The Friday after Thanksgiving. If you’re not nursing a “turkey hangover,” good for you! I know I am, and I’m sure most of the traders on Wall Street are too. That’s why these days tend to be relatively quiet.
But quiet market days are great days for reflection — particularly on what we have to be thankful for. As the father of two beautiful daughters, the stepfather of a growing teenager, and the husband of an amazing woman, I certainly have a lot to appreciate. Our house was full of family and friends yesterday — and I hope that your homes were too.
When it comes to why you read my columns — my take on the markets — it’s clear that investors have a lot to be thankful for too. Namely the largesse of central banks the world over!
|It’s clear that investors have a lot to be thankful for this year.|
Just look at what happened a week ago today and you can see that they’re in the driver’s seat when it comes to stock prices. European Central Bank President Mario Draghi said the ECB must “step up the pressure” and that “we will do what we must” to boost inflation. Those aggressive comments fueled one round of asset buying madness.
Meanwhile, the People’s Bank of China lowered the benchmark one-year lending rate by 40 basis points to 5.6 percent. That was the first such cut in more than two years.
Unnamed officials also reportedly stand ready to provide even more liquidity in that country. They could even cut the reserve requirement ratio for Chinese banks to free up more funds for lending. That fueled even more manic buying.
Of course, only a few weeks prior the Bank of Japan went equally nutty. It pledged to buy REITs, stock ETFs, and print tens of trillions more yen to boost growth there. That sparked a heated asset-buying binge, too.
As American investors, what we should be the most thankful for is that all those newly printed units of currency and all that excess liquidity aren’t staying bottled up in the very economies and markets they’re supposed to help! Banks and investors in Europe, in China, in Japan and elsewhere are just taking the money, and sending it elsewhere — with huge amounts of it flowing into U.S. markets. That Global Money Tsunami is a key reason why we see large, liquid stocks rising higher and higher almost regardless of any underlying fundamentals.
Now at some point we won’t be able to gorge on this free, easy money any longer without it hurting us. It’s just like Thanksgiving turkey. You love your first and second slices, and even the third and fourth taste pretty good. But try to shovel in 10 or 15 and you’re going to have one serious case of indigestion!
Central bankers are cluelessly ignoring that potential threat because they’re political animals. They don’t care if they sacrifice tomorrow’s prosperity just to make themselves and the markets look better today. But you definitely shouldn’t — because a day of reckoning will come as surely as night follows day. For now, though, enjoy it and give thanks because it’s pushing stocks higher and higher here.
Until next time,
P.S. Due to the holidays, there will be no afternoon edition today. I hope you’re enjoying the extra time with your family and friends, and look forward to the column resuming next week. Cheers!