Taps Coogan – July 15th, 2021
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Add the following chart, from Not Jim Cramer, to the ever growing catalog of grotesque distortions and ominous warnings that are being produced by the Fed’s crusade to keep all interest rates, from the overnight rate to the 30-Year Treasury and junk bonds, below the inflation rate.
As the chart shows, the earnings yield of the S&P 500 is now below the inflation rate. Put simply the real earnings yield of the S&P 500 is negative.
The prior times when this occurred were: right before the 1987 market crash, right before the Dot Com Bubble popped, and right before the Housing Bubble popped. That’s it for the last 40 years.
Warnings like this are going off left and right, but all that matters to markets is the Federal Reverse and its $120 billion of QE a month. Fortunately for markets, the Fed is promising to ignore all incoming data for the foreseeable future, such as record job openings and break-neck inflation, which is now at 5.4%, and to keep the peddle to the metal. But they will change their mind eventually, at least for a while, and when the market sniffs that out, watch out.
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