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Tiny Bubbles

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Imagine outgoing Chairman Ben Bernanke joyfully wrapping things up at the Fed while humming “tiny bubbles make me feel happy” from Don Ho’s song Tiny Bubbles. Creating bubbles seems to be a job requirement for a Fed Chair.

The Fed is putting on an air of solidarity for incoming Chair Janet Yellen. The broad show of support for Mini “Tapering” is part I. Any concerns about the stock market are cloaked in Fed speak. Take the recent Fed meeting minutes for example. “Several [Fed officials] commented on the rise in forward price-to-earnings ratios for some small-cap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans.”

What the Fed needs to do is stop the easy money and stop with the silly comments. Take a look at the “rise” in margin credit—borrowing money to buy stocks. I’d say there’s a problem brewing. But no one wants to ruin the introduction to the big stage for Yellen who may be quietly humming to herself, “tiny bubbles make me feel fine”.

NYSE Margin Debt Chart

 

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.