Price Extremes, The Trapped Fed And Scapegoats

Since 2009 stocks have risen into a bubble fueled by inexpensive debt, buybacks, and QE. Most commodities have not matched the price increases. Palladium is an exception—more later.

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The ratio of the commodity index to the S&P 500 Index sits at a historic low. Commodity prices are relatively low, and the S&P 500 is too high. That ratio will reverse.

WHY? The banking cartel and central banks have boosted debt to (unpayable) $75 trillion in the US and $250 trillion globally. The created dollars, yen, euros, and pounds poured into stocks, bonds, and housing, but not into most commodities. Inexpensive debt encouraged stock buybacks that levitated share prices and CEO bonuses. The debt must be serviced.

Read: Brandon Smith: “The Corporate Debt Bubble

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Boeing bought back over $40 billion of its stock since 2013 and now must scramble for a loan. Read “After Blowing $43 Bn.”

Apple is a $trillion-dollar company. Its stock closed at $318 on January 24. Examine the monthly, weekly and daily charts. They show extreme price action and over-bought conditions. Fed repo operations and low-interest rates can levitate stocks for a long time, perhaps until the November election, but maybe a correction happens now.

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Consider other extremes:

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EXTREMES IN MARKETS:

Amazon in Nov. 2008 $35. Today $2,135.

Microsoft in Feb. 2009 $13. Today $185.

Apple in Jan. 2009 $10. Today $325.

Palladium in Dec. 2008 $165. Today $2,316.

Silver in Oct. 2008 $9. April 2011 $48. Today $18.

Commodities are priced too low compared to the S&P. What if commodity prices and the ratio rise for several years? Suppose…

  1. The ratio rises from 1 to 6,
  2. While the S&P drops 20%…

Then crude oil could sell for $260 instead of $55.

Silver could sell for $85 instead of $18.

Gold could sell for $7,500 instead of $1,570.

From Jared Dillian:

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Disclosure: None. 

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