The S&P 500 index closed above the 5,000 mark for the first time in history today.  The Nasdaq closed just short of 16,000.

The yield curve is still mostly inverted with the 3-month yield considerably higher than the 10-year yield and 30-year yield.  It has been inverted for over a year now.  Does this mean that the coming recession will be much bigger than normal?

And while the Fed has seemingly stopped hiking its target interest rate, it is still draining its bloated balance sheet.  The Fed balance sheet peaked at about $8.965 trillion in April 2022.  It now stands at about $7.63 trillion.

Even though the balance sheet had exploded from about $4 trillion in early 2020, we have still seen well over a trillion dollars drained in almost the last 2 years.  The correction is going to come sooner rather than later if the Fed doesn’t do anything drastic.

It is still the Fed’s policy to allow maturing debt to roll off the balance sheet to the tune of $95 billion per month.

Bullish Investors

But none of this matters to the bullish investors.  They are pushing stocks to their all-time highs while ignoring the Fed monetary deflation and the inverted yield curve.  They think the party will keep going.

Maybe some aren’t ignoring it and just figure they can get out at any time.  You can get out at any time, but at what price?  Only a select few can get out at today’s prices.  It doesn’t take a lot of sellers, relatively speaking, to drive down the prices.

Of course, this is why almost nobody gets rich by timing the market.  If the market goes down 5% next week, what does that tell us?  Is it the start of a bad bear market?  Or is it just a little blip down before the bull market resumes?

I continue to believe that a recession in 2024 is likely.  The problem is that investors are completely irrational at this point.  They are bullish because others are bullish.  They feed each other’s optimism.  When the optimism breaks this time, it is going to break hard.

I think of the people who have retirement plans in the near future and are still heavily invested in stocks.  I hope they have a Plan B.

The Correction

A major correction could actually help much of middle-class America if the government and the Fed don’t intervene too much to stop it.  We need a correction to get some rational prices.  We need a correction so that consumer prices can come down.  We need a correction to set the stage for some real growth and rising real wages in the future.  It would also help people who have been priced out of the housing market.

Most of all, we need a correction in order to force the government to cut back on its wasteful and destructive spending.  It seems like there is no limit to what the government can spend, but there are political limits, even if it doesn’t seem to be the case right now.  We just haven’t quite reached those limits yet.