Before you buy another ticket for the Bull market bandwagon of “don’t fight the Fed,” perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
The mainstream media is delighted to highlight positive economic data, but nobody ever asks about the quality of the borrowers who are behind the rosy numbers. Behind the rosy numbers, sales and profits are increasingly dependent on marginal buyers and borrowers: those buying on credit who would not qualify to borrow money in a system ruled by prudent risk-management.
These marginal borrower/buyers are last on, first off: they qualify for loans at the end of a credit expansion, when lenders throw caution to the winds to reap the profits from issuing new mortgages, auto loans, student loans, credit cards, etc. to marginal borrowers.
These marginal borrowers are the first to default, because they have insufficient income and collateral to support their loans.
This rising dependence on marginal borrowers/buyers leads to an economy of diminishing returns: ever-rising rates of debt expansion are required to generate ever-declining rates of expansion of sales, profits, GDP, etc.
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According to bitcoin news site CoinDesk, 2014 venture capital has flooded the bitcoin ecosystem reaching over $110 Million. Marc Andreessen, a well-known entrepreneur and investor, is betting big on the future of bitcoin with investments totaling upwards of $50 million. The Wall Street Journal’s Gregory Zuckerman reports that Andreessen has no plan on slowing down, claiming that he will invest “hundreds of millions” more in…..
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Which appears more likely–a straight-line extension of the past two years’ rise in stocks, or another “impossible” decline to complete the megaphone pattern?
There are dozens of charts and data points supporting the case for a continuation of the Bull market in stocks or a reversal into a Bear market. For the sake of brevity I’ve distilled the two arguments into two charts, one for the Bull case and one for the Bear case.
The Bull case is easy: the economy has reached self-sustaining expansion, a.k.a. escape velocity; hotel occupancy rates are high, home valuations are rising, stocks are fairly valued based on forward earnings, debt has been paid down/written off, and the Fed has tapered its quantitative easing (QE) bond and mortgage buying with no ill effect.
Tagged with: Bear market
, Bull market
, confirmation bias
, escape velocity
, Federal Reserve
, recency bias
, reverse repos
, self-sustaining growth
, stock market
OK, let’s forgive Goldman for flip-flopping. At the peak of the bubble, trigger fingers are nervous, and flip-flopping is the norm. A week earlier, a Goldman strategist, in a very bullish mood at the time, raised his year-end target for the S&P 500 to 2,050. But that’s like so last week. Now Goldman’s strategy folks downgraded global stocks. And they gave a peculiar reason.
Read…… How Bad Can The Junk-Bond Sell-Off Get? So Bad It’ll Take Down Stocks
Ukraine. Iraq. Nigeria. Libya. Tunisia. Syria. All are hotspots of conflict in different regions of the world, yet the same underlying cause behind each can clearly be seen when looking through the lens of finite resources.
In the end, all wars are resource wars.
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