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CS Evaluation: The Fed Causes A Crash, Cont’d

CS Evaluation: The Fed Causes A Crash, Cont’d
  1. A stock market crash is coming, and they will blame Trump. Evaluation: Yes, a stock market ‘correction’ is definitely coming. A correction that may lead to a bear market is considered a downturn of 20% or more and can occur every few years, historically speaking. Corrections of any type occur every year. It is not strange for the market to correct 10% or more any given year. Snyder seems to believe that the stock market will crash 42% or more at any time. The natural cycle of the markets is up and down and currently we are still in something called a secular bear market that began around 2000. It is true that the market probably – historically speaking – needs to correct significantly before another secular bull cycle begins. Is another 2008-09, known as the Great Financial Crisis (GFC) coming? Eventually, in all probability. But probably not soon, and probably not before the 2030’s, though its possible it could happen in the mid to late 2020’s if the worst occurred. Great financial crises almost never happen close together. This means that the next bull market will probably start at higher levels than those of the past, probably after a severe correction (but not another major crisis). Will Trump be blamed for the correction and the recession it may lead into? It is almost always true that the President presiding over a crisis bears most of the blame even though that blame is inaccurate and never the real explanation for events. Trump will be blamed for the crises that occur on his watch, but for our money, one of those will not be the next great market crash (that leads to another great financial crisis). Though, in the natural cycle of things, another recession is due around 2019 (but may be delayed a year or two). It is typical for the first few years of Republican administrations to be a struggle – then things take off economically.
  2. On C & I (Commercial & Industrial) Loan Growth as a sign of impending recession: As this article on Zero Hedge shows, C&I loan growth statistics may or may not mean anything, which is almost always true when you attempt to take one category of data and blow it up into something ominous or meaningful. And as we noted above, in the normal cycle of things, one would expect another recession by about 2019-20, at the latest.
  3. Implicit in Snyder’s conclusion that another major stock market crash – of 42% or more – is coming, are two presuppositions: 1) the stock market is in a bubble, and, 2) that stocks are now major overvalued. Is the stock market presently in a bubble? There is no real evidence of this because, among other reasons, there is still too much cash on the sidelines and too many people talking about the next great stock market crash. Bubbles are typified by market mania with everyone from his cousin to his uncle jumping into stocks. This hasn’t happened yet. The markets are still climbing a wall of worry, typical of up market cycles. There is a correction in our future, a major one, and it will probably lead into the next secular bull market cycle. That is when we should worry about a bubble. Are stocks overvalued? At present, stocks are slightly overvalued. But, it should be noted that they are not overvalued to near the extent that they were in the market apex of 2000, before that crash. Stocks can continue up for some time even when they are historically overvalued. So, Snyder’s declaration that “there is no possible way that they are sustainable” is just so much bs – and it is totally incorrect. They may be sustainable – or they may not be.
  4. Bonus: Is the Federal Reserve the problem? At times, the policies of the Federal Reserve are certainly the problem. It was Alan Greenspan’s abnormally low rates that drove the market bubbles of the 1990’s and early 2000’s and was partially responsible for the GFC. But the Federal Reserve was born out of a needed solution to a real market/economic crisis that occurred in 1907 (Wealthy bankers came together and bailed out failed companies, and in turn, the economy and the government – not choosing to address the Fed conspiracy theories, which may or may not have substance, here). So some type of central bank may be needed (another argument for another time), though we do agree that the private ownership and many of the policies of the bank can be suspicious. Reform and greater transparency is needed.

CS Conclusion: As we have said many times before, do not let alarmism or Chicken Little type cries drive your short or long term investment strategy. Act with balance and wisdom, and individually seek God for any personal decisions that you make.