Five-Year Stocks Bull Run Showing Signs of Fading?

By: InvestmentContrarian

George Leong writes: A soft jobs reading came out last Tuesday, and the stock market…soared? That’s right. Initially, I was a bit taken aback by the surge, but then again, the buying was driven by the optimism surrounding soft economic growth—because that means the Federal Reserve can justify its continuance of cheap money and the stock market stays at its highs. (You’d be a fool to think the buying was driven by sound economic and corporate growth—even if that is the first lesson in Economics 101.)

My sense is the Federal Reserve will most likely refrain from any tapering of its bond buying until early 2014, when the new Fed chairman, Janet Yellen, takes over. She’s also accommodative towards the printing of cheap money.

And that’s exactly what the stock market wants. Without all of this so-called monetary “cocaine,” I doubt the stock market would have moved this high.

But investors need to be wary. The stock market is warped now in its thinking and the continued dependence on cheap money is ridiculous. The stock market needs a stronger economic recovery, more job creation, and much better revenue growth from companies, which remains problematic.

However, in spite of the absence of these fundamental factors, the stock market will likely continue to edge higher, partly due to the continued lack of alternative investments. With the 10-year bond yield down at 2.49%, the bond market is a cesspool for your capital. Heck, you can make that in a day on the stock market at the rate it’s moving! Investors realize this and will likely continue driving cheap money into stocks and pushing equities higher.

Again, this is great for investors, but you have to think about how it will negatively impact the financial soundness of America going forward, especially as interest rates begin to ratchet higher. The amount of debt being carried by the government and Fed is massive. We could be headed towards a financial tsunami down the road that will really hinder America’s ability to grow and retain its spot as the top economic powerhouse in the world, especially with China sitting squarely in America’s rear-view mirror.

So enjoy the ride and make your money now. It’s not going to last forever, as we are into the fifth year of the current bull market that is showing some signs of fading on the horizon.

Be on the lookout for this and make sure you have an exit strategy in place.

This article Five-Year Bull Market Run Showing Signs of Fading? Was originally published at Investment Contrarians

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

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