“Not by might nor by power, but by My Spirit,” says Yahweh Sabaoth. (Zechariah 4: 6)
Get Ready for a Stock Market Melt Up and the Inevitable Meltdown
An interesting confluence of developments is taking place right now that every person with money to invest needs to take into account:
- In the neighborhood of $50 trillion dollars is sitting on the sidelines in cash.
- U.S. corporations are hoarding trillions of dollars in cash overseas.
- Central banks are printing money and are using some of it to buy stocks.
What’s going on?
Despite things like North Korea developing intercontinental ballistic missiles (ICBMs), detonating a hydrogen bomb, and threatening to use them to attack the U.S. homeland or Guam, stock markets are behaving as though nothing significant is taking place. Over the past several months, many similar events that usually spook stock markets have taken place, but stock prices continue to climb.
That’s evidence that some of that cash on the sidelines is beginning to enter the stock market. A lot more is on the way.
People are beginning to Invest in Stocks Again: Bump 1
Following the Great Recession of 2007-2009, many people decided not to invest in stocks. They kept their cash in interest bearing accounts instead. With stock prices at all-time highs and still rising and interest rates at or near all-time lows, some of those people are finally beginning to invest in stocks again.
Since the Great Recession ended, stock prices have more than tripled, but interest rates remain flat at abysmally low levels. Who can blame anyone for rethinking the decision not to invest in stocks?
Interest rates are too low globally. That’s the problem. People holding cash are beginning to realize that they are missing out on great moneymaking opportunities. They are beginning to see the risk associated with holding cash as greater than any other risk.
Cash Held by U.S. Corporations in Overseas Accounts is about to Come Home: Bump 2
U.S. tax policies are about to change. When cash held overseas by U.S. corporations is allowed to reenter the U.S. at significantly lower tax rates, stock prices will rise significantly. That’s natural. The money will be put to work and boost the U.S. economy.
Central Banks are Investing in Stocks: Bump 3
Since stock prices are based on supply and demand, new money entering the market raises stock prices. The money that central banks are investing in equities has been printed since the Great Recession, and the amount of currency they hold is huge. Investing some of those reserves in the stock market will put a lot of upward pressure on stock prices.
What does it mean?
In a nutshell, I think these 3 simultaneous developments mean that stock prices are about to skyrocket. As stock prices rise, even more money will enter the market faster.
That’s called a “melt up”. It will pick up a head of steam, and I think it will be dramatic.
Stock prices could double or triple over the next 18 to 24 months. As stock prices rise, people holding cash will use more of it to buy stocks because they don’t want to be left out of a great stock market run. At some point, natural apprehensions about stock investing will be abandoned and economic logic will be jettisoned.
Eventually, cash reserves will dry up, and the stock market will peak. When too little new cash is available to sustain irrationally high stock prices, stock prices will drop even faster than they rose. That’s called a stock market “meltdown”.
Where are we now?
Right now, I think we are in the early stages of a stock market melt up. It will pick up a head of steam as stock prices continue to rise.
Be alert. Stock prices won’t rise forever. Eventually, they will peak and a meltdown will follow. The meltdown will affect prices in every asset class including real estate.
What about real estate?
I think that now is not a good time to buy real estate unless it is a real bargain. Real estate prices are too high. That will become evident when the meltdown arrives.
Just like 2008, people are rushing to buy real estate because they think that if they wait they will be priced out of the market. Recent mortgage rate increases help to fuel the real estate buying mania. Since real estate markets are much less liquid than stock markets, selling real estate during a meltdown at anything above distressed prices is very difficult.
I think real estate prices will drop more than stock prices during the stock market meltdown. People need to pay attention. The debt that comes with real estate purchases won’t disappear when real estate values plummet. Locking yourself into a low interest rate mortgage at high real estate prices is a formula for insolvency when the bottom falls out of the real estate market.
Now is a good time to buy stocks, but….
Don’t be greedy during the melt up. If you miscalculate and miss the peak by a day or two, it could mean the difference between making money and losing money, a lot of money.
When the meltdown comes, most stock buyers will take a hiatus. As the intensity of the meltdown increases, many people who own stocks will sell them at prices that are significantly below the prices they paid for them.
The cumulative effect of the three bumps to stock prices that I have mentioned is predictable. This kind of thing has happened many times before with one major difference. Central banks are buying stocks and contributing to the melt up. They have lots of cash to invest because they print money.
These are my opinions. I am not a financial advisor. Take it for what it is and nothing more.
I may be wrong. Whether I am or not, it pays to be cautious when investing in stocks and real estate. Do your homework and talk with a financial advisor you trust.
“The glory which You have given Me I have given to them, that they may be one, just as We are one; I in them and You in Me, that they may be perfected in unity, so that the world may know that You sent Me, and loved them, even as You have loved Me. Father, I desire that they also, whom You have given Me, be with Me where I am, so that they may see My glory which You have given Me, for You loved Me before the foundation of the world.” (John 17: 22-24)
See “His Name is Yahweh”.