Man The Lifeboats Before The Crew Jumps Ship!

When I visualize the US stock market, I picture Janet Yellen captaining a huge cruise ship, known on the high seas of global financial markets as the QE Infinity! Her crew consists of corporate CEOs, business leaders and figureheads on Wall Street, who work together seamlessly to keep the ship on course as it travels through uncharted and dangerous waters. The passengers on the ship are investors, large and small, who feel impervious to the rough seas that surround them, confident that the QE Infinity is unsinkable.

While the passengers dine on a three-course meal of capital gains, dividend income and all-time-low borrowing costs within the belly of the ship, they are entertained by an orchestra of prognosticators performing their rendition of the bullish narrative. The US economy is on the verge of a breakout year, they exclaim. We will finally realize 3% real GDP growth! Interest rates remain at all-time lows, profit margins and corporate profits are at all-time highs, and there are no sensible investment alternatives to US stocks. Weekly unemployment claims have fallen to their lowest level in 15 years, the unemployment rate has been cut in half since the Great Recession and consumer confidence is at its highest level since 2007. Champagne for everyone!

Meanwhile, waves begin to crash against the hull of the ship in threes, the noise from which is drowned out by the orchestra playing louder and louder, and a storm cloud is forming on the horizon. The energy sector is suffering from the collapse in oil prices, the banking sector is suffering from a margin squeeze due to rock-bottom interest rates, and large multinationals are missing earnings expectations and lowering guidance because of a stronger dollar and weaker global growth…

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