The era of negative interest is here!

The US stock market has had its bull run for 5 years without interruptions. Since the low of Mar 2009, the S&P 500 has surged over 180%. Is this strong bull market supported by a strong US economy? I guess everyone knows it is not. It is purely supported by the extraordinary Fed’s loose money policy with historically low interest rates near zero and unlimited supply of easy money printed from the thin air. When people cannot earn much by saving their money in the bank, guess where their money will have to go? The stock markets! While the US stock market may further go up as long as the Fed easy money is still in place, the US stocks as a whole are not cheap anymore and there is a great deal of danger that the market may crash first before shooting up further.

 So is it too late for you to catch such kind of artificial asset bubble? Not really. Right now, there is another asset bubble under creation exactly following the US footstep. It is the sibling of the US, the European Union. As we all know, the EU is suffering from a historical economic crisis which is still ongoing. While the situation appears to be stabilizing, it is facing a significant threat of so-called deflation. For those who don’t know what deflation means, just think about what has been happening to Japan in the past 20 years. JP has been deeply in the deflation hole, in which it has been trying to climb up for 20 years without success. Just remember, deflation is much more devastating and difficult to tackle than inflation and everyone will try all they can to avoid. EU inflation rate in May was 0.5%, the lowest since Mar 2009 and below the expectation of 0.6%. The EU central Bank (ECB) is targeting a 2% of inflation rate but it is moving toward a wrong direction. That’s why Mario Draghi, the head of the ECB is so scared that he is taking a drastic step no other major central banks have ever taken to date, to cut the deposit rates to below zero (-0.1%), which was just announced on the passing Thu. In other words, banks have to pay ECB for keeping their money in the central bank, not earning any interest! The idea is to discourage banks to save but lend their money out. In addition, ECB also provides cheap, long term loans to banks, tied to the understanding banks would loan the money to businesses, boosting growth. Draghi has also said he's willing to deploy unconventional measures if needed, meaning to print as much money as necessary. In principle, this is exactly what the US Fed is doing. We all know what has happened to the US stock markets in this kind of extremely easy monetary policy. I’m sure the EU stock markets will follow the same path.

Regardless of how you think about the EU economies, the stock markets will inevitably go up when excessive money supply is floating around. Yes, this kind of markets will crash at some point, if not supported by the underlying strong economic growth. But until such a day comes which is likely a few more years down the road, they will jump up first. The easiest way to invest in the EU stocks is via the ETF, FEZ. I first introduced FEZ over a year ago and FEZ was also one of my year-end predictions for 2014. It has increased over 70% already in the past year (see the one year chart below).  But I don’t think it is too late and there is more money to be made in it. This is just a beginning of a bubble to be blown up!