Financial security Trade and investment

The inevitable consequence of stock market, real economy disconnect?


The Bearish Call to End All Bearish Calls
Tom Kilgour, The Wall Street Journal January 3, 2014

Sure, it’s easy to dismiss any forecast based on simple trend analysis over three (actually, 2.5) cycles as kind of loopy. Then again, we are in uncharted territory. This latest US stock market ‘rally’ is purely based on investor hysteresis. Corporate welfare, or ‘Quantitative Easing’ if you prefer, has killed returns (yields) on US bonds, sparking the rush to equity and commodity markets. What once may have seemed like insane headlines, such as Good news on jobs may be bad for stocks, now make perfect sense.

In a recent speech to reassure well-heeled supporters at the Lord Mayor’s Banquet, UK Prime Minister David Cameron described this post-agricultural, post-industrial, post-free-trade period thus:

Our success in the global race hinges on playing to these strengths – on  taking the country that led the agricultural revolution, the industrial  revolution and the market-based revolution of the 80s and equipping it to  lead the economic revolution of today.

What the current economic model is, Mr. Cameron is at a loss to explain. What he does know, however, is that selective ‘stimulus’ (more corporate welfare) and permanent austerity (less social welfare) are required to keep it going.

Ask any so-called market expert “What’s next?” and you’ll certainly get some interesting responses these days. One of the more creative we’ve recently heard is the ‘nanotechnology revolution’, based on the correlation between advances in computer processor technology (aka Moore’s Law) and the increase in global wealth. Since global wealth increased with each successive reduction in transistor size, and since nanometre-sized transistors would be much smaller than current ones, global wealth is set to explode. Quantum mechanics and thermodynamics aside, those who forward this interesting theory are at a loss to explain exactly how A translates to B, beyond the obviously questionable correlation. Investors pay good money for such thoughtful analysis and insight. Seriously.

Given that market runs these days have little to do with economic reality and everything to do with market hysteresis, we’d just like to add…

Billionaires Dumping Stocks, Economist Knows Why
Newsmax Wires, January 2, 2014

… based on the preceding thoughtful analysis and our own expert in-house tea-leaf and wind-direction analysis, we recommend ‘sell’. Because people should stop buying into this nonsense. Who knows what kind of damage the next magnified, completely artificial market run will do to our collective economic well-being.

Leave a Reply

Your email address will not be published. Required fields are marked *