It is apparently addictive

There is no way the market can be totally satisfied nowadays! Since Powell took over the Fed helm about a year ago, he has done 9 times news conferences following the meeting and each time he was met with selloff as an immediate reaction to whatever he would say. He started with a quite hawkish tone initially to give the impression that his Fed would keep hiking interest rates for a long time. The market was angry with furious reactions with “a lot of colors for Powell to see see”. That’s why Powell got quite scared with a market crashing by 20% (see here). He got to do something to save the market and he did just that. With the about-face, he drastically changed this tone from very hawkish to very dovish to has basically raised this hands to promise that the Fed would not raise the rate at all for this year. Yes, the market liked what the new direction the Fed was taking after digesting all dovish doses and has mounted a non-stop straight line rally for 4 months since the year end. So one would expect the market should keep going up with a positive reaction this time when Powell basically is singing the same song that no rate hike is coming any time soon, right? No, nixie, uh-uh! The market again was not happy and fell notably during Powell’s NC. This time, the market was not satisfied by no rate hike anymore, it is actually looking for rate reduction, i.e. a new QE to come soon!

 

Yes, this bull market is the longest in history for over 10 years now. You can name many factors that support this fantastic bull run but the most fundamental and critical factor that must be available is the cheap money that can be printed whenever is needed. In a way, the market is now like an addictive patient who cannot survive without continuing to receive the “opium”, the easy money printed by the Fed. As soon as it sees the possibility of their opium being taken away, it will immediately show up its withdraw symptoms by tanking the market that will frighten the Fed. Poor Powell/Fed! I don’t know how they can ever really pull the market from this addiction. Although not an imminent threat, it is just a matter of time, not if but when, the next debt-driven recession will come. Given the debt load that is keeping piling up and we are seeing a historically high proportion (1 in 6) of zombie companies that will sooner or later fall apart due to their inability of generating even enough income to pay the interest of their debt, a gigantic bubble blowup will come inevitably. We are just waiting to see what is the last straw to drop to pick the bubble. And the Fed will be forced to initiate another round or rounds of QE for sure. Mark my word: this will be so severe that the Lehman Brothers in 2008 will be just like a beach walk when the next debt crisis tsunami hits us. I obviously don’t have a crystal ball regarding the exact timing but we probably will see more and more sign within the next 2 years that the tsunami is coming!

 

I will share more what I’m doing to prepare for the inevitable calamity. The last thing we want to see is that the wealth created by our hard work will be severely diminishing due to the crisis. This is especially important for those who are moving into the retirement era (me included) when a recovery from a prolonged crash will be more difficult due to shorter time span available for us.