The end of the liquidity bubble is expected to occur in 2022, which is why we are beginning to see cracks in the S&P 500.
Take a look at the chart of the S&P 500 over the last year…
Lastly, consider the 5-year chart of the S&P 500….
In any case, we know that the Federal Reserve has said that they would ultimately cease asset purchases (this is also called quantitative easing, or money printing). This increase in asset buying was the driving force behind the stock market’s surge during the epidemic. However, since that period is coming to an end, liquidity will become scarce, which is why individuals have been selling their stocks in recent weeks.
If you still don’t trust me, consider the following…
Now, the Federal Reserve has said that they must raise interest rates because, well, inflation is out of control…
When asset purchases are slowed or stopped altogether, interest rates are raised, which effectively makes money more costly.
This is significant because as money becomes more costly, people will begin to be more cautious about how they use and invest their funds, which will result in individuals withdrawing their capital from high-growth technology businesses that have little prospect of being profitable in the near future.
Cathie Wood’s ARK Innovation ETF is the go-to proxy for how high-growth technology firms are performing (it has lost more than 50% of its value since the beginning of the year).
From MRB Partners…
“Inflation will be higher and stickier than at any point in several decades and well above levels that are currently being discounted in government bond markets.
Even with the recent rise in bond yields, the shape of the yield curve and level of bond yields are inconsistent with what will be needed to contain inflation.”
This is concerning because it implies that interest rates will have to rise significantly in order to put the equities bull market to an end…
The crux of the matter is that the Fed cannot increase interest rates too high since doing so would force the government to become bankrupt as a result of their inability to pay their debt. They may do their hardest to keep inflation under control by raising interest rates, but their efforts will be in vain.
As a result, they will resort to Plan B, which will include printing money in order to inflate their way out of their debt. However, by inflating their debt away, they will also be inflating the value of the United States dollar away as well, so ruining the livelihood of millions of people throughout the United States.
According to what many of you already know, I am long energy, value, and commodities-related stocks because I think that is where the bulk of the world’s wealth will go.
Take a look below…
Given the continued debasement of the currency in the next decade, it doesn’t take a genius to predict where mass money will move in that decade.
For this reason, hard/real assets, energy, and commodities-related equities constitute the majority of my holdings in my portfolio.
One of the largest wealth transfers in history will occur, and if you are on the right side of this wealth transfer, it will be difficult not to see your money grow exponentially in value. However, if you find yourself on the wrong side of the money flow, good luck to you.
