Readers know I’m not a short term trader, and with my favorite crystal ball temporarily sidelined, not in the mood to play market timer either. But the stock market is getting out of hand. I should say more out of hand … it came to a fork in the road last spring, took the wrong path, and hasn’t looked back since.
Context is key. I haven’t touched my income portfolio. It’s about 75% stocks. My long term savings portfolio however is much more discretionary. And in this latter area, I’ve slashed stocks to 10%. The rest is elementary commodities (gold, silver, platinum, copper), cash and Treasuries.
The value just isn’t there. Stocks are largely dominated by supercap corps with low or no dividend yield, even at the global level. So I dumped most of my favorite stock fund, VT, the best single proxy for “the stock market” as a whole, as it nosed over $100. That can only mean one of two things. Either a rare stroke of short term luck or it’s on a fast track to $120.
It’s a page out of “don’t fight the Fed”. Although I may be taking liberties in assuming the Fed is serious about fighting inflation. As it turns out, for all the attention the stock market gets, each and every one of those metals was “up” more than stocks today. Reflecting of course that this glorious bull market in stocks is mostly just an artifact of a bear market in dollars. Otherwise known as inflation.
Will the Fed lean against it? It should, but I’m not holding my breath. The Fed is singularly focused on the exhaust fumes of the last surge of inflation, lately showing up in consumer prices and wages. While it’s intently parsing the exhaust fumes, another surge is headed for the fuel injectors. Without getting into who’s stomping on the accelerator (possibly some combination of fiscal deficits and liquidity left over from a couple years ago), contrary to popular imagery, the Fed is not stomping on the brakes.
Either the dollar stops dropping in real time markets or it will reaccelerate its fall against the much slower to reprice consumer goods and services. At which point the Fed will either be forced to pull out the big guns and redouble its efforts or wave the white flag and trash the tattered remains of its credibility. Neither of which would be good for the economy. The financial car is still speeding ahead at 100 mph, blissfully unaware of the brick wall dead ahead.