Up In Smoke

Earlier this week we said the bull market is cooked.  We even offered several reasons why…including various historical indicators.  Of course we don’t really know for certain.

Quite frankly, no one does.  But there are many fine fellows out there who are more qualified on the subject than we are.  Moreover, we’re always open to considering contrary perspectives.  Especially when they have a track record that shows they know what they are talking about.

For example, about the time we said the bull market is cooked, Wharton Professor Jeremy Siegel told CNBC “the bull market is not over.”  What?  Not over?  How could that possibly be?

“I still think the big bull is taking control of the market,” said Siegel.  “Surely there might be a correction – we always have corrections in a bull market.  I actually don’t think this is going to be one of them, but if it does happen, I think it’s going to be a great buying opportunity.”

Certainly, following a correction the market offers many great buying opportunities.  But, within the context of a bull market, the correction must be less than a 20 percent decline.  Any more than that and stocks are in a bear market.

Going Off Script

Here at the Economic Prism a bear market is what we fully expect.  We’re looking for the buying opportunities that come after stocks fall 40 percent.  When there’s blood in the street and fear and loathing in the popular minds and hearts.

This is the place we’re headed to.  Where Fed policy loses control.  The time is near when interest rates can no longer be artificially suppressed.  So, too, the time is near when economic growth can no longer be pushed up with funny money.

Not since Paul Volker chaired the Federal Reserve – nearly 30 years ago – has the U.S. government’s top banker uttered a clear and honest statement.  Greenspan, Bernanke, and now Yellen…all look to muddy up, obfuscate, and hide the terrible predicament they’ve painted the world economy into.

But occasionally there’s a central banker that goes off script.  We treasure these crystal nuggets of clarity like we treasure our morning cup of coffee.  We take it in.  We contemplate.  And we feel all the better for it.

Luckily, this week offered one of these rare moments.  For fun and for free India’s central bank chief Raghuram Rajan opened his mouth and made utterances that must have horrified the old bankers club.  Here’s what we mean…

Up In Smoke

“Reserve Bank of India Governor Raghuram Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense.

“The difference: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster.  Now, as then, ‘demand shifting’ has taken the place of ‘demand creation,’” the Indian policymaker said.

“As was the case in the 1930s, the lack of coordination between policymakers is producing spillovers that may be difficult to control, and the world’s financial system may soon face fresh turbulence at a time when central banks have yet to repair the damage that the 2008 financial crisis caused to developed economies.

‘“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,’ said Mr. Rajan in an interview with the Central Banking Journal.”

Sounds about right to us.  But what do we know?  We’ve waited with great anticipation for the next market crash since the very day the last market crash ended.  Perhaps now it is finally here.  Are you ready for it?

Breathe deeply.  Think clearly.  Stay calm.  And place several marshmallows on the tip of a stick.  You always want to be prepared when things go up in smoke.

Sincerely,

MN Gordon
for Economic Prism

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