Easy Money and Rising Stocks: What's Next?

11/29/2019 5:00 am EST

Focus: STRATEGIES

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Easy money equals rising stocks. This is a very bullish sign. And if this proves to be the case, then the best, most profitable phase of the bull market lies ahead, asserts Mary Anne and Pamela Aden, co-editors of The Aden Forecast.

The main factors fueling this up move are the Fed’s new super easy money policy and ongoing low interest rates. Also bullish is the fact that there’s a lot of cash sitting on the sidelines.

But since this bull market and the economic recovery are already more than 10 years old, which is a very long time, they’re unlikely to last for years. More likely, they’ll not be long lasting.

This in turn suggests the current run of strength could end up being the last hurrah for this bull market in stocks. That is, it could be similar to the rises in 1999 and 2007, prior to the major tops and steep declines that followed those rises.

If this happens, we wouldn’t be surprised. Even though no one really knows how things are going to unfold, or when, based on the negative signs we’re currently seeing, at least a recession and stock market top will likely follow.

Global growth has been struggling. Despite near zero interest rates and lots of economic stimulus, the central banks of the world have not been able to turn these sluggish economies around.

This illustrates how fragile the situation is. And if the world moves into a recession, it’ll mark another unprecedented situation — the fact is, the global economy has never gone into a recession with interest rates so low and the balance sheets of the central banks so huge.

Currently, there are two areas we’re watching closely.  One is recessions. When a global recession happens, all countries will be affected. But this doesn’t occur all at once. Usually, it’s like a domino effect with one country going into recession first, then another, and so on.

Another area that is most worrisome are the events taking place in the repo market. This is a big warning sign that things aren’t right and the Fed is taking extreme measures to keep it all together.

The Fed is literally flooding the financial system every day because of a lack of cash reserves in the banking system. How much are they pouring in?

They’ve increased the overnight repo liquidity by 60%, from $75 billion per day to $120 billion, which started October 24. This is enormous. It’s bigger than the last QE and it makes you wonder, what in the world is going on?

At the very least it means the Fed has the “printing presses” running full speed ahead, producing money out of thin air to rescue the repo market in what already looks like a 2008 repeat, only before the fact. So again, watch what’s happening and not what’s being said. Be careful and stay alert, despite the rising stock market.

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