Select Page

Law of physics: bubbles eventually burst.  Law of economics – bubbles eventually burst.  Especially those that are “helped along” by bad government policy.

The bubble I’m referring to – is the stock market; and the bad government policy is the money-printing madness of the last 5 years.

No one disputes that the Fed’s printing presses have been running full steam ahead since the financial collapse of 2008-09.  The “distribution” system for that money is the banks.  But banks were hoarding – not lending.  Why?  Because they could invest that cheap Fed money into government bonds and earn a spread.  Why take the risk of lending (coming off record defaults in 2008-9) when we can just park it in government bonds and make a similar spread?

Not only is this both convenient and profitable for the banks – it’s convenient for the government too – who needs buyers of the bonds they have to issue to finance their runaway spending habits.

But I digress.  Much of that “printed-out-of-nowhere” money has made its way – over time – into equities – the stock market; driving stock prices to all time highs.  Ever wonder why markets are in record territory when our economy remains in the dumper?  Now you know – and the result is the classic definition of a bubble.  And back to simple physics – bubbles burst.

So how does an average investor ride the bubble while it’s still going up – yet prepare for the day it bursts – which WILL HAPPEN – and likely sooner than later?

Equity indexed products may be the answer for some.  They go up as the market goes up – but are immunized from losses when markets go down.  Also knows as “insured” instruments – they may be just what thsee times call for.