If one were to just listen to CNBC, which is actually a good source of information, one would hear frequent comments about market bottoms, new opportunities, oversold stocks, etc. Some of these commentators are the worst. They are no more than cheerleaders with poms-poms that say BS on them.
The negative conditions surrounding the stock market are many and deep. The question is when will each take it toll on the value of the market? During the Monday, June 13th broadcast a chart was put up. Think of it as two overlapping humps.
STOCK MARKET - THE AMERICAN ECONOMY
The left hump is the stock market, and the right hump is the economy. The allegation made here is that the stock market has been manipulated since 2008 to reach this state. Ever since the supposed banking crisis of 2008, the Fed and Congress has been pumping truly huge sums into the market and putting the nation into unconscionable debt. This is the two step process to destroying the American economy.
Part 1 – Destroy the Capital Formation Markets - create too much debt, overinflate the asset valuations of stocks, then destroy liquidity causing wealth destruction and takE away the ability to invest in new capital projects.
Part 2 – By reducing the stock market, you now set the stage for a recession, if not a depression. The inability to support the economy with new investment leaves you with a dead economy. Mr. David Bratt, Chairman of the economics department at Liberty University has been making this point repeatedly. But he has also repeated that the way the Fed has continued to print new money is like transfusing blood through a dead body.
Depending on who you are talking to, the nation is either about to pass the point of no return, or it already has. The Fed has put off doing even the basic things. The raging discussion over whether or not the Fed will raise interest rates 50 or 75 basis points is as lame as it gets.
While commentators say that the Fed does not have many tools to work with in order to control the economy, what they do have can work. The cost is the question. They keep debating, “Will we have a hard landing or a soft landing?”
The Other Perspective
These events offer a different perspective. Taken broadly, what will constitute the first third of the 21st century will have been spent on fixing the mistakes started in 2008. Instead of some “Great Reset”, instead, this can be seen as a long, slow, tortured process of getting back to normal valuations, normal economic conditions.
Peter Drucker, the father of management science, pointed out long ago that there is always a tenuous relationship between the financial valuation of physical assets and their real value. While some would say this is just another way of describing a bubble, that would be misleading. Still others would suggests that financial crises are needed in order to engage in the next phase of growth for an economy.
Some will offer it is being done in a backasswards way, but the resolution of all these huge economic and fiscal problems will have to eventually resolve themselves in a way that constitutes starting over again economically.