The Fed Blows the Bubble Bigger and Bigger, While More and More on Wall Street Warn of the Crash

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As 2019 winds to a close, stock markets continue to see record highs. It’s a lot different than this time last year, when markets were plummeting to end the year. So what has changed?

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Well, the Federal Reserve decided to plow another few hundred billion dollars into financial markets to end the year, with that money finding its way to stock markets. With a President who wants monetary easing and judges the economy’s health by stock market numbers, the Fed has no choice but to prime the pumps. And boy how the Fed has primed them.

The Fed has increased its balance sheet by nearly $300 billion in just the past three months, an increase of nearly 8%. If the Fed keeps printing money at this rate, its balance sheet will exceed its all-time high within just a few months. Where will it go from there?

Many are expecting the Fed to pause come springtime. They’re hoping that by then the weakness in repo markets will have been overcome and that markets will be back to functioning as they should. But their trust may be misplaced.

Many experts believe that next year will finally be the year of the market crash. Among them are Joseph Davis, who manages over $5 trillion of investor assets at Vanguard. According to Davis, he sees a greater than 50% chance of a correction in stock markets next year. That seems to be a conservative guess, as numerous analysts have expected a large pullback for years. But as the saying goes, markets can stay irrational longer than investors can stay solvent.

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For those investors who see the writing on the wall and want to protect their assets before the big crash, gold is increasingly demonstrating its ability to do that. With a gain of over 16% already this year, gold is set for a breakout year next year when stock markets finally do crash. Those investors who made the right decision to invest in gold this year should be able to thank themselves even more next year when they see just how well their investments will perform during a plunging stock market.