neilscott_1

Prepare for a S&P500 bubble of unprecedented proportions

Long
OANDA:SPX500USD   S&P 500 Index
361 views
9
While it is hard to imagine the stock market boom right now, its on the cards before the US election. With massive money printing throughout the world, there is 50 Trillion dollars trying to find a home and there is only one place for that money to go and seek a meaningfull return - the US stock market. Everything else is exhausted. The S&P500 is being driven by a handfull of key hi tech stocks that are showing themselves even after the dumb panic selling last month.
The catalyst for the whip lash response is the Covid 19 and its rapid dissapearance due to hotter weather, Remdesivir to manage death rates and a successful T-cell vaccine trial. Add in the slush of excess cash poured into middle class pockets with mortgage refinancing and zero interest loans now being taken out by many companies and you have all the ingredients for and explosive upside move in the S&P500 . The Shiller PE fair value is currently 24.5 and could reasonably be double that fair value with the 10 year yield at a meagre 0.61%.

I'm calling 4000 on the S&P 500 before the election and this is reflected in the chart.

Comments

Interesting analysis. I have some different perspectives which I hope others will disagree with. Let's share different perspectives and learn together.

But first I agree with your estimate of $50 Trillion dollars being printed globally. It could well be double that - we won't know exactly for another 2 - 5 years. The DJI and S&P are heavily influenced by a handful of tech stocks.

I disagree based on the the following issues:
1 - The selling of stocks last month was not simply dumb panic. It was well known before last month that US stock markets were well into overbought territory for at least a year. The COVID-19 virus has caused a demand-supply shock not seen before in history. It is a unique 'black swan' event. Experts (not me) have said that such a situation - and so severe as the current time - has not even been seen in World Wars (Note carefully that I'm referring to the degree of demand-supply shock).

2 - Due to the forces of globalisation distributed supply and demand chains have been almost totally disrupted. This means that manufacturing and by extension GDP has been severely injured. China's contribution to world GDP is estimated at around 20% (much greater than in the last crisis of 2008).

3 - Many reputable experts and mainstream media sources have said that the whipsaw into a 50% retracement has been due to an expected fall off in infections/deaths into summer months. Firstly - there is no evidence to support or expect a fall off in the summer months. There is no evidence that this virus simply dies or is less active in summer months. Secondly - summer months means more movement of people, and the virus depends on movement of people to spread. Therefore - it can be expected that the virus will spread more in the summer months. But hold on - there is only summer in half of the world in summer months, making summers irrelevant for the world. It's a 'great' story of fake news being pushed by many in America, who wants to pump up an already bust market. Bust it is - an official bear correction much greater than 20% in such a short time. Fake news and false inferences promoted by high officials and spread into media, is the method of re-inflating a popped bubble.

4 - Cash has limits. Study the so-called 'Zimbabwe experiment' and others where money printing went mad. When markets lose confidence in cash 'everything' crashes except gold.

5 - The stock markets are only the tip of the proverbial iceberg. The confidence in money lies far deeper in the bond markets (everybody to read up).

This simple equation explains what's happening out there. https://i.imgur.com/5oCe3F7.png
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