Down goes the Dow

Zulauf has said everything that I said on these boards, including the concern of over-regulation, credit bubble, heavy cash weighting, big currency moves coming, and being on the cusp of buying gold.

I am not nearly so certain as he is, however, that the Fed will not issue another round of QE. I am also not confident that they will not raise rates any further in 2016, or that they will even lower rates in 2016. I'm also not confident that there is, overall, a deflationary environment, or that if there is one, it will continue throughout 2016. I think inflation is hiding, and that it will suddenly burst onto the scene with a roar. It will come hand-in-hand with the currency action that I see coming.

Sarcasm?

The dollar is crushing the global economy and making it very difficult for dollar-pegged countries to trade. Another round of QE would alleviate this pressure, but would expose the inflation that you see as hidden, Mas. No intervention and further rate raises will increase the pressure on the debt-burden. It is a 'damned if you do, damned if you don't' situation.

IMO, the Fed will respond with something. It might not be "QE", but it will be a disguised form of stimulus, and I would not be surprised at something like a lowering of interest rates, even negative i.r's. They will essentially force you into the markets. Yellen is on record as supporting negative i.r's, btw.

The finance sector is still inflated, while the 'real asset' sectors have been getting hammered. All the more reason to put your overvalued to work, and a halt to buying fairy tale paper stocks.

And no, I'm not saying to buy metals. But, a 10% or so allocation as insurance, is always recommended.

*overvalued dollar

Maserati and Ferrari,

Yellen and the other central bankers can try to float the markets, but you should consider that the day of reckoning will only be greater to the downside. Perhaps Yellen realizes this and the chance for further stimulus may be less than you think.

Igy

I considered it, but quickly rejected it as I think most would. Yellen and her predecessor put the markets, and by proxy the economy, into an extended growth pattern. If it ain't broke, don't fix it.

Ferrari has noted what I see as an evolving problem: the use of market performance as a proxy for economic performance.

People are saying that Yellen, and therefore the Fed, is now all about unemployment numbers, but over the past few years I have gotten the impression that they were actively interested in market performance.

It is true that Yellen acknowledges NIR's use as a tool as theoretically possible, but I also get the sense that the Fed is trying to lead from the front. IMO management of market, and by proxy, economic, performance has been increasingly considered the province of state intervention. When things go up, it is up to regulators to cool the overheating; when they go down, the regulators must stimulate, etc. It seems to me that regulation is now the dominant market force, at least as far as "balancing" or "correcting" markets that are seen to be performing outside some sort of acceptable envelope.

This new climate of reliance on the regulators is a perfect environment for those regulators to grab power, as is their natural tendency, by "leading from the front"--that is, by articulating and effecting policy that encourages a response which, in the aggregate, would be different than the response that would be encouraged by market forces other than regulatory interventions (things like "price discovery", as Igy mentioned).

My conclusion is that we won't see NIR, or ZIRP, or any near-term lowering of the interest rate. We will also continue to see the cherry-picking of favorable unemployment numbers.

Yes Igy this may indeed all be illusion, and to the extent that it will "work", the "benefits" would likely be temporary, but it would kick the can down the road for another while. At the start of the year I believed that they could keep it going at least through the US federal elections, and I still believe that.

Ferrari,

It's broke and too late to fix I am afraid. Leading economic indicators are breaking down, the best we can hope for is an extended period of sub-par growth. Even that view is too optimistic I suspect.

Igy

"Leading economic indicators are breaking down"

Which is precisely why the Fed is favoring trailing indicators like the unemployment rate.

You need to get your head out of your butt. Leading economic indicators? You sound like one of this talking heads on the tv. Of course there will be e onomic growth. That much is obvious. Maybe it will be "sub-par", whatever that means, but it will be growth. I don't know why you think that is a bad thing.

Maserati,

I am certain we are witnessing a protracted decline in the global stock market. One year from now the coming months will be recognize as the first recession since the financial crisis. Keep in mind the Federal Reserve cut through the early stages of the financial crisis. I suspect the die is cast, the cake is baked, and investors will be surprised as they always are.

Igy

Ferrari,

And you need to go learn yourself up.

Atlanta Fed GDP NOW:

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

Igy

Maserati,

Sure, it gives them a reason to do what they need to do, that is raise interest rates.

Igy

Well, this is what Zulauf said in an equivalent period in late 2011:

He got EVERYTHING wrong. The US market "only" went up 70% in FOUR YEARS after he told people to get short positions, he told people that gold was building a base right at the top. He even told people to cover ETF shorts right at the start of the commodity massacre. You would have lost A LOT of money if you listened to the guy.

Just another right wing nutcase that doesn't appear to know anything about anything.

So why would you listen to the guy this time?

The Zulauf comments from 2011 can be found here:

http://felixzulaufblog.blogspot.com/search?updated-min=2011-01-01T00:00:00-08:00&updated-max=2012-01-01T00:00:00-08:00&max-results=6

I'm sure comments in 2009 would even be more hilarious.

coach d,

I don't agree with all of Zulauf's view but certainly see in his views much of what it ignored on this thread. I listen to all views and I don't keep a laundry list of who has been recently right or wrong. Someday you may find yourself very wrong. I certainly don't wish that on you or anyone else. And I have been wrong many times on many things. Hubris does that.

I know you are a follower of Lazlo Birinyi and this article points to a little more caution.

http://www.bloomberg.com/news/articles/2016-01-22/birinyi-more-worried-about-markets-now-than-any-time-since-2009

Igy

coach d,

A more recent article on Zulauf from Barron's:

http://www.barrons.com/articles/felix-zulauf-sees-markets-falling-further-1440825824

Zulauf may be right wing, but he if he is right wing in Switzerland.

I really don't think this discussion has a lot of relevance to politics.

Igy

I have never found comments like this one to be convincing, that someone was once wrong, therefore they are/will be wrong this time.

That's like saying a runner is going to lose, that they suck, because they once had a bad race. Late 2011? What about early 2011? or 2012-2015? Or 1960-2010?

And this from someone who has expressed a serious lack of belief in many of the things Zulauf said.

Coach d, hopefully you use reasoning processes different than this one when evaluating individual stocks and companies.

DJIA back down to 16k to start the day, still humming along in the range I thought it would be.

Question for Igy: since you see the markets falling, do you have any predictions as to HOW that fall will occur? Suddenly, over 1 or 2 days? Over a week of consistent losses? A slow deterioration? A series of gains and losses, and a ratcheting down? Any particular event associated with the drop/drops?