The general indices have continued their choppy action that has been exhibited in the markets for a very extended period of time now. It is difficult to find stock candidates in this environment that have good potential to trend for any length of time. Until the market starts trending, one needs to be very careful in having too much exposure in a relatively expensive market that is not underpinned by good economic fundamentals. I will try to continue to point out opportunities as I see them. The only thing that I see that could drive this market significantly higher is the announcement of QE4 i.e. something that has the potential to seriously devalue the U.S. dollar. If the U.S. dollar started to significantly decline, like the other major currencies have already, then you would probably see a price re-adjustment of assets such as commodity/resources, U.S. stock market, gold & silver, and land (particularly farm land). I am hesitant to include residential real estate, especially in a general way, because high end residential real estate (which has already significantly appreciated over the last few years) is really a market of its own as distinguished from more moderately priced real estate, which has had a much more bumpy ride since shortly before the 2008 market crash. Also, there are more complications associated with holding real estate such as whether you own it outright, where you own it, what kind of market there is for your real estate, maintenance, taxes, and your own financial condition, especially if you do not own the real estate outright. That said, there may be opportunities in owning rental real estate, as less people are buying their own homes. If you own your home outright and intend to live there for the foreseeable future you should be fine and will probably see good price appreciation in the event of a serious currency devaluation.
In the event of a serious U.S. dollar devaluation, as one possible future scenario, I think the run-up in stock prices would probably be relatively short-lived. I think the devaluation of the dollar would happen very quickly due to a few current factors. Many parts of the world are already far along in their preparations to use other currencies than the U.S. dollar for their international commercial transactions. So the dumping of the unnecessary dollars, no longer needed as reserves by these countries, onto the market in response to further currency debasement by the Federal Reserve, would be swift. The currency debasement is directly a result of the exorbitant debt load that the USA government and its central bank have created (out of thin air, thanks to their being the primary world’s reserve currency) and continues to increase at exponential rates. The foreign holders of these credit obligations (U.S. Treasuries) have begun to realize over the last several years that there is no way in hell that the U.S. government can pay back the amounts owed as represented by the Treasuries with anything but debased, next to worthless pieces of paper. This is because the amount of debt that the U.S. government has created is far in excess of any amount that can be produced by the U.S. economy. This debt has been created by the biggest money printing machine (that is what central banks do – they do not fight inflation, deflation, unemployment, income disparity, price instability, or anything else) in the world and without any real wealth generating capacity behind it (thanks to this oligarchical, fascist system destroying the last vestiges of a once dynamic, vibrant economy). The primary entity backing the U.S. dollar these days is the U.S. military and other clandestine government agencies that will create mayhem and havoc in your country if you attempt to use something other than the U.S. dollar as your currency. This is because the U.S. government is fully aware of the power that is given to the holder of the world’s primary reserve currency – the ability to print almost endless amounts of currency to pay your bills, buy off the citizens with nice sounding social programs, buy off other countries with foreign aid, build up existing and new government agencies of power, fund wars, fund favored industries (such as military-industrial complex, Solyndra), and bail out corporate partners (big banks, GM, AIG, Chrysler, etc.; 2008 was not the first big bank bailout).
To get back to the possible scenario that a serious U.S. dollar devaluation is possible and if it were to occur that it would probably happen very quickly. So the run-up in the U.S. stock market would be relatively short-lived under those circumstances. Under this scenario, you would probably see interest rates rise significantly due the mass dumping of U.S. Treasuries that would only be partially offset by the printing of additional dollars out of thin air by the Federal Reserve to buy the Treasuries. The Federal Reserve would be the only buyer of these worthless, toxic pieces of paper backed by nothing of real value.
A slight addendum to this last point, is I have been thinking for some time, since I have seen reports of Russia and China selling many of their Treasury holdings over the last year or more, that the Fed has been executing an unannounced QE or money printing to buy these Treasuries to prevent interest rates from rising in the United States. Since as I said, no one in their right mind would want these worthless pieces of paper, the only buyer could be the Federal Reserve, who would be obligated to buy back U.S. government debt instruments. Jim Willie, editor of the Hatrick Letter and Chris Hamilton, Hambone blog writer, have explained how the FED executed this using puppet central bank proxies in other countries to buy back Treasuries being sold by other foreign entities without the Federal Reserve having to directly do it.
This additional printing of dollars by the Fed would also hasten the further devaluation of the dollar. When foreign entities dump their Treasuries, they would be receiving U.S. dollars or another fiat currency for most of them. In the event of a steeply declining currency devaluation phase, the sellers would get what they can for them but as the devaluation progresses, the dollar or any other fiat currency becomes worth less and less.
Under these circumstances, the U.S. economy as well as its currency, bonds, and the stock market would end up collapsing at some point due to the widespread destruction of U.S. economic power which is largely based on the U.S. dollar being the world’s primary reserve currency.
The VIX has exhibited a steady declining trend since its high in 10/08. Along with the declining value of the VIX, it has shown a narrowing in the range it moves from one extreme to the other over that same time period. This tightening in the range of values as well as the overall decline in the VIX portends a significant rise in the volatility of the S&P 500 at some point. After 6.5 years of this action, it would not be farfetched to think that a sudden rise in volatility could happen in the not too distant future. Whether the cause of a rise in the VIX will be due to a rapid move up or down in the market is unknown. But the continual compressing of a spring at some point will lead to a sharp move when the mechanism responsible for the compression is circumvented and the spring suddenly uncoils. I would not be surprised to see the market quickly move in one direction for a short period and then reverse course revealing its primary trend.