If 8,000 years of human history is any guide, when central banks print as much money as they have, a massive global market crash has been the result. One of the best known examples is the rise and fall of Rome 2 millennia ago. But there have been numerous other examples of money printing gone wrong. Often, it is contained to a specific country but when the money printing becomes a global phenomenon as it has over the last several years, the result is always a major market catastrophe.
There are no examples in history where such a degree of money printing ended up as a "soft landing." Countries are mired in massive debt burdens including China. Debt-to-GDP is at all-time highs. Meanwhile, interest rates are at all-time lows. So unlike in 2008 after the great crash, central banks have no more "ammo" to further reduce rates to spark the global economy. Instead, they have painted themselves into a nasty little corner with no choice but to continue to print money to keep things afloat at best. Bond king Bill Gross who ran the world's largest bond fund writes about it here: Bill Gross Investment Outlook March 2017
While the US has ended its QE programs, the European Central Bank and Bank of Japan continue to print as they have no choice. If they were to materially reduce QE levels, it would be the start of a serious bear market. Gross writes about it here: Bill Gross: Happiness Runs.
Indeed, for the first time in our lives, the number of luminaries from legendary futures trader Ed Seykota to market historian and billionaire Jim Rogers to Bill Gross to Martin Armstrong, all of whom have top investment track records, have recently said there is a massive price to pay for all the money printing that has taken place globally starting with the US quantitative easing campaign in late 2008 after the great crash. Even the former head of the Federal Reserve, Alan Greenspan, has said that this will not end well in his classic understated manner.
What Should Investors Do?
We always advise watching your stocks and stock watch lists closely in real-time. Always have your stops in place. You should always know the exit point in any trade you make. This form of risk control are the number 1, number 2, and number 3 rules when it comes to investing. Risk management is essential.
And don't try to predict a market top. More money has been lost trying to pick tops and bottoms as legendary trader Jesse Livermore once said. Your stocks and watch list will show you when the time comes. This Zen approach to the markets of remaining in the NOW greatly helps maintain one's focus without letting fear, greed, or hope rule one's emotions.
The Focus List on our website tends to expand and contract based on the strength or weakness of the general market. It therefore serves as an excellent market barometer of sorts.
And if you prefer market timing using ETFs, my answer to the highly manipulated QE-markets of the last several years has been to create a self-learning algorithm that has shown itself to be profitable whether the market trends or not. It capitalizes on volatility. My VIX Volatility Model is up over +40% this year in real-time trading and we are only in March: Results.
Its best performing year was in 2015, a year that was largely trendless during the first 8 months of the year. That said, had it existed in 2008 or 2000-2002 during major market corrections, backtests show these years would have outperformed even its stellar year in 2015.
VVM capitalizes on volatility, so I say, bring on the corrections! But it also has the ability to capture profits that well outperform the major averages when they are in an uptrend.
Disclosure: I am/we are long XIV, BABA, CC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.