Dow At Record High, U.S. Federal Reserve Still Worried About Inflation

The Dow is at a new record high. But as much as the Dow has gone up, earnings have gone up more. So many commentators believe American stocks are a bargain and surely, some are.

But what could lie ahead?

Analysts have been focused on the hydraulics of the system. So much new liquidity is coming into the markets, they say, prices have to go up. What can an investor do but buy investments?

The Wall Street Journal reports that even the United States Federal Reserve thinks the economy will keep expanding, but is not sure that inflation is under control. That could mean rate cuts aren’t in store. But then again, they’ve said that before… and cut.

We are not capable of predicting price movements. We’ve proven that point to our satisfaction on a number of occasions. All we can do is to marvel at the spectacle of it… and try to guess what will happen next.

Our guess is that the system will bubble along for a while longer. For the present, there is a lot of cash around. And people, generally, have never been more confident. Last week brought news, for example, that the risk premium on junk bonds has fallen to its lowest level ever. Now, investors are so confident that they will buy junk bonds, rather then treasuries, and ask only 2.42% more in annual interest.

But we remind readers; we do not invest our money on this kind of guesswork. When we invest, we want decent odds that we’ll end up with enough of a gain to offset the risk. But since, so many markets are so high, and there are so many geniuses taking so many chances with so much money, we judge the odds at less than even.

No, in our opinion this is not the time to take big risks in the public markets. So, we buy gold… keep our Crash Alert flag flying over company headquarters… and hold onto our hats.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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