Stocks surge as the fed continues to taper. There a few things to take note: interest rates will remain at zero for a long time, we’re still in a Goldilocks economy of steady growth and low inflation, fed policy has been a resounding success at creating wealth, and the taper doom and gloomers were 100% wrong.
Unwinding the taper will take a year or longer and then there will be another long period before the first rate hike – maybe not until 2016 or later.
In May 2013, when the fed first announced its taper plan, many pundits predicted incorrectly that the taper could trigger a bear market; the S&P 500 has surged 25% since then. So much for that. Keep in mind that stocks can rally in the wake of rising interest rates, like in 2004-2007 when the fed raised rates from 1% to 6% and the S&P 500 rallied 60%.
Fed policy has been a huge success at creating wealth – benefiting rich, smart, and successful people. We’re in a STEM and start-up economy run by high-IQ people. With the fed showering money on the economy – from Facebook to Bay Area real estate – there has never been a better time to be in the socioeconomic elite.
Bank bailouts, ZIRP, and QE have indirectly created trillions of dollars of wealth in the form of this unending bull market, real estate boom, and general economic expansion, despite the majority of Americans feeling like they missed out of the recovery. Moral hazard is a small price to pay to have the best post-2008 recovery of any country in the developed world.
As an example of wealth creation, seemingly overnight, multi-billion dollar valuations for app start-ups such as Snapchat, Uber, Pinterest, and Dropbox can partially be attributed to the fed’s easy money polices. But these valuations are not a bubble and we expect the valuations for all these companies too keep rising until IPO or acquisition. There will be NO bubble bursting, no reset, nadda. There will be NO April 2000-style flame out. We predict within the next two years, the valuations for these major web 2.0 companies will double at a minimum: Uber will be worth $50 billion; Dropbox $20 billion; Pinterest $10 billion; Air BnB $40 billion; Snapchat will be worth $30 billion. Investors and founders flush with cash will inflate Bay Area real estate values even more, but again, there won’t be a crash – to the frustration of the libs who keep whining about wealth inequality, bubbles, speculators, how ‘bad’ the economy is, and so on.
Despite its size and duration, the fundamentals driving this bull market have not changed, and we anticipate the rally to continue for a considerably long time. Our target is Dow 20,000 within the next two years.
Keeping interest rates perpetually low will cause real price levels for food, gas, energy, healthcare, airline tickets, cable, and tuition to keep going up even as treasuries drift higher and core inflation remains low.
The way you get rich in this economy is to buy & hold stocks, create a web 2.0 app that goes viral, sell volatility (short sell VXX or short VX contracts..I’ll write a post about this show you how), buy the S&P 500.. It not rocket science. Capital in the 21th century is about people getting rich without much time or effort.
Thanks, fed, for doing a good job as Obama’s approval rating makes new lows.