Here Comes the Market Melt Up

by Brad Sebion, SGT Report:

With impending doom on the television every minute of the day, one may wonder why these horrible things don’t carry over to the financial markets. Why is the volatility index trending lower, while consumer sediment is at a thirteen year high? Every August and September for the past number of years, the gurus write articles and make television appearances to proclaim the market is going to crash. It’s easy to agree with them, and for the most part I agree with their sediment and what they have to say. Here is why I think the exact opposite is going to happen and why the market melt up is under way. 

If equities can make it through October with no major correction, the traders who sell in May and go away typically re-enter the market in November. This brings more volume and liquidity and could pave the way for a possible Santa Claus rally. This rally could be amplified with the talk of tax cuts on the horizon. Sell in May and Go Away 

Tax cuts for the corporations may lie in the not too distant future. A major tax cut will instantly lower the P/E ratios of these stocks and make them look more appealing to the everyday investor. Don’t forget about the 2.6 trillion dollars of corporate profits sitting off shore. In 2004 corporations were given a tax holiday. They were allowed to bring their profits back to the United States at a 5.25% tax rate instead of the standard 35% corporate tax rate. Such an event would bring billions of these dollars home. Most likely these companies would engage it their own stock buyback, and drive prices up. Besides the tax breaks, we are going to see a changing of the guard at the Federal Reserve.  

In early February of 2018 a new Federal Reserve President will be put into place. Last week interviews for all the possible candidates were concluded and as early as this week an announcement could be made. The list of possible candidates are Gary Cohn, Jerome Powell, Kevin Warsh, and Janet Yellen. Chances are, whoever is selected will be extremely dovish. It is no secret President Trump wants a week dollar. If you pull up a chart of the US dollar, it has been in decline since January of 2017. A little while back the old Fed Chair made his thoughts known.

Alan Greenspan made public statements indicating he sees extreme dangers in the bond market. Greenspan thinks interest rates are too low which makes them unsustainable. When they move up they are going to move quickly. The bubble is not in stocks but in the bond market. Martin Armstrong echoes the same concerns as Greenspan. The first sign of trouble in the bond market could push new money into the equity markets. 

The big driver of a market melt up could be the deregulation of the financial markets. This is happening right now. A recent New York Times article indicated the Commodity Futures Trading Commission (CFTC) director James McDonald, was in favor of self-regulation. This is starting to sound like the mid-1990s when the Glass-Steagall Act was repealed. This was one of the major drivers behind the behind the dot com bubble. When the market eventually rolls over, this will be the cause of the market failure by the mainstream media. There will be no mention of low rates, cheap money, and fractional reserve banking. 

Mortgage Lending is another area where cheap money continues to flow. According to Fannie Mae’s third quarter Mortgage Lending Sentiment Survey, lending standards have been relaxed since the home mortgage demand has been tightened. This is just more reason why markets will continue their ascent.  

At the end of the day, there is no one person that knows what the market is going to do. You can’t listen to the talking heads giving their opinion. Most the time these guys have a position and are trying to give their investment some traction to make money. You can only trust price and volume. The best way to monitor that is by using the Market Trakker that Follow the Money provides for free. Market Trakker Tool Investors using this tool would have exited the markets before the stock market crash of 2008. You owe it to yourself to protect the assists you have worked hard to gain. 

Brad Sebion                                                                                                                                             www.moneyandtrading.com