Is The Wall Street Bubble Near Its Breaking Point?

Charles Hugh Smith has a post that is both entertaining and foreboding. He believes that the stock market is acting like a drug addict. He believes the market is addicted to and  is high on the drug known as Quantitative Easing (QE). The drug pusher, of course, is the Federal Reserve Chairman, Ben Bernanke. Please do read the whole article. The following quote comes from near the end of Charles’ post:

The more Ben talks about eventually decreasing the injection of financial smack, the more panicky the addict becomes. The more he increases QE, the less effect it has. The Fed is backed into a corner: increasing QE has no positive effect but decreasing it unleashes a catastrophic breakdown in the stock market.

It does seem that even a hint that the Fed will soon begin tapering off on Quantitative Easing causes a negative response from the market. Maybe that is why Money News is reporting that certain billionaires are dumping stocks related to consumer goods and the financial sector. For example, Warren Buffett:

In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

And, John Paulson:

Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

And even, George Soros:

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

As we say here at Asylum Watch, the player play and the payers pay. The good news is that gold is near a three-year low.

Well, that’s what I’m thinking. What are your thoughts?

15 thoughts on “Is The Wall Street Bubble Near Its Breaking Point?

  1. I’m not so sure that QE3 is as bad an idea as I originally thought it was.

    That is because of where the “free money” QE is going… into mortgage-backed securities.

    Trillions in mortgage value simply evaporated during the great crash of 2008. That value loss is as artificial as QE money creation is. The “free money” is essentially pumping value back into mortgages again where it should be. That makes logical sense.

    The Fed is recovering lost mortgage values. It’s artificial, yes, but losing mortgage values in the first place was artificial to.

    1. Quantitative Easing (QE) is about inflation. Its purpose is to inflate the currency, and that includes stock prices. Such inflation helps to keep us confused as to how much damage the thieves we put in charge of our country are doing.

      When Uncle spends more of our money than he takes in in taxes, the thieves we put in charge of our country get to spend our money at its present value. However, as the money supply increases, the cash we have is worth less to us. Thanks to a euphemism, “Quantitative Easing,” our government can disguise the fact they just printing money instead of borrowing it.

      If we suffer another dramatic crash, I suspect that will come from the housing market again. The thieves we put in charge of our country never did fix the mess they have made of the housing market, but that is no surprise. Why should we expect ambitious politicians to make rational business decisions with other people’s money? Yet with all the government sponsored agencies we have involved in mortgage lending, that is exactly what we are expecting, and that’s stupid.

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