They must keep monetizing the debt (printing more money to purchase Treasury securities). They have no choice other than to let the market drop and inflict pain. The delay of this pain will only serve to inflict a greater amount later. The top 1% will buffer themselves from too much pain. It is the 99% who will pay the price. Once again, the innocent pay for the guilty.