Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Stock Markets Get Ugly – and May Be Getting Uglier

Stock-Markets / Stock Markets 2014 Oct 13, 2014 - 06:01 PM GMT

By: Money_Morning

Stock-Markets

Shah Gilani writes: Understanding what happened to the stock market last week is really, really important.

That’s because we’re at a place in time where it’s possible for time to go backward…


Markets Heading Toward Time Warp

We may not be heading back into the clutches of the Great Recession, which lot of middle-income and poor people never got out of. But if markets can’t rally from here, there’s a better than 50/50 chance we will fall back into an ugly time warp.

The importance of the market at this juncture has to do with the U.S. Federal Reserve’s prescription to get us out of the Great Recession in the first place.

The Fed told us that its zero-interest rate policies (ZIRP) would lead to higher stock prices, creating a “wealth effect.” The Fed hoped to push the economy along enough to let real GDP gather momentum and become the tailwind the economy needs for liftoff.

About that “wealth effect.” It never made sense to me. After all, if you don’t have any stock-market investments, you’re not going to feel better about other people’s wealth.

It certainly doesn’t make sense to the millions of people who can’t find a decent job, never mind a career. Or to the people who are so distraught after years of looking for work that they’ve given up.

And it especially doesn’t make sense to the millions of students who borrowed billions of dollars to get a degree to make themselves more attractive to prospective employers. Now, these students not only don’t have stock-market investments… they not only don’t have jobs, but they are shackled to the dirty, greasy, come-on loans that for-profit and not-for-profit schools peddled to them as another kind wealth-effect drug.

The wealth effect was supposed to make us all feel better as we watched asset prices rise, especially the stock market. If you feel wealthier, or at least you feel you could become wealthier, even if that must means getting a job, you’ll go out and spend, spend, spend.

And to spend, you’ll borrow. All that borrowing (at low rates, thank you, Federal Reserve) and spending will stimulate production, and more people will be hired to work factories and restaurants as demand for goods and services wafts us into the ether of economic nirvana.

Well, we’re not there.

The strong growth has never materialized. There are plenty of reasons for that, and the Fed knows them all.

What did work was the pumping up of the stock market.

Now, whether there’s been any wealth effect is about to be tested. If there’s panic-selling and stocks drop precipitously, stock investments will get hit hard, of course – and the whole economy could tip over into a massive double-dip Greater Recession.

Last week was a warning. The Dow Jones Industrial Average dropped 273 points on Tuesday, and a lot of people freaked out. Then Wednesday came along, and the Dow gained 274 points. So a lot of people figured, “That was scary, but it’s already over.”

Too bad Wednesday was methadone day. What sparked the market to erase the huge loss on Tuesday were the Fed minutes. The Fed said it was worried about the strong dollar and decelerating global growth. The market was relieved that there was no chance the Fed would let interest rates rise, and off it went.

Too bad the week doesn’t end on Wednesdays.

On Thursday, the Dow dropped 330 points. On Friday, markets tried to rally, but the Dow ended down another 100 points.

The average daily volume last week was 7.9 billion shares. That’s the highest daily volume in any one week since November 2011. In other words, not only were there more sellers than buyers, but those sellers were selling a lot more shares than usual.

Here Comes Trouble

Technically, as in “technical analysis,” all the major stock indexes are in trouble.

A week like last week doesn’t just happen out of nowhere. Forces congeal for a while before triggering bouts of selling. Last week, those forces were over in Europe. European stocks got killed last week, and U.S. markets traded off them.

What’s bad about that is that a lot of people expected sellers in a weakening European environment to park their money in U.S. stocks – but they didn’t. They still might down the road, but they didn’t last week and they certainly won’t this week.

As far as today – where’s the bounce? Europe bounced, at least some.

But there’s no bounce in the Dow as I write this at 10 a.m.

We opened higher, and there was a sigh of relief. But that sigh has turned into an audible whisper of worry.

Where the stock market is – that’s a big deal.

If the wealth effect evaporates, confidence in the Fed’s policies will go up in smoke, too. So will confidence in all the central banks’ abilities to engineer the world out of slowing global growth.

The Fed and the globe’s other central banks built dykes wherever there was water rushing into Great Recession sinkholes. Their pumping schemes seemed to dry things out.

But, “If it keeps on rainin’, levee’s going to break.”

Yep, I’m going to keep singing that Led Zeppelin line to you, ’cause I think it’s coming.

Source : http://www.wallstreetinsightsandindictments.com/2014/10/markets-get-ugly-may-getting-uglier/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules