I woke up today and I don’t feel irritable or upset. Well, that is no big deal, as I never wake up irritable or upset. Sometimes, however, I wake up groggy from too much vivid dreaming, and that better describes my composure this morning.
In my grogginess, I find the news today to be less than helpful. It seems the breathless media is still pushing the idea the market wants the global economy to decelerate to protect QE and other central bank stimulus policies. For example, some reports today suggest the market rose yesterday because of weak manufacturing reports out of China and the US. Oh, I don’t know, maybe the precipitous drop on Friday inspired buyers who have been looking for opportunity to play the market.
I came across and article this morning that speaks to my market heart. It chides the skeptics and perma-bears with facts, charts, figures, and solid reasoning to answer a simple question.
- For years, I have been listening to the skeptics calling for a purported artificially inflated stock market to crash. When prices continued to more than double over the last few years, the doubters blamed Ben Bernanke and the Federal Reserve as the instigators. The bears continue to point fingers at the Federal Reserve for spiking the financial punch bowl with unnaturally low interest rates (through quantitative easing bond purchases), thereby laying the foundation for a looming, inevitable market crash. So far, the boogeyman is still hiding. If all the concerns about … Federal Reserve bond “tapering” are warranted, then it raises the question: “How can the Dow Jones and other indexes be setting new all-time highs?”
The writer points out many of the things I have been saying for years to answer the question, but he does so with charts as visual aids, something I don’t generally use to make my arguments. If I had more room, I might, because they really look spiffy (a blast from the past).
Below is a reader’s comment on my article yesterday about the very same topic I mentioned above – the idea that the market is responding conversely to the economic data. Interestingly, though, the reader uses the opportunity not to expose flaws in my argument, but as a vehicle to espouse the fear of many who believe fiscal and monetary Armageddon is coming.
- Bernanke will probably go down as the most “dumb” FED ever. Fact — $17 trillion debt plus $50 to $60 trillion unfunded liability =$75 trillion debt. In the years to come, expect market to work itself down to 666 S&P. HOW the hell can U.S. EVER repay??????????? (No matter what the 1 to 5% do, versus the 95% of the people. Banker of 1 of the top 5 charter BANKS in Canada. Be CAREFUL.
First of all, thanks for commenting. As to your rather strident commentary, here are my thoughts.
Only time will tell if you are right about Ben Bernanke, the Fed debt, and the unfunded liabilities of the US government. These are all legitimate issues, but they simply don’t engender the same fear in me as they do you. For example, the current US debt you mention is $16 billion (not 17) and our deficits are going down. As the economy improves, so will this situation. We have been here before. Right after WWII, the debt to GDP ratio was 113% and today it is just about 103%, as of the end of April.
The unfunded liabilities are directly related to US debt and the cost of healthcare in this country. Currently, Social Security is solvent, and will be through 2045, but that is not the problem. The problem is we have borrowed that money to fund the government. We do need to pay it back, but in the meantime, some adjustments to the program will be necessary, such as raising the retirement age to reflect current increases in longevity. As well, healthcare costs have begun to “bend,” and as The Affordable Healthcare Act kicks in, we should see more of that.
As to the Fed, well, the money you speak about has nothing to do with the Fed; it is fiscal, not monetary. On the monetary side of the equation, the current Fed sheet balance is approximately $3 trillion in the red. Keep in mind, though, the money is not actually money; it is a number on paper created when buying US debt, so when the debt becomes due, the number is erased. It is a dangerous shell game without precedent, but at this moment, its greatest near-term potential harm, hyperinflation, is stable. So, other than the breathless media pushing the idea about QE and the market, there is no harm now.
Finally, I would like to know how you came up with the “demonic” number of 666 for the S&P. It seems it is either random, technical voodoo, or some apocalyptic reference. As well, I am not clear on the reference to the Canadian banks. Care to explain?
Remember, just about four years ago, the US auto industry was about to collapse? I think the information below speaks to recovery, the issue at hand for the US in so many ways.
- GM (GM) is finally returning to the S&P 500 after an absence of four years, with the auto giant set to replace Heinz (HNZ) in the index and in the S&P 100 as of the close of trading on Thursday.
Trade in the day; Invest in your life …
