The U.S. stock market has generally been a good investment since March 2009.  At that time, they had just been hammered by the recession and almost nobody wanted to touch stocks.

Since late 2008, the Federal Reserve quintupled the adjusted monetary base.  And while much of this new money went into bank reserves, thus not multiplying through fractional reserve lending, it is still monetary inflation nonetheless.

If this newly created money had been lent out to borrowers, then the monetary base never would have grown as much as it did because we would have already faced massive price inflation.

Still, despite the big buildup of excess reserves, the new money does represent spendable money in people’s (and business’) checking accounts.  And while consumer price inflation has stayed relatively tame in most areas, asset price inflation is a different story.

Real estate has been bid back up in some areas, but many areas are still far short from the peak of the last bubble.  The one big area where we have seen major asset price inflation is in stocks.

I am not a perma-bear when it comes to stocks, but stocks have not been a favorite of mine over the last decade or more.  I understand that there is money to be made in stocks, especially when the Fed is on a digital printing spree.

I also know that stocks are fragile because they have been bid up as a result of the monetary inflation.  When you live by the monetary inflation, you die by the tight money.

The Fed – despite low interest rates – has had a tight money policy since October 2014 when QE3 ended.  Tight money is not good for stocks when they have already boomed because of loose money.

January 2016 was a really tough one for stock investors.  It looked like it could be the beginning of something more devastating.  Since then, stocks have gone back up and recovered what was lost at the beginning of the calendar year.

While some will say that the pullback in January was a fake-out, how do we know that the current upswing is not a fake-out?

Unless the banks start getting rid of their excess reserves in a significant way, then we are in tight money mode.  And the Fed is not going to start adding to its balance sheet again until there is a major economic downturn, which would include a crash in stocks.

So regardless of whether the Fed raises its key interest rate again, we are in tight money mode, which will not be good for stocks.  But these things take some time to work out and filter through a massive economy.  There is a lag effect.

I do not recommend being heavy in stocks right now.  There may be more profits to come in the short term, but it is not worth the risk right now.

Owning stocks in the context of having a permanent portfolio (which I recommend) is fine.  It will only be 25%, and your other investments will likely offset any losses in a stock market crash.

Aside from the permanent portfolio, the only thing I like right now is gold stocks.  But even there, I am not too heavy.  If we hit a recession with a major downturn in stocks, gold mining stocks will likely take a hit too, unless gold goes completely the opposite way.

It was nice to see the gold price rise in January in the face of falling stocks.  I think there is so much uncertainty out there that gold could actually hold up decently well in a recession.

It is an interesting time to consider a short position in stocks for speculative purposes only.  It is a tough thing to do right now.  I don’t recommend a big short position, but if you are ever going to do it, a year and a half of tight money with near all-time highs in stocks is about as good of a time as any.

It took a lot of courage for the people who bought stocks in March 2009.  There is going to be a particular time that we look back at to say it would have been a good time to short stocks.  I don’t know if now is that time, but it seems plausible to me.