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The Most Dangerous Stock Market Game

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Got any beeswax and some rope?

I’m just asking. Because that may be what it takes — like Odysseus having the stuff put in his ears and his sailors strapping him down on the prow of his ship — to avoid disaster in the coming siren song of manic greed…

You know what the siren song sounds like. It’s the melody of bullish investors throwing caution to the wind, eagerly crowing “I told you so.”

It’s the gnashing and grinding of teeth as staunchly bearish investors shout “Why should everyone else get rich and not me?” and then join in the game.

That’s what market melt-ups (i.e., bubbles) are all about.

And with the major blue-chip stock indexes back to their old game of making new all-time highs again, a new melt-up phase may already be upon us.

You may not have heard the term melt-up before. But if you’ve strapped yourself to the bull at more than one market rodeo (or if you’ve tried to keep yourself planted in your bearish spectator’s seat during the same period), then you certainly know what the ride feels and looks like.

It might last days, weeks or even months.

Your technical indicators, economic data, everything … says the market just can’t go any higher. Common sense says stay away.

And the market goes higher still.

The Sound of Sloshing Money

It sounds crazy, I know. The Fed is out of bullets, right? In the U.S., zero-interest-rate policy could soon become negative-interest-rate policy. Our national and personal debt is a ball and chain on growth. Millions of us have thrown in the towel on fruitless searches for jobs in which the only guarantee is that you’ll be overworked and underpaid.

Whatever. Doesn’t matter. Here’s what does (to Wall Street and international investors):

  • With all the headlines about Brexit, Grexit, Frexit and Italexit…
  • With China’s economy wheezing like a fat man with emphysema…
  • With one-third of the world’s bonds now paying negative interest rates…

Some immediate growth in the U.S. — however artificial it is thanks to the Federal Reserve’s dangerous monetary policies — is better than no immediate growth everywhere else.

In other words, the U.S. stock and bond markets are still the brightest-colored, tastiest-looking pieces of used chewing gum on the world economy’s sidewalk.

So the folks who control these pools of money, sloshing from one market to another around the globe, hold their noses, hold their breath … and buy (or perhaps peel and chew — take your pick of metaphors).

Converting Market Bears into Bulls

The rest is just a sustained biochemical chain reaction as the managers of ETFs, fence-sitting mutual funds and pension funds all rush to get in on the action.

Pretty soon, everyone — talking heads on CNBC, your neighbors, uncles and twice-removed cousins — is thinking about how they’re going to spend their stock market windfall (with the initial stake coming from the new zero-prime second mortgage cash-out refinancing they just took out on the family home).

If we’re ever going to see the end of one of the biggest, longest-lasting, Fed-fueled bull markets in American history, then it would be only fitting that it goes out with a mania-filled bang (just like the good old days of 1987, 2000 and 2007) rather than a whimper.

That’s why it’s important to follow closely what our team — Jeff Opdyke, James Dale Davidson, Ted Bauman, Chad Shoop and Paul Mampilly — have to say in the weeks and months ahead. If the melt-up comes to pass, you may find it harder and harder to stay on track with your main financial goals amid the din of “buy, buy, buy or you’ll miss out.”

For some of us, it’s about hopping on growth opportunities while recognizing the risk of being wrong. For others, it’s much simpler (like “don’t lose any money”). The point is to tune out the noise. Tune out the market’s siren song, and maintain the focus on your own financial priorities.


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