Recently, we suggested that the bull market may be at its end, sharing several historical indicators to back our claim. However, the truth is, no one can predict the market with absolute certainty. That said, there are indeed experts who offer valuable insights, and we’re always willing to consider differing viewpoints, especially from those with proven track records.
For instance, around the same time we voiced our concerns, Wharton Professor Jeremy Siegel conveyed to CNBC, “the bull market is not over.” Quite the contrary perspective! How could that be?
“I still believe the bull market is in control,” Siegel stated. “There may be corrections—we typically see them in a bull market. I don’t foresee this being one, but should it occur, it would present a significant buying opportunity.”
While it’s true that buying opportunities often arise after market corrections, it’s crucial to understand that within a bull market, these corrections must be less than a 20 percent decline. Exceed that threshold, and we find ourselves in a bear market.
Going Off Script
At Economic Prism, our expectation leans toward a bear market. We’re actively seeking buying opportunities following a substantial decline of around 40 percent, when fear permeates the market, and pessimism prevails in the minds and hearts of the populace.
This is the trajectory we appear to be heading towards—a realm where Federal Reserve policies begin to falter. The moment is nearing where interest rates can no longer be artificially kept low, and economic growth can no longer be stimulated through unsustainable monetary policies.
Since Paul Volcker presided over the Federal Reserve nearly three decades ago, there has been a lack of clear and honest communication from U.S. officials. Greenspan, Bernanke, and even Yellen have often obscured the dire situation facing the global economy.
Yet, occasionally, a central banker deviates from the usual script. We cherish these rare moments of clarity, much like we savor our morning coffee. They offer perspective and insight that we value deeply.
This week brought such a moment. With boldness, the Governor of India’s central bank, Raghuram Rajan, shared insights that must have shocked the old guard of the banking sector. Here’s what he expressed…
Up In Smoke
“Reserve Bank of India Governor Raghuram Rajan cautioned on Wednesday that the global economy is increasingly mirroring the situation of the 1930s, with advanced economies attempting to recover from the Great Recession at the expense of one another.
“The distinction now is that competitive monetary policy easing has replaced competitive currency devaluations as the preferred strategy in this zero-sum game, which is destined for disaster. Just like in the 1930s, ‘demand shifting’ has supplanted ‘demand creation,’” the Indian policymaker remarked.
“Similar to the 1930s, the absence of coordination among policymakers is creating spillover effects that may be challenging to manage. The world’s financial system could soon face renewed turmoil at a time when central banks have yet to address the damages caused by the 2008 financial crisis to developed economies.”
“We are increasing the risk of another crash during a period when the world is less equipped to handle the fallout,” Mr. Rajan noted in an interview with the Central Banking Journal.
This assessment resonates with us. But who are we to assert anything? We’ve anticipated a market crash since the last one concluded. Perhaps the time for that crash is now. Are you prepared?
Take a deep breath. Maintain your composure. Stay focused. And don’t forget to have some marshmallows on hand for the inevitable challenges ahead. It’s always wise to be ready when circumstances go up in smoke.
Sincerely,
MN Gordon
for Economic Prism
