The markets seem to think so. Here’s what hundreds of bullish analysts are saying: the price-to-earnings ratio (P/E ratio) is roughly 20 today and they are projecting earnings to grow an astounding 30% by the end of 2017. Therefore, a forecast of 2500 on the S&P is not unreasonable. And so you get a lot of predictions of a big S&P 500 bull market in 2017.
Understanding these two terms is critical once again. Risk-on is when investors take more risk, buying higher-risk stocks and selling bonds and gold. Risk-off is when investors become more risk averse, selling stocks and buying bonds and gold.
As I recently predicted (see my November 2 post), the bond market appears to have cracked. As Bloomberg calculates, more than $1 trillion was wiped off the value of bonds around the world this week and if the U.S. bond market had been open today (it’s closed for Veterans’ Day), the losses would probably be even greater.
I write here about markets because that is what I know. I try to expose the growing insanity that I see every day. But the problems apparent in the markets—greed, deception, the disregard for common sense and common decency—did not begin in the markets. Rather, the problems reflect a deep decay in personal morality, the basic standards that govern our lives and make us responsible human beings.
This morning, we got more happy news from the Bureau of Labor Statistics. The talking heads announced the results of the Establishment Survey: 161,000 jobs added in October. Did that sound good? You have to look under the hood, dear reader. Consider these facts from the same report.
As I have been saying for months, the financial crash to come will begin in the $90 Trillion world bond market, not in stocks. You should understand, dear reader, that the really crazy risks and the insanely huge profits have been in debt, not equities.
The Fed Funds Futures are the best market indicator for measuring the expectations of a change in Fed monetary policy. Right now, this indicator says that the market expectation of a Fed rate hike in December is 70%.
Last month, I wrote about the problems at Deutsche Bank (DB) as the stock slumped and markets worried that this could be a European Lehman event given DB’s huge derivatives position and its critical role as counter-party in the EU banking system. See my post of September 28, 2016. But the world did not end immediately and the market went back to sleep. DB’s stock rose and that was the end of it, right? NOT.
QE is, of course, the policy of central banks buying assets with newly created money. But where the money ends up makes a big difference.