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How I Learned to Stop Worrying and Love the Bubble

Written By Christian DeHaemer

Posted April 7, 2010

I keep reading the words of doom and gloomers, sitting in their gold-lined Wall Street caves, pointing fingers at the mongers of debt and the godheads of big government.

They preach "fiscal responsibility" from the corner office. They cry "moral hazard" from the elderberry bushes.

They point to Greece and stammer, red-faced and mouth agape, "That will be us… "

The Last Great Bubble

Of course, these market prophets are entirely correct. And in time, they will have their due.

The only problem is that there will be a massive bubble between now and that time — and you’d be foolish not to participate.

There is an old Wall Street platitude that goes "Don’t fight the Fed."

It is good advice. And right now, the Federal Reserve has its foot on the gas pedal and its hand on the nitrous tank.

The recent minutes from the March 16 Fed meeting were released yesterday. They stated that most board members think that rates should be kept low "for an extended period." The Fed is more worried about deflation than inflation…

Even the Dallas Fed President, Richard Fisher — who is known as an inflation hawk — thinks there is far too much under-capacity in manufacturing and slack in the system due to unemployment.

"Because of the enormous slack in the system, and as you know I tend to be very vigilant about inflation, we’re just not seeing price pressures right now. If anything, the tail risks are on the deflationary side," Fisher says.

When Fisher looks at big picture, acknowledges that we have $99 trillion in unfunded liabilities as a country, and says deflation is the problem… well then, strange things are afoot at the Circle K.

Bubbles Though Time

Most of you are old enough to remember the late 1990s. In 1998 we had a global currency crisis that threatened to bring down the economy. That, coupled with a fear of the Y2K computer glitch, induced then Fed Chief Alan Greenspan to inject a mere $50 billion into the economy.

This spurned on what seemed like a massive bubble at the time. Companies like Amazon, Yahoo!, Oracle, and Internet Capital Group went up 10% a day — every day — for weeks.

The NASDAQ 100 doubled in less than a year. Stupid companies whose sole product was advertising puppets went up 500% through sheer speculation. The trend was your friend. Teenagers and chat-room umpires became multi-millionaires.

It was lots of fun until it wasn’t. The now knighted Sir Alan Greenspan tried to reign in the bubble by hiking rates.

It worked. There was a dot-com crash.

But not to worry…

Two years later, in the aftermath of the attacks of 9/11, Greenspan stepped on the gas again and cut the Fed Funds rate down from 6.25% in 2001 to 1.5% in 2004. This created the second bubble, this time in housing and commodities.

Housing prices went up 200% or more. In Canton, a yuppie part of Baltimore, two-bedroom rowhomes went from $50k to $300k in less than five years.

McMansions sprouted in cornfields, everyone bought a Subzero, and former bartenders opened mortgage companies and got silly rich.

The Fed tried jacking interest rates back above 4.5%. And indeed that hike slowed the economy down; it worked much like the wall at Daytona.

And now we are on to round three.

According to the Fed itself, interest rates are at 0.25% for the foreseeable future:

fed rates

Not only are rates low, but a couple of trillion in extra TARP and Stimulus I, and Stimulus II, and health care, and car buyers, and home buyers, and, and, and…

All of this feeds the market. Moral hazard or not, it’s how the game is played. You should accept it.

Heck, George Soros did… and went on to make $3.3 billion betting on bailed out banks in 2009. John Paulson made $2.4 billion with the same strategy. David Tepper made $4 billion from AIG last year alone.

But bubbles aren’t just for the Big Boys. Anyone can play.

My readers have done rather well themselves. Just last week, I recommended a company that makes high priced jeans in Crisis and Opportunity. It is up 30% since I wrote the article.

Some of my readers told me that they made 251% in five weeks on a biotech recommendation… An oil explorer is up 106% in two months… A drug maker is up 43% and climbing…

Welcome to Bubble 3.0. These are the days of easy money.

Don’t be that guy who remains skeptical and buys at the top.

Even Greenspan’s first $50 billion bubble lasted for more than two years. The housing bubble lasted for five.

But this is the mother of all bubbles, and it is just getting started…

You will be paying for the subsequent crash… so you might as well get in on the easy money while it lasts.


Christian DeHaemer
Wealth Daily

P.S. Playing bubbles for profit is one path to easy money. In this new report, I give readers another option to make quick, easy gains: a profit-multiplying formula that could hand you 57 times your investment — but only if you take action before April 30.