EDITOR'S NOTE: Gains Pains & Capital has a very simple hypothesis. They say that “the Fed is trapped, and a crash is coming.” Signs such as sticks currently being at an all-time high, the real estate boom, rising gas prices, “roaring” inflation, and what they call “truly INSANE levels of froth in the markets” all point to the Fed needing to ease QE and raise rates. However, the Fed refuses to do this in fear they will pop the enormous market bubble. The end result, though, will be a market crash, and Gains Pains & Capital says, at this point, all we can do is prepare.
The Fed is now trapped.
- Stocks were just at or are currently at all-time highs, trading at multiples that exceed even those of the Tech Bubble in 1999 (Market Cap/ GDP).
- There are truly INSANE levels of froth in the markets:
- Options trading volume (a sign of speculation) is exponentially higher than it was during the Tech Bubble.
- Crypto currencies that were invented as jokes trade at tens of billions of dollars.
- Tesla (TSLA) a $1 trillion company, trades like a penny stock rising 15% in a single day.
- People are selling Non-Fungible Tokes (NFTs) of farts, and other garbage… and making significant money.
- “Meme stocks” or stocks that are traded for ironic/ humorous purposes rise triple digits in a single day.
- Former President Trump’s Special Purpose Acquisition Company (SPAC) rose to a value of $5 billion despite having no business or operations.
- Real estate is on fire. Home prices are up 20% across the board, while apartment rents are up 7%-15%.
- Gasoline prices are up 122% year over year, while protein prices (meat, fish, eggs) are up 10.5% year over year.
Despite all of this, the Fed has only just begun to taper its $120 billion Quantitative Easing (QE) program at a pace of $15 billion per month. Even at this pace, QE will STILL be above its former peak for another two and a half months (QE 3 was the prior record set in 2012 at $80 billion per month).
Put another way, the Fed’s idea of tightening monetary policy today is that it will run QE at emergency levels for another six months at least. It will only finally be DONE with QE in June of 2022.
Which is 24 months after the recession ended!
Oh, and the Fed doesn’t plan to start raising rates until around then either.
Meanwhile, inflation is ROARING. The Consumer Price Index (CPI) and Core Consumer Price Index (Core CPI) just hit their highest year over year readings since 1990 and 1991 respectively.
This is happening at a time when stocks are more stretched above historic metric than all but a few times in the last 40 years. The only times the market was MORE stretched than this was right before the 1987 crash and during the Tech Bubble.
Photo: Gains Pains Capital
So, the Fed is facing a conundrum.
Either it starts tightening a lot more aggressively, thereby bursting this INSANE stock market bubble… or it continues down its current projected path, inflation destroys the economy and stocks crash anyway.
Simply put, one way or another, the following is coming.
Photo: Gains Pains Capital
The big question for investors is… HOW DO WE AVOID THIS?
To figure this out, I rely on certain key signals that flash before every market crash.
I detail them, along with what they’re currently saying about the market today in a Special Investment Report How to Predict a Crash.
To pick up a free copy, swing by
Originally posted on Gains Pains Capital.