Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com,
As Halloween nears, kids are choosing costumes to transform themselves into witches, baseball players and anything else they can imagine. In the spirit of Halloween, we thought it might be an appropriate time to describe the most popular costume on Wall Street, one which many companies have been donning and fooling investors with terrific success.
With the market now stuck in the "Icarus Rally" melt-up predicted earlier in the year by BofA Michael Hartnett, in which EFTs, algos and desperate carbon-based hedge fund managers are all chasing performance, i.e. beta, in the last weeks of the year, at least until the inevitable "Humpty Dumpty great fall", some have been naive enough to ask just how overvalued are stocks as of this moment.
Inflation is going to annihilate the stock market.
The reason, in fact the BIG reason, that stocks have been soaring since November 2016 is because of the coming inflationary storm. Stocks LOVE inflation at first as it results in asset prices rising.
However, stocks absolutely HATE inflation once it starts eating into profit margins. When this happens, companies begin to lose money as higher operating costs eat into their profits.
On that note, take a look at the following chart of corporate profits pre-tax.
In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the 'wealth effect', which instead became an 'inequality effect', exacerbating populism and representing a constant threat to the status quo.
Editor's Note:
While we are disappointed to hear of Marc Faber's recent comments and the fallout from them, Sprott Money is not affiliated with Sprott Inc. and have had no bearing in Mr. Faber's resignation from the board. We are a private company held by Eric Sprott. Thanks.
Under The Thumb Of The Banks
Written by Craig Hemke, Sprott Money News