Throwing Caution To The Wind
-- January 26, 2004

Home prices are rising. Corporate earnings are growing. And almost every major central bank across the globe is running its printing press 24/7. Well-heeled investors and institutions are flush with cash and they are pumping it back into Mr. Market.

Are stocks overvalued? We say absolutely! And we think many analysts would agree. But overvaluation can last if the Fed continues to pour fuel on the fire. Mr. Greenspan gave his "everything is right with the world" remarks at the 2004 Bundesbank Lecture in Berlin a couple of weeks ago, signaling that the Fed will continue to stoke the flames.

Mr. Greenspan threw conventional economic wisdom right out the window when he said there should be no concern about the U.S. being able to fund its massive and growing current account deficits. Wow!

This was quite a revelation from a man who is arguably the most influential financial policy maker in the world. To us, Mr. Greenspan displayed a callous disregard for the long-term integrity of the global financial system.

No matter how one slices or dices it, and no matter how Mr. Greenspan attempts to spin it, sooner of later there will be a day of reckoning for a country that runs up massive amounts of debts.

So, keep this fact firmly planted in the front of your mind: This stock market is being driven on central bank fuel. One day it will end. And it will end badly.

related article:
Stocks Hit 2-1/2 Year High