Stock Markets: Why They’ve Moved Beyond Reality

Stock MarketsStock markets are soaring. The S&P 500 is at all-time highs. Other key stock indices across the globe are rising. With this, we hear the mainstream and politicians telling us that this is happening because overall global economic conditions are improving.

If this is the case, why do the economic data tell me the opposite? In my opinion, as a student of the markets for over 30 years, the only factor holding up the global economy is the massive amount of money printing. Take that away and global growth will plunge.

Yes, money printing by the Federal Reserve has stopped now ($4.0 trillion later), but it prevails across the globe as other major central banks continue to print.

Sneaky Money Printing Techniques

The Central Bank of China just lowered its benchmark interest rate—for the third time in the last six months! Though it hasn’t completely come out and said that it is printing, where else can the money be coming from to prop up China’s weakening economy?

According to the Financial Times, Chinese authorities have told financial institutions to keep on lending to provincial government projects even though they are not making their loan payments. The banks were told if the provincial governments can’t pay, to renegotiate the debt or extend the loan. Where is the money coming from to do this? (Source: Financial Times, May 15, 2015.)

Local and provincial governments in China have amassed a significant amount of debt and it is questionable as to whether it will ever be paid. When financial institutions are being told to keep the loans to the smaller government alive, no matter what, it’s essentially a bailout.

Irrational Investors Sending Stock Markets Higher

Investors’ reaction to this is mind-boggling. Have you seen the Chinese stock market lately? It’s a rocket. Just look at the chart below.

Shanghai Stock Exchange Composite Index Chart

Chart Courtesy of

In less than a year, the stock market in China has jumped 100%!

In the eurozone, the situation is similar.

Problems in the common currency region haven’t been solved. One day Greece is out, the next day it’s in. Unemployment in many countries like Greece, Portugal, Italy, and Spain, is still at record highs. But that’s okay; the European Central Bank (ECB) has been printing money—lots of it. This central bank just announced it will increase the pace of its printing in anticipation of illiquid summer months.

Stock markets in the eurozone countries have been soaring ever since the ECB formally announced it was going into the money-printing business. Look at the chart below of various key stock indices from major economic eurozone hubs; Germany (black), France (purple), and Italy (red).

FTSE Chart

Chart Courtesy of

Key stock indices in France, Germany, and Italy have increased over 20% just in 2015. Notice how in-sync in movement these stock markets are on the chart? France’s economic growth has completely stalled. Italy continues to face debt problems; the amount of bad debt in the country is staggering. Germany is the only strong country in the eurozone, but its growth rate is becoming embarrassing from a historical perspective.

If this isn’t all one huge case of market irrationality, then I don’t know what is.

What Would a Rational Investor Do?

If investors were rational, they would recognize that the concept of printing money to keep nations afloat is a major sign of trouble. Just a few years ago, in 2009, investors ran towards gold for similar reasons. Now their opinion is completely different, as the chart below on gold prices shows.

Gold Chart

Chart Courtesy of

Gold is in a decline as the global economy is on life support—that life support being the rapid printing of money with no real backing. This doesn’t make sense.

For key stock indices to go higher, you need economic growth. Right now, markets around the globe are rising for the wrong reasons. And the higher they go, the more devastating the fall from grace, and its impact, will be. Be very aware, dear reader.