Remember the Homeland Security Advisory System? We were never to leave our bags unattended, and the constant creepy announcement in airports was never that we were safe, at Green (low) or Blue (Guarded) threat levels, but always—“America, we have a problem”: threat level Yellow (elevated), Orange (high), or Red (severe). Thankfully, after providing only fodder for comics, the Advisory System went away.
Not at the Fed. Five-plus years after the financial equivalent of 9/11, Yellen & Co. are still on red alert, and the chairwoman’s recent comments imply that the Severe Threat level will remain in effect at the Eccles Building for years to come. The Fed chairwoman won’t be accused of pulling out too early.
The fed funds rate will remain at zero to 25 basis points from now until we’re all safe and sound. Which might be never. And while the Federal Open Market Committee (FOMC) whittles $10 billion from the Fed’s monthly securities purchases, the central bank is still gorging itself on $35 billion worth of securities a month and has leveraged its balance sheet skyward to 77 to 1.
It’s bad enough that central bankers create money out of nowhere to buy bonds. Now it turns out that’s not all they’re buying. News from London reveals central banks and other government-controlled pools of money are buying stocks.
A study by global research firm Official Monetary and Financial Institutions Forum (OMFIF) states global public investors “as a whole appear to have built up their investments in publicly quoted equities by at least $1 [trillion] in recent years.”
This comes on the heels of news that the percentage of financial advisors who are bullish on the stock market jumped to 62.2%, the fifth straight week this indicator has been above the key 55% level.
The folks at Investors Intelligence say this is nosebleed level for that indicator. Previous highs were 61.6% at the end of last December. Other noteworthy tops came in August 1987 (60.8%), October 2007 (62%), and December 2004 (62.9%).
Those in the bearish camp are now even lonelier. The percentage of those negative on the market dropped from 18.3% to 17.3%, near historically low levels.
The market was tiptoeing upward, thinking Janet Yellen was ready to yank the punch bowl away any minute as price inflation looks to be near the Fed’s 2% target. But La Yellen doesn’t see inflation—the numbers are just “noisy,” she says.
Besides, the Fed follows a different inflation gauge. Something called the “personal consumption expenditures deflator” remains below the Fed’s 2% target. However, no one I know of shops at such a store.
The Fed’s policies should have everyone seeing red and lying awake at night. For those who want to sleep better at night, we have an article from Axel Merk that originally appeared in Mauldin Economics’ World Money Analyst.
In it, Merk explains why gold belongs in every portfolio. But it’s not gold alone among the precious metals that can boost your portfolio. Read more here about an investment that every time we recommended it has returned our readers’ money over fivefold.
Doug French, Contributing Editor