ASX 200 at 5900 Points By Friday…

The stock market has gone ballistic. And while a correction seems set for March, you shouldn’t rule out higher highs this week.

Technically, the Dow Jones Industrial Average doesn’t look ready to give up its gains…yet. That spells ‘good news’ for the Aussie stock market. The ASX 200 should hit 5900 points this week.

Donald Trump deserves a lot of credit for the rally. He’s promised the largest corporate tax cuts in history.

Who doesn’t love the idea of higher profits and fatter dividends?

A lot of people, it appears.

I’ll explain…

Why has the elephant in the room been ignored?

First, there’s something that doesn’t make sense — far too many punters have ignored the seven-year bull market.

And for what?

The stock market has offered plenty of buying opportunities. Yet, strangely, the majority have ignored this fact and remain on the sidelines. A lot of people fear a major stock market crash, and so remain mostly in cash. For that reason, a ‘massive splash of speculative cash’ is missing from the market.

The minority has driven the stock market to fresh highs. In my view, aside from computer algorithms, professional investors and super funds, the main buyers have been short-sellers. Short sellers aim to sell their shares high and buy them back at lower prices. That’s the opposite of buying low and selling high. In other words, short sellers look to profit from a falling market.

Unfortunately for them, the market keeps surging higher. And, when the short sellers get stopped out, they need to ‘buy back’ their positon…sending the stock market even higher.

Marketwired.com reported on 16 February:

‘Fairfax Financial Holdings Ltd., the holding company run by investor Prem Watsa, unloaded its long-term bond holdings and reduced short positions on stocks, adding to a bet that President Donald Trump will spur U.S. economic growth.

‘Fairfax sold its California debt and long-dated U.S. treasuries to lower the average term in its bond portfolio to one year from as long as 30 years, and closed its short bets in the Russell 2000, S&P 500 and S&P/TSX 60 equity indexes.

‘Closing the short bets contributed to a US$2.66 billion investment loss in 2016, according to a fourth-quarter financial statement, and left the Toronto-based insurer with US$10 billion in cash and short-term investments at year-end, which Watsa said he’ll deploy into stocks “over time.”’

Ouch!

Prem Watsa is one of the most famous investors in Canada. Isn’t he meant to be one of the experts?!

Prem Watsa, like many others, has argued that a major stock market crash would come for years.

Listen up folks: A major stock market crash hasn’t come, and won’t happen anytime soon in my opinion. In my view, you are going to be waiting a long time for a crash.

Why everyone has got it wrong…

The world is facing a different type of financial crisis in the years ahead. The risk exists in the global government bond market — not the stock market.

Ironically, however, most investors have moved their savings into government bonds…perceiving them as ‘safe investments’. These investors will lose a fortune — or their entire retirement savings — during the next financial crisis.

When a government defaults on their debt obligations, bond holders lose everything. At best, governments will delay bond coupon payments or maturity dates. However, when that happens, government bond prices will drop like a rock.

Indeed, a major bond market crash looms — and it has already started. Take a look at the 30-year US bond market — it peaked in July.

US Bond Market


Source: Investing.com
[Click to enlarge]

The stock market is a far better alternative. And while it could fall with the bond market during any future crisis, the US stock market should continue to make new highs this year. And the ASX should follow along for the ride.

The majority are now waking up to the risks in the global government bond market. That should accelerate when Marine Le Pen wins the French election in April and Angela Merkel loses the German election in November. The silent majority has had enough with establishment politicians. When these major election upsets happen this year, capital will move out of the euro and into the US dollar.

The US dollar has embarked on a tremendous bull market. The euro selloff should aid the bull market.

The majority of capital flows should head into the stock market, short-term Treasury notes and blue-chip corporate debt.

Trump has promised major tax reform, infrastructure spending, and a repeal of Obamacare. These promises are bullish for stocks, and should put more money in the Average Joe’s pocket. Much of which should, in turn, find its way into the stock market this year.

The US Federal Reserve also wants to move interest rates higher this year. The next rate lift could come as soon as March. That will attract more capital into the US stock market. Remember, higher rates — whether you believe it or not — tend to signal more confidence in the economy. If the US market climbs higher during the year, that should be good for the Aussie stock market — especially the hot sectors, like lithium and cobalt.

Adding it up, if you’re waiting for a crash, you are going to be waiting a long time. Instead, if we see a correction in the weeks ahead, look to pounce on your favourite stocks. The stock market isn’t anywhere close to peaking for the year. Look to buy the hottest sectors — like lithium and cobalt — while they remain in favour.

Take a look when I got my readers over at Resource Speculator into cobalt:

cobalt


Source: Infomine; Resource Speculator
[Click to enlarge]

Our cobalt stocks are up more than 100% since I recommended them.

It’s a similar story with lithium. And our lithium stock isn’t anywhere close to peaking…especially if it taps the mother lode in March, as I expect. Don’t miss out on the opportunity.

To find out more, click here.

Regards,

Jason Stevenson,
Editor, Markets and Money

PS: I’m in the process of writing up the next stock report for Resource Speculator. I’m looking at three ‘battery stocks’ that are largely overlooked by the market. Don’t miss out on what could potentially be the next three hottest stocks on the ASX! For more information, click here.


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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