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Tuesday, September 22, 2009

Is a Stock Market Bubble Inflating?

Over the past couple of months, the S&P 500 has risen faster than the price of gold. If the size of the US economy is shrinking when valued in gold, then it's impossible for the stock market to outperform gold over an extended period of time.

The comedians on the Communism Channel say "Over the past few months, the S&P 500 outperformed gold! Therefore, gold investors are idiots!" It's amusing how they denigrate gold investors at every opportunity. Even though the S&P 500 has outperformed gold recently, doesn't mean the stock market is a better investment than gold. Over the last 10 years, gold has outperformed the S&P 500 by a wide margin.

The stock market severely underperformed gold over the past few years. The recent gains may merely be catching up after previous bad returns. It's much more likely that a stock market bubble is inflating.

The Federal Reserve insiders have kept the Fed Funds Rate at 0%-0.25%. That practically guarantees that an asset bubble is inflating somewhere.

Are recent stock market gains an indication of genuine economic growth? Or, are they merely inflation and a bubble?

Just because a stock market bubble is forming, doesn't necessarily mean you can profit. As a non-insider, you don't know exactly where the bubble where occur, you don't know how long it will last, and you don't know when the next bust will occur. Then next inflationary boom can last anywhere from 0.5-5 years. During the next recession/depression, insiders qualify for a bailout but non-insiders lose everything.

Another inflationary bubble and deflationary recession/depression are guaranteed. It's statistically built into the rules of the monetary system. As the final collapse of the State draws near, boom/bust cycles should get more severe.

Even though another stock market bubble appears to be inflating, that doesn't necessarily mean that now is a good time to buy stocks. The best way to protect your savings is by investing in physical gold and silver.

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