Earlier this week, I shared compelling evidence that the Fed’s unprecedented money-printing ($278 billion being just the latest round) has distorted stock market forces to such a degree that this current, explosive rally doesn’t really have a foreseeable end.

The stimulus is so intense that, as I’ve said before, natural, free-market capitalism itself has left the building.

That’s a really big idea, with profound implications, so I’ll boil it down for investors: The Fed is the market.

When this volatile rally will end, is hard to say. The fallout will be severe; you can’t damage something this much and have it end softly.

But let’s talk a little more about what that means, and, as importantly, the tremendous opportunities that this, the last great American bull market, offers regular folks.

The Vast Gulf Between the Market and the “1% Growth” Economy

The Fed is, well, everywhere: It bailed out the Too Big to Fail banks in 2008, and went on three more quantitative easing “benders” by 2014. It sent short-term interest rates to zero – “the basement of history” – ending in 2015. When it tried to tighten its bloated, $4 trillion balance sheet in 2018, the market tanked, so it loosened up again in 2019, closing out the year with close to $300 billon in more money-printing to bail out the creaking repo and T-Bill markets.

Like I said: The Fed Is everywhere.

Meanwhile, the fiction writers in D.C. lie about everything from employment to inflation data as Wall Street enjoys a 300% rise (there’s your “inflation”) on the back of that $4 trillion in post-2008 accommodation – money printing.

And yet, for all that…

…our GDP, the real measure of our economy, is virtually on life support at a projected low of 1% after briefly tumbling below.

Huh? 1%?

$4 trillion in printed money steroids… plus the lowest, most suppressed interest rates in history… plus the highest stock market a flood of fiat dollars can buy… and all our economy can show for it is 1% growth.

Sickening. The basic math simply doesn’t add up.

But that folks, is what it is. This is where we are. The Twilight Zone.

Right or wrong, angry or bemused, bear or bullish, I have learned over the years – and many mistakes and successes along the way – to be blunt.

Investors Need Blunt Talk, Not Bull

Candor is one of the few things we can control, and I like to speak frankly-about markets, life, parenting. The truth is critical to making it through the day. Most of us know this by now.

And as I see it, there are frankly a few critical land mines out there waiting to blow the markets and economy back to the stone ages-the worst of which are buried in places no one in the media, the D.C. swamp, or the financial advisory complex are even looking.

For my colleague Tom Lott and I, our primary mission is to share these truths with everyone – not just the “fancy lads” who sport ultra-high net worth.

And my candid point today is laced with irony, for things are in fact so bad… that markets are in fact poised to melt-up…

“Dollar Shortage? Don’t Worry – We’ll Print More!”

The ultimate problem stems from – and boils down to – this: There just aren’t enough dollars to keep this central-bank-driven global bubble alive forever. One needs to read my key article HERE (twice if you wish) in order to fully understand this critical dollar liquidity issue.

But forever is hard to forecast, and so are central banks. For now, however, they (and any politician of any party) have no choice but to keep printing dollars to keep the party going. No choice at all.

Of course, central bankers can’t print dollars, yen or euros ad infinitum, and 1%-2% GDP growth sure as hell ain’t gonna get us to the promised land naturally.

This means eventually, the house of cards falls, here and around the world, from Berlin to Sydney, and our children’s children will be reading about central bank excess as one nowadays reads about Pearl Harbor or Watergate.

But the word “eventually” is of little help to investors. The central banks in general, and the Fed in particular, own money printers.

And money printers can solve just about anything… at least until they eventually send markets and currencies to the floor.

The liberal left calls this “Modern Monetary Theory” and the new right calls this “Monetary Stimulus,” but regardless of what one calls it, it just boils down to… crap. For more proof of this, I’ve already spelled it out–just click here.

But most of you don’t need me to tell you what common sense already can, namely that solving a debt problem by printing money out of thin air is just too good to be true.

Again, such crap works until eventually it doesn’t.

Which brings us back to that key word: “eventually.” In short, when will that “eventual” crap hit that “eventual” fan?

The blunt answer is this: I have no clue. No one really does.

We’ve never seen this level of absurdity (“stimulus”) before. No one has. As I showed you recently, we are in uncharted waters.

That’s simply a fact. The way I see it, there are two ways for investors to make sense – and money – in this otherwise senseless market.

Bide Your Time: Trim Exposure and Wait for the Markets to Bottom

The oldest (and most ignored) rule that still works is: Buy low, sell high. This can be true not only for individual stocks, but for broader markets and portfolios as well.

For now, markets will continue to melt up, with increased volatility, as central banks, now desperate and faced with massive dollar shortages, have no choice but to continue to print money and repress rates to the basement of history.

Passive investors who go more and more to cash today will miss out on this upside (and volatility) for every dollar that they keep on the sidelines.

Depending on one’s own temperament or profile, such a fear of missing out (FOMO) may or may not be of concern. There’s a certain wisdom in being careful when faced with uncertainty.

Furthermore, markets already appear near their highs for this most recent ride up, as oscillators become toppy.

Again, this melt-up will be a choppy ride, and for those with no time, interest or desire to actively invest, passively going more to a defensive cash position makes a lot of sense to us.

Many of you can simply leave the party now, get at least 40-50% into cash, allocate to some key sectors with tail winds behind them, place another 10-15% into gold (to protect the purchasing power of a dollar being killed daily by money printers) and then just wait it out.

Later, you can buy back into the markets when the bear has finished that bull off-eventually.

That’s a very passive yet sound approach, and we’ll talk more about what to allocate to for now and when to get back in when the bull is dead – and the bullcrap has finished.

But there are more aggressive approaches to look at, too.

Actively Trade this Last Melt-Up/Bull Market

As I’ve said countless times, this bull market in stocks will eventually end, and the indicators will come from the bond market-most notably when the yield on the 10-Year US Treasury eventually spikes.

My colleague Tom Lott and I, along with savvy, experienced traders everywhere, are watching this chart carefully.

Even though it may have started, no one – and I mean no one – can perfectly time the eventual yield spike and market death knell (rising rates kill all debt-driven securities bubbles).

Until then, we can be damned certain that central banks will keep doing the wrong thing for as long as they can-namely print, stimulate, accommodate, fake it… call it whatever you want.

In other words:

Markets may wiggle up and down a bit, but if the Fed is gonna add more steroids, the ultimate direction for stocks will be up, up and away for the foreseeable future.

More aggressive investors will want to ride out this inevitable melt-up and actively trade it, which means keeping a watchful and diligent eye on the risks and rewards that come with any melt-up and any strategy that trades it.

This means carefully tracking technical trend/breakout signals, exercising diligent stop-loss boundaries on your positions, and for some of you, employing the use of options (calls and puts) as a means to maximize returns while minimizing risk.

Right now, we’re working on some research that’s going to give our readers the chance to do precisely that. Stay tuned; it’ll go live shortly and we’ll be in touch when it does.

Matt Piepenburg


4 responses to “How to Profit from this Never-Before-Seen Market Anomaly”

  1. Matt….I really enjoy your articles. Informative and logical. It seems that you have dropped some of your bearishness lately. I suppose because of QE4 or5.

  2. In 1971 Nixon took us off the gold standard. Isn’t that when the fed started printing money out of thin air. Before then they couldn’t do that. Right?

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