Wednesday, 5 July 2017

Bear Market In My Mind… But Why?

Posted by Anonymous at 11:43 Labels:

It would be strange if you still haven't read, heard or watched any analyst predicting a strong market correction for the second part of this year.

Are they right? Will the fun be over soon? For how long can we ride the bullish wave? Well… those are great questions indeed, but if there would be an easy answer, we would be in a different place right now.

Oh come on… don't give up so easily. Let's (at least) try to analyze a little why experts are being more and more careful these days and in case of a drop how bad (or good) would it actually be for all of us.

On Monday, the former presidential candidate Ron Paul said he wouldn't be surprise if by October US markets plunged by 25 percent and gold soared by 50 percent. While Paul seems to be a be a bit of an extremist as far as numbers go, he certainly has a point.

“I think it’s a very precarious market, and the Fed better be very careful. Since they are incapable of knowing what to do, I don’t expect much good to come out of anything they do,” warned Paul in an interview with CNBC.

And the Fed plays a big role in this matter. Since the regulator began its monetary policy normalization process, it has repeatedly insisted that growth, inflation and labor market should perform adequately in order to keep moving forward. Because otherwise, there are risks.

Particularly, risks of cooling the economy too soon, sending it back to recession and cutting the hard work done so far since the 2008 financial crisis. While the recent economic data hasn’t been supportive of raising rates, the Fed explained not once that these are small variations.

  • Economic growth: the first-quarter gross domestic product has been upgraded from 1.2 percent to 1.4 percent in recent days. This is a hawkish signal for further tightening.

  • Inflation: the Bureau of Economic Analysis said the core PCE price index grew 1.4 percent in May, in line with market analysts expectations. CPI and PPI should be monitored for a better understanding of Fed’s next steps.

  • Labor market: Keep your eyes wide open because on Friday we’ll get a new reading on the nonfarm payrolls and unemployment rate.

Market analysts are pointing out that Wall Street is now buying huge volumes on margin and that debt levels are really high, two factors that could and would (eventually) have to be corrected in the right time. A question remains: when?

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