Here Comes the Pin

The Pin That Could Burst the Bubble Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Here Comes the Pin - Market “euphoria” hits a record high… - It’s different this time… - The pin that could burst the bubble… Recommended Link [Crypto’s Gone Wild: This Went up 25X — in Just 5 Months!]( [Read more here...]( Your timing couldn’t be better. Ian King has been tracking massive price moves across the entire universe of cryptocurrencies ... with certain cryptos up 2,500% ... 2,250% ... and 2,100% ... in just over five months! And in Ian’s NEW presentation, he’s unveiling the four catalysts driving the massive cryptocurrency bull market right now … and how you could use his research to make 12 times your money — in just the next 12 months. [See Ian's Presentation Here]( Annapolis, Maryland January 13, 2021 [Brian Maher] Dear Reader, IT is drifting into view. Its outline is beginning to take shape... Yes, we can see it now, sharp and shiny — a pin — on a collision course with a bubble... The stock market bubble. What is propelling this pointy menace? When might it impact? Answers to follow. Let us first glance at the expanding blister it is bearing in on… The day counted plus and minus — plus for the S&P and Nasdaq — minus for The Dow Jones. The S&P gained eight points. The Dow Jones lost eight points, washing away the S&P’s gain. But the Nasdaq tipped the board with a 56-point boost. And so there is somewhat more joy in heaven today. Gold, meantime, scratched out a gain of $3 and change. So much for today. Let us now train our vision on the approaching pin… Euphoria Citi’s “Panic/Euphoria” index has struck a record high. That is, market euphoria has struck a record high. Investors are dumbstruck and delirious, dizzied by trillions in Federal Reserve liquidity. Trees can indeed scrape the sky, growing under the nurturing influence of Jerome Powell’s hoses. Dow 30,000? Why not. On to Dow 40,000. On to Dow 50,000. As a percentage of assets, investor equity holdings approach record heights. Meantime, our minions inform us these investors are buying up call options at record rates — that is, wagering on higher stock prices ahead. Pay no mind to today’s stratospheric valuations, they say. It is true, valuations approach those of the late 1990s — shortly before another pin found its mark. The S&P’s price-to-earnings (P/E) ratio presently reads roughly 30... nearly double its historical average. That is, history argues stocks are extravagant. But this time is different... shout the dumbstruck, delirious and dizzied... Today’s ground-level interest rates justify today’s stratospheric valuations… and today’s skyscraping stock prices. Goldman — for example — claims stocks are no more expensive than 15 years ago. That is, stocks are no more expensive than in 2006. The bubble is a mirage, it concludes. Just so. But we would remind Goldman that a bubble was inflating in 2006. We would also remind Goldman that the market is not a study in mathematics. It cannot be captured in lines, bars or graphs. Recommended Link [DO NOT Buy Bitcoin (BTC) Until You See This]( [Read more here...]( Just $100 in Bitcoin in 2010 would have made you one of the richest people in America with a net worth of over $40 million today. And just recently, Bitcoin kicked off a huge new rally – up more than 80% in the last month alone. Now people are pouring into cryptos like we haven’t seen in years... but don’t do anything until you see this new warning. [Click Here To Watch]( The Elusive Markets How do you represent fear on a chalkboard? Or greed? Markets are a study of psyches. Of emotions. And passions. They will not be reduced to numbers. As well attempt to reduce love to numbers... to translate Romeo and Juliet into a mathematics textbook... Or to plot a sonnet along an ‘x’ and ‘y’ axis... Or to express Nancy Pelosi’s hatred for Donald Trump through quadratic equations. It cannot be done. Do you wish to comprehend markets? Look to the head, look to the heart, look to the glands. The head shrinker and the romance scribbler hold out far greater promise than the number cruncher. The head shrinker in particular has an easy diagnosis at present... It’s Different This Time Mr. Lance Roberts of Real Investment Advice: One does not have to dig too deeply to find evidence of the “psychology” driving the current stock market bubble. Speak with almost any retail investor, and you will hear a common refrain from “the Fed won’t like markets decline” to common justification catch-phrases like the “Fear Of Missing Out (F.O.M.O)” or “There Is No Alternative (T.I.N.A.)”... Concludes Roberts: It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now-famous words: “Stocks have now reached a permanently high plateau.” This “time IS different.” However, “this time” is only different from the standpoint the variables are not the same as they have been previously. The variables never are. But the outcome is always the same. We must agree. The outcome is always the same. Only the variables differ. So let us now turn to one variable that may “yield” the inevitable outcome — the bubble’s bursting. That is, let us identify the approaching pin… Omens From the Bond Market Today’s gorgeous stock prices are justified by low interest rates, say Wall Street’s drummers. They will remain justified so long as interest rates remain low. But have you glanced recently at the bond market? 