Stock Market’s Caged Bear about to Rattle Himself Loose!
Stock Market’s Caged Bear about to Rattle Himself Loose! by David Haggith for The Great Recession
I’ve been saying the stock market will take a turn for the worst sometime between mid-August and October. Numerous market metrics now show a market that looks ready to turn over. The bear may soon be back in charge.
The futility of trying to stop the stampeding herd and the Fed fallacy
When I pointed out last January that the market was more perilously overpriced than ever and imminently ready to crash, the stock market took one of its most spectacular dives in history just a month later. (See: “Stock Market More Overpriced and Perilous Than Anytime in History.”)
Before the market plunged, I showed that Fed juicing (quantitative easing) was at all-time highs and continuing. That, I noted, made my prediction highly unlikely by most accounts.
The Fed is back to easing — back to doing what it does to juice markets up. And the correspondence between what central banks do with their balance sheets and what the stock markets do is now almost 100%.
I illustrated that with the following graph:
Yet, make my prediction I did.
Giddy investors on some sites tried to scorch me under their burning belief that the market couldn’t possible fall because the Fed had its rigging all firmly in hand, even though I had noted I was well aware of that. I replied the market was going to fall anyway — likely soon and certainly hard.
My article about the market’s impending and likely severe fall included this comment:
The more the market’s metrics move above all rational and historic benchmarks, as I’ll show they now have, the greater its fall will be if the Fed pulls the plug, AND the more sensitive it will become to the Fed even wiggling the plug. So, the situation is, in that sense, more perilous than at anytime past because some of the market’s most fundamental valuation metrics are now printing at levels never seen before.
What a fool I was, scoffed some stock advisors and investors who read my article or whose eternally optimistic articles I wrote comments on based on my article.
Then COVID flew in like a black swan and crushed the global economy. The Fed entirely lost control, and the market fell screaming, knowing the Fed couldn’t save it. The Fed’s enormous money pumps also screamed, as the Fed ran them as fast as it could for two weeks. Yet, the market kept right on falling through the floor and through the sub-basement because the market had a long way to go to catch down to economic reality.
In spite of the whirring money pumps (or brrring of its money press), the Fed was completely unable to arrest the market’s plunge until the federal government stepped in alongside it and applied an additional $3 trillion in muscle. And that’s why I wrote in May, “The Fed is Dead.”