New Stock Market Reality: Buy Everything (in the USA)

People watching from the sidelines as the stock market smashes records on a daily basis are largely shocked and envious of those who have taken the plunge and seen their fortunes rise with the buoyant times.

There is an increasing chorus of warning from institutional traders and financial talking heads warning that there is no such thing as a stock market that only goes up. A major correction, they say, is imminent.

But here’s an alternative perspective.

The valuations of companies in the United States stopped making sense in 2010, when the whole notion of stimulus was first applied to the stock market directly through monstrous liquidity facilities to Tier 1 banks drove hedged investors to take on a commensurate glut of debt to invest with.

The intent by the financial mandarins behind the public-facing institutions was that this money would drive the stock market higher, and they were right. So much so that stimulus has become the leading tool of central bankers around the world.

Meanwhile, public companies borrow to buy back stock, which in turn creates a diminishing supply of shares, which drives prices higher.

So we have this doubling or tripling or quadrupling of the liquidity being loaded into the market, which drives prices higher, which drives profit-taking and further investment, which drives prices yet higher.

In fact, there is literally no possible option for stocks as an asset class to continue rising, as long as stimulus continues to explode the liquidity load on markets.

There will be corrections. But as we have seen throughout 2020, they are brief and always presage an inevitable new leg up in market prices.

And with regulators making it incrementally easier for high school kids to trade everything from options to crypto, the liquidity load continues to increase.

So yeah…valuations are astronomical and make little sense. 

And yes, there will be a correction here and there.

But the bottom line is, if you don’t get a glove and get in the game, you are going to continue missing out on the biggest egalitarian wealth creation period in human history.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
More Info...

[email protected]

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.