Powell's Economic Inflection Point: Timing the US Recovery

Apr 13, 2021

Powell’s Economic Inflection Point: Timing the US Recovery

Following the Fed’s comments, here’s what investors may want to consider...

This week we explore:

• The real reason Jerome Powell went on 60 Minutes this week

• How investors can prepare accordingly following Powell’s comments to 60 Minutes

• How this week’s treasury auctions and CPI data highlight a conflicting story to what the Federal Reserve is conveying

“Insanity is relative. It depends on who has who locked in what cage.”

― Ray Bradbury

Pop quiz: If you were a passenger in a car that you knew – beyond any shadow of a doubt – was going to explode, would you continue riding in that vehicle?

The question may seem silly, but I believe this is the exact scenario in which we as investors find ourselves in today.

Bloomberg reported that roughly three-quarters of retail investors believe the market is “fully or somewhat” in a bubble, yet bullish sentiment has risen to 61%. In theory, we are all passengers in an out-of-control market vehicle.

The stock market is the most overvalued it’s ever been relative to virtually every historical indicator. The Dow Jones, Nasdaq, and S&P 500 are all at or near all-time highs. Meanwhile, interest rates are pinned at near historic lows. The toxic one-two punch makes for one heck of a thrill ride.

The Warren Buffett Indicator, which represents the total market cap over GDP, is sending the most bearish signal ever.

The higher the Buffett Indicator, the more bearish the market. Before the dotcom bubble crash, the indicator sat at 137%. And prior to the 2008 housing crash, we saw the Buffett Indicator at 108%.

Today, the Buffett Indicator currently sits at 201%. The CAPE/Shiller P/E multiple index is fluttering at a nosebleed-worthy 37 P/E.

Yet, the Federal Reserve continues to print more and more money, and Democrat lawmakers essentially just got a “free pass” to print even more funds with a third Reconciliation bill for 2021 that can be applied retroactively.

And investors continue to sacrifice long term value to chase trends and the promise of fast gains and free money (GME, Bitcoin, Tesla) despite a lack of fundamental reasoning. Valuations are surging. This is The Great Devaluation in motion.

And yet, we keep riding even though we know the wheels are going to fall off.

Even though we know the engine is in the red…

Even though we can already see the smoke…

And feel the heat building up beneath our seat…

Most investors feel compelled to stay on board because the ride is just too exciting not to.

Many investors have convinced themselves that as long as the Fed continues filling an open gas tank with stimulus and a bottomless oilcan of free dollars, and keeps interest rates pinned to the floor, that maybe this time is different and the car can race at unlimited speeds.

The higher the Buffett Indicator, the more bearish the market. Before the dotcom bubble crash, the indicator sat at 137%. And prior to the 2008 housing crash, we saw the Buffett Indicator at 108%.

Today, the Buffett Indicator currently sits at 201%.

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