The stock market’s roar to record highs Tuesday reflected the Federal
Reserve’s massive easing campaign, not the strength of the U.S. economy,
says financial commentator Robert Wiedemer, best-selling author of
"Aftershock."
The Dow Jones Industrial Average rallied 125.95 points, or 0.9 percent, to 14253.77, surpassing its previous record closing high of 14,164 set in October 2007.
“Fed money-printing is important” for the stock market, Wiedemer tells
Newsmax TV. “The economy isn’t doing particularly well. This isn’t the
economy of 2007; we all remember the boomy times then.”
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Indeed, the economic recovery is “100 percent fake,” he says. “It’s
built on Fed money-printing and government borrowing. Both are at record
levels. That’s absolutely crucial to this market rally.”
The Fed has added more than $2 trillion to its balance sheet over the
past five years through quantitative easing and has pushed short-term
interest rates down to near-record lows.
Still, the economy expanded only 0.1 percent in the fourth quarter. “And
more important for companies reporting earnings, much of the world is
in recession, and that’s affecting a lot of S&P 500 earnings,” says
Wiedemer, a regular contributor to Financial Intelligence Report, the
flagship investment newsletter of Newsmax Media.
Discover more about Robert Wiedemer's latest book, "Aftershock," by Clicking Here Now.
To be sure, that doesn’t mean the rally won’t continue, he says.
“It would be a little silly to say we’ve topped today; it certainly can
go higher,” Wiedemer explains. But “some sort of correction is likely,”
he maintains.
“We have gone quite a ways in a short period of time. Whenever the
market has a large run-up it’s likely to have some kind of pullback. So a
correction is certainly plausible. Whether it’s in the next few days or
a week or two, I don’t know.”
So is this a good time for individual investors to dive into the market?
Editor’s Note: Put the World’s Top Financial Minds To Work For You
“There are some values, some high dividend stocks that are good to hold,
[though] I’m not sure they’re great values,” says Wiedemer, a managing
director of Absolute Investment Management, an investment-advisory firm
for individuals with more than $300 million under management.
“Keep in mind that this isn’t being driven by economic fundamentals.
Always be careful in playing in markets like this. It may be acting like
2007, but this isn’t the economy of 2007.”
Also realize that even at record highs, the stock market is up only
about 10 percent from its 2000 zenith, and the Nasdaq is still down
almost 30 percent, Wiedemer says.
“And let’s not assume all stock gains are permanent either. They can go back.”
As for the Fed’s quantitative easing (QE), Wiedemer doesn’t think it will end any time soon.
Editor’s Note: Put the World’s Top Financial Minds To Work For You
“The only exit strategy for [Fed Chairman] Ben Bernanke is to retire,
which I think he will do in January. We have been through four [rounds
of QE]. It will continue through this year, and quite possibly longer.”
When it comes to the automatic spending cuts (sequester), Wiedemer
doesn’t see them having much effect this quarter. But economists say
that overall, they’ll take 0.5 to 1 percentage point off GDP, he notes.
[Robert Wiedemer is a managing director of Absolute
Investment Management, an investment-advisory firm for individuals
with more than $300 million under management. He is a regular
contributor to the Financial Intelligence Report, the flagship
investment newsletter of Newsmax Media. Click Here to read more of his articles.]
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