Just a month ago, the financial landscape seemed almost perfect. Stock prices were climbing steadily, buoyed by the Federal Reserve’s influence.
With new Fed Chair Janet Yellen navigating her role and successfully continuing the tapering initiated by Bernanke, the economy appeared to be on stable ground. A minor slip of the tongue had little effect; it seemed she could maintain the illusion of a robust monetary system for the foreseeable future. However, cracks began to surface.
At first, the changes went unnoticed. But soon, the growth and tech stocks on NASDAQ began to falter, and then the broader S&P 500 followed suit. So, what does it all mean?
David Winters, manager of Wintergreen Advisors fund, sees the recent decline in stock prices as a buying opportunity. “You can get filet mignon for chuck prices,” he stated. Should his advice be heeded?
If Winters is correct, this is merely a short-lived correction, and those who invest now will reap the benefits. Conversely, if he is mistaken, investors might be better off selling, accumulating reserves, and preparing for a rough ride ahead.
The Big Bad Bull Market is Over
Clearly, the distinction between these two views is significant. Your perspective and decisions could impact your financial future dramatically. So, where do we start?
At Economic Prism, we favor simplicity. In our view, the notable bullish market that began on March 6, 2009, when the S&P 500 hit a low of 666.79, has come to an end. Yet, this concern is just the tip of the iceberg; we owe you an explanation.
“Markets make opinions,” as the old saying goes. This suggests that when stock prices are rising, people tend to feel optimistic about the state of the world. Conversely, during a bearish market, perceptions shift, and optimism fades.
The political landscape transforms swiftly—leaders who once seemed ineffective may soon be viewed as catastrophic. The business environment can quickly stagnate, leading corporate bonds to face significant challenges.
When the stock market turns decisively, as we suspect it has already begun to do, the Fed will be powerless to intervene effectively. They won’t be able to stem the tide of a falling market and can only cushion the impact, ultimately lacking the means to stimulate the economy.
This Market’s Ready to Implode
In summary, ignoring Winters may be the wise course of action. Investing during this downturn could prove to be a grave error. The recent market dip is simply the unsettling precursor to a potential collapse, and this is only the beginning.
For the past five years, rising stock prices have masked many underlying economic issues. When prices start to decline, these flaws will become glaringly obvious—like a drunken individual slumped in a church pew on Sunday morning.
The excessive artificial stimulation of credit markets has led investors to engage in practices that would typically be deemed irrational. As stock prices drop, the many economic imbalances and distortions will be revealed, no longer shrouded by inflated asset values.
Regrettably, this impending recession will follow a protracted and sluggish recovery, exacerbating the wealth divide. The recovery was primarily characterized by soaring asset prices fueled by aggressive monetary policies, leading to severe hardship for the economically disadvantaged.
This is the reality we face post-market crash. While it’s not pleasant, we must acknowledge it and adapt as best as we can—and you should do the same.
Sincerely,
MN Gordon
for Economic Prism
Return from This Market’s Ready to Implode to Economic Prism
