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The United States is in an asset price bubble. Asset Price Bubble Checklist 1. Rapid Acceleration of Asset Prices 2. Overheated Economic Activity 3. An Uncontrolled Money Supply 4. Uncontrolled Credit Expansion The United States meets all the criteria, being flagrant offenders of 3 and 4. The economic situation in the US mirrors the Japanese Asset Price Bubble (wiki link) to an alarming extent. Years before the economic decline started, the Japanese government implemented aggressive fiscal policy (increased public investment) and expansionary monetary policy (dropped their interest rate). The US has the same fiscal/monetary policy stances. From 1989 to 1994 the NIKKEI 225 Index grew from $10000 to $38916 (231%). Economic deflation started draining the economy in 1991 and lead Japan into economic struggles for nearly 20 years (1991-2010). The first ten are commonly known as the lost decade, the full time period known as the lost score. The S&P 500 keeps setting new all-time records, the price is the highest it has ever been in history. All Time High - $2175 - 7/22/2016 Why are interest rates still close to 0%? Below - S&P U.S. High Yield Bond Indices track the performance of "junk bonds" in the United States. They have increased nearly 20% in 2016.  How did the FED made this happen? The FED's monetary policy has resulted in interest rates that are close to 0. A Normal-Interest-Rate Economy High-Yield Bonds - High Risk/High Return High-Credit-Rating Bonds - Low Risk/Low Return A Low-Interest-Rate Economy High-Yield Bonds - High Risk/High Return High-Credit-Rating Bonds - Low Risk/Lower Return Investors typically seek the most return with a level of risk they can tolerate. When "safe" bonds offer little to no return, investment in alternatives increases. Low interest rates create more junk bond investment. Why is this Bad?
1. Lenders face a higher risk of default. 2. Companies that shouldn't be invested in receive more money. Vuru - Vuru is very easy to use, has a wide variety of data, and gives unbiased analysis (analysis based on numbers and not analysts opinions). The downside is they don't cover ETFs.
Google Finance - Charts are user friendly and versatile. Their stock screener does not work well. Typing a specific investment question into google is an invaluable and often overlooked strategy. Investopedia - The best tool for a beginner investor. I probably use it once a week. Yahoo Finance - Their stock center provides a lot of useful data in one place. It's great if you only have a minute to check the markets. |
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