Dear Prudence: Will This Market Ever Crash?

There’s no question: Our country is chaotic and deeply divided. Unfortunately, this isn’t the first time Americans have taken to the streets to destroy property and lives.

We’ve been through violence like this many times before, with much loss and heartache, such as the Vietnam War protests and the urban riots of 1968 after the assassination of Dr. Martin Luther King, Jr.

Those were painful times. But we survived. That’s why it’s important to remember that we’re all Americans, we share the same country and we all want it to thrive.

Meanwhile, you might think all the TVs on Wall Street have been tuned to a different channel … because the stock market’s been oblivious to what’s happening in Washington D.C.

How High?

How can the stock market continue to rally amid all this chaos?

Source: The Denver Channel

It’s simple: Wall Street expects Democratic control of the House of Representatives, the Senate and the White House to translate into bigger stimulus payments to American taxpayers and American businesses.

President-elect Joe Biden said that the just-passed round of stimulus was “not enough” and promised that it was just a “down payment” on another plan that will dole out “trillions of dollars.”

Despite the great political division in our country, it’s clear that several things Washington D.C. is united on is the idea that massive government transfer payments, massive budget deficits and massive increases to our national debt are a good thing.

It you’re old fashioned, like me, you may wonder what happened to the world we were raised in and the values that informed it.

Source: Reddit

I’m talking about hard work, living within your means, avoiding debt, saving and investing in solid companies with real growth and pristine balance sheets.

These days, the “investors” most rewarded are speculators and day-traders who pour their capital into new-age technology companies that often have small revenues and zero profits.

That’s confounding.

Big chunks of previous stimulus packages have found their way into the stock market, driving valuations historically high.

And Congress and the Federal Reserve will keep spending and printing money that they don’t have — in a way that rewards something that just seems to be “hard work.”

Speculate Much?

It’s hard not to feel like the world I was born into no longer exists.

My parents told me to study like a madman, keep it simple and make prudent decisions with my money.

That’s just not the way it’s done anymore. Too many Americans — like their country — are living beyond their means. They’re going deep into debt. And they’re day-trading their stimulus money on high-concept, low-cash flow pies in the sky ...

Folks, at some point, massive deficit spending, a $30 trillion (and growing) national debt and central bank money-printing will catch the ire of fixed-income investors.

Why own a bond that yields next to nothing? Why take risk when the reward is zero?

It’s at that point — when bond investors toss in the towel and stop buying zero-yield bonds — that Congress and the Fed will find out there’s a limit to how much money they can conjure.

That’s why you must have a well-defined “sell” strategy to prevent your portfolio from getting ground into mincemeat.

Good times won’t last forever. But that doesn’t mean the stock market is going to crash next week.

In fact, I expect the stock market to go even higher ... for a while.

Let’s ride it ... with prudence.

Best wishes,

Tony  

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