Despite the following catalysts:
- The trade war
- Boeing’s production issues
- Apple, Google, Microsoft, Dell, and Tesla sued by human rights group
- Declining corporate earnings
- The Repo market is broken
- Trump’s itchy Twitter fingers
- A Federal Reserve gone rogue
- An election year on the way
But it’s all been swept under the rug.
The stock market is at all-time highs—and the VIX (the market’s fear index) is setting up to close near its lows—under 12.
Why do I say that?
Game Theory 101.
Remember the global financial crisis back in 2008?
Nearly everyone and their brother thought the market was going to continue making new highs… until they started to realize what was actually going on in the overall economy.
When I look at the economic cycle, it looks as if we’re reaching a top… you see, things are so good right now— that they might not get better.
Yet, traders believe they will… and that’s when tops are made—a clear definition of a smoke signal.
I’m not preparing for Doomsday and locking myself in a bomb shelter. Instead, I’ll be at my trading desk, ready to pounce once the next big financial crisis hits… because that’s when fortunes can be made.
The Fed’s easy money policy has put the entire market at a bad spot. Stock market prices have been driven by leveraged buying, and so many companies are overpriced at these levels. Just take a look at the price-earnings ratios of some large-cap companies out there.
That’s right, some companies are operating with well-over a P/E of 100. And no, not all of these are tech companies. General Electric (GE) has a P/E of a whopping 1,241… and that’s alarming.
Prices have been so inflated over the past decade… and this is when bubbles are formed. Apple Inc. (AAPL) and Microsoft (MSFT) now has a market cap of $1T, and Alphabet Inc (GOOGL) and Amazon.com (AMZN) are on their path to the 12-figure club.
With interest rates at extremely low levels, companies have been able to borrow lots of cash, and consumers as well… and it’s what’s filled the current debt bubble with so much hot air that it could pop very soon.
Why am I bringing this up now?
- The market has broad bullish sentiment.
- Purchases are financed by high leverage (lots of debt).
- Countries and companies have extended forward purchases for years down the road.
- New buyers have entered the market (think about how many people are talking about getting into stocks, pot stocks, cryptos, whatever the case may be).
- The economic stimulus that is inflating the bubble.
Just take a look at the Total Public Debt in the U.S. alone. There’s more than $20 Trillion in debt…
How could the public possibly service all this debt?
The Fed’s efforts to use debt and low-interest rates in the wake of the 2008 global financial crisis may finally come back to bite us. With rates at historic lows, there is no room for the Fed to move if there is a financial crisis… and they may have to come up with a new way to keep the U.S. economy afloat.
Sure, the stock market may be at all-time highs… but did you know policymakers are struggling with the slowest growth since 2008?
That’s one massive smoke signal to me. Stocks are at all-time highs, yet economic growth rates are not following suit. It’s amazing how little the market cares about economics these days… and how traders have become so complacent.
The markets are clearly not positioned for a massive crash… and when the crash happens, it could be across the board. That means diversification may not really work. Do I know what exactly will spark the market crash?
I don’t have the slightest idea, but there are a few potential catalysts on the table:
- The 2020 U.S. Presidential Election
- The debt bubble
- Corporate bond bubble
- The shadow banking system
- The U.S. – China Trade “War”
- The potential rise in inflation in 2020
Of course, those aren’t the only catalysts the could hit the market in 2020.
If any of this frightens you… that’s a good thing.
This Thursday, December 19 at 12:00 PM, I will show you how you can turn fear into profits and teach you my smoke signal patterns. You’ll also get an inside look at EXACTLY how you can make money stocks plummet.