10-year Treasury yields are on the jump. Below 0.90% in mid-December, yields have lurched to as of 1.18% yesterday. 1.18% is piddling by the standard of history. 10-year yields average 4.40% across time. But with markets — as with life — it is not so much where you are. It is where you are going. And yields are going up. That is largely because — we hazard — the bond market has caught a glimpse of approaching inflation... Not quantitative easing’s phantom inflation that only inflated stocks. But actual consumer price inflation. Recommended Link [Millionaire Expert: Beware of The $7.16 Trillion Money Shift]( [Read more here...]( He’s the man who predicted the 2008 recession… Recognized as the #1 personal finance expert in the world… Now, he’s revealing the “secret” $7.16 trillion “money shift” happening right now – right under the nose of every single American. A massive “quiet” operation moving money from the poor and middle class to the wealthy… So while everyone is distracted by the pandemic… This latest decision will have a DIRECT impact on 300 million Americans… From how much you pay for your mortgage… To how much you collect in Social Security when you retire… From how fast your investment account grows… To your overall cost of living, including how much you pay for rent, medical bills and credit card debt. Which is why Robert Kiyosaki wants to show you five steps you need to take to protect and grow your wealth in the coming months… [Click Here For More Details]( The Kindling for an Inflationary Flame The pandemic has turned out blizzards of spending… including the recent $900 billion “stimulus” package. The bond market spots additional spending ahead now that Democrats have seized all branches of government. The long-anticipated inflation may finally gurgle. As we have explained prior, yields rise because inflation eats into a bond’s value as the termite eats into wood. Under inflation, a bond is a sawdust asset. Bond holders therefore demand a higher yield to compensate them for the termite’s ravages, for inflation’s ravages. Thus we have our pin: Rising interest rates. Again, we are told today’s vanishingly small interest rates warrant today’s obscenely high stock levels. What then can you expect when interest rates rise? That is correct. You can expect stocks to plunge — at least you should expect stocks to plunge (we have cried false alarms before). But what is the interest rate that could topple the stock market? 3%... 2.5%... perhaps 2%? Recall, the 10-year Treasury presently yields 1.18%. When the Pin Strikes the Bubble We turn to SocGen's Albert Edwards for the possible answer: We all understood in 2018 (and we still know now) just how dependent this equity bull market is on low bond yields… But back then, with the S&P just shy of 3000 and much more moderate multiples than today it took a rise in 10y bond yields above 3% to ‘break’ the bull run. Now with the U.S. tech sector on a forward PE close to 30x (vs 20x back in Q4 2018), it will clearly take a lot less to break the equity market and trigger the bursting of this bubble. What then is the bubble-popping figure? I don’t believe there is a cat in hell’s chance that... U.S. 10y yields can rise to 1.5%. The equity market bubble will burst long before we get there! 10-year Treasury yields are within range of 1.5%. That is, the stock market is presently within range of the prickly pin. When that pin strikes — if it strikes — we do not know. Again, we have yelled wolf before. But you may wish to keep a weather eye on 10-year Treasury yields... Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: President-elect Joe Biden has made lots of promises starting on "Day One" or early in his presidency… [Click here for more...]( He's promised to undo many of Trump's tax cuts... boost workers' rights to unionize... ban natural gas leasing on federal lands... pass new anti-discrimination protections... rescind Trump's travel bans... and much, much more. Not to mention [the changes we'll inevitably see]( because of all the new money printing and debt that's accumulated over the past few years… There's absolutely no doubt that the next few years are going to see massive transformations to our financial system. Which is why Porter Stansberry, Founder of Stansberry Research, says there are [3 critical steps every American must take]( with his or her money, starting immediately. You don't have to pay a penny to hear Porter explain more about all three steps. Just take a few minutes to check out his presentation on the subject, [right here.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Brian Maher][Brian Maher]( is the Daily Reckoning's Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master's degree in Defense & Strategic Studies. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! 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