There was so many good things to read this past week that it was hard to narrow it down to a topic group. After a brief respite early this year, the markets are hitting new highs confirming the current bullish trend. As a money manager, this requires me to increase equity exposure back to full target weightings. After such an extended run in the markets, this seems somewhat counter-intuitive. It is, but as Bill Clinton once famously stated; “What is….is.”Â
However, while the current market “IS” within a bullish trend currently, it doesn’t mean that this will always be the case. This is why, as investors, we must modify Clinton’s line to:“What is…is…until it isn’t.” That thought is the foundation of this weekend’s “Things To Ponder.” In order to recognize when market dynamics have changed for the worse, we must be aware of the risks that are currently mounting.
1) Fisher Warns Fed’s Bond Buying Could Be Distorting Markets via Reuters
While this article falls in the “no s***” category, Dallas Fed President Richard Fisher points out areas that we should be paying closer attention to for signs of change.
“There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive,” he said of the asset purchases, which are sometimes called QE.
“I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis.”
Here are his main points:
1) QE was wasted over the last 5 years with the Government failing to use “easy money” to restructure debt, reform entitlements and regulations.
2) QE has driven investors to take risks that could destabilize financial markets.
3) Soaring margin debt is a problem.
4) Narrow spreads between corporate and Treasury debt are a concern.
5) Price-To-Projected Earnings, Price-To-Sales and Market Cap-To-GDP are all at “eye popping levels not seen since the dot-com boom.”
