President-elect Joe Biden is walking into a minefield.
And no, I’m not referring to security risks at his inauguration today…
I’m referring to the minefield that’s threatening all of us:
A stock market that’s untethered from reality.
You see, despite bad news from every direction — the coronavirus, inflation, unemployment, etc. — so far, stocks have kept marching north.
But everything has its limit. And as you’ll learn today, the limit for the market has finally been reached.
You need to get out of the stock market… now.
These Risks Are Flashing Red
After soaring to all-time highs thanks to the Fed’s printing presses, and more recently, Biden’s $1.9 trillion spending plan, stocks finally started to retreat last week:
On Friday alone, the Dow fell 177 points and the S&P 500 dropped nearly 1%, capping off what CNBC called a “tough week.”
The problem here is clear: the market has already priced in all the “good news.”
As Tom Essaye, founder of The Sevens Report, said: “Plans for future historical stimulus, easy Fed policy and vaccines are now well known, and as such those catalysts simply don’t have the positive influence on stocks that they have over the past few months.”
And meanwhile, major risk indicators are now flashing red.
Let me show you what I mean.
Risk #1: Rising Yields
As you’re probably aware, stock market valuations are extremely high compared to historical standards. Why? Because with interest rates close to zero, any investor trying to earn a return feels compelled to put their money into stocks!
But now, with inflation finally raising its head, rates might be rising…
As Kansas City Fed President Esther George explained last week, inflation has been “held down by virus-sensitive sectors.” But now, as vaccines take hold, she expects those sectors to rise quickly.
That helps explain why the yield on the 10-year Treasury spiked past 1% last week. It reached 1.15%, up more than 20%. That’s its highest yield since last March. And now many economists are talking about a 1.5% number.
This is a problem. You see, our economy has $80 trillion of debt, so rising rates could quickly lead to a doomsday scenario:
- To service its skyrocketing debt, the government has to print more and more money.
- All that “fake” money sloshing around leads to even more inflation — and higher and higher interest rates.
It’s a death spiral that ends in disaster: a major stock market crash.
Risk #2: Speculation
The second risk indicator that’s flashing red is an increase in speculation.
For example:
- As the number of Covid-19 cases kept hitting new daily records, the stock market kept advancing.
- When a mob took control of the U.S. Capitol, stocks didn’t crack.
- Weak employment report? The market brushed it off.
Why was the market ignoring all these signs? It wasn’t ignoring the signs. Investors were simply taking on more and more risk, becoming more speculative.
But as you just learned, bond yields finally spiked higher last week.
Friends, a spike in yields is a clear warning about a stock market that’s become speculative.
Take heed.
Risk #3: Just About Everything Else
But those aren’t the only indicators that are flashing red. For example:
- Unemployment: Last week’s employment report showed a loss of 140,000 jobs in December. December is when we expect job growth, because of holiday workers.
- Surging virus cases: In the U.S. and abroad, it’s not just that virus cases are surging; now there’s talk of a new strain of virus.
- Falling Consumer Spending: In December 2020, consumer spending fell for the third consecutive month.
- Politics: And then, of course, there’s the political landscape. In a word, bleak.
Where You Should Invest Instead
With each passing day, the risk of a crash increases.
Again, everything has its limit. And the market’s limit has been reached.
You need to get out of the stock market now.
The thing is, you still need an investment strategy — a way to position yourself for big gains, even if you’re starting with a small nest egg.
So that’s what Wayne will reveal tomorrow.
Happy Investing
Best Regards,
Founder
Crowdability.com
