I bought my first stock in 1980. I had some sweat money and I bought shares of Texaco. It was my first time. The broker gave me a long talk about world hunger and poverty. By 1987 I was holding some preferred shares in a small oil company, which paid a nice dividend. I listened to the market gurus, who predicted the crash; Joe Granville and Elaine Garzarelli. I got out, and when the markets fell I tried to buy back, but I was too early. Fortunately markets rebounded within a year due to government assistance with liquidity.
The market crashed again in the early 2000’s. That crash took several years and included a new high just before the final selloff. Despite the markets volatile behavior, there were higher highs and higher lows. In the long term the stock market was going up. Then in 2007 it crashed again, to even lower lows than the previous crash and that shook investor confidence. Market performance since the financial crisis has been nothing short of incredible. The worlds central banks have been printing trillions of dollars in excess liquidity, and that money has found its way into whatever market offered the best return.
The central banks announced plans to stop buying bonds and to shrink their balance sheets. The Federal Reserve started raising interest rates, a basic tool for constraining credit, and the markets responded negatively. At some point raising interest rates has the opposite of the desired effect which is to promote inflation, a correlate to economic growth. However correlation does not imply causation, but in this media driven world the symptoms of recovery are as good as a cure. Consumer confidence is strong even if consumer credit is at new highs.
The technology of the 1930’s had the potential for the greatest improvement in the standard of living at any time in history; electricity, the automobile, telephones. It was also the worst economic environment in the history of the nation. Please ignore the fundamental promise of new technology and growth projections based on sound economic policies because there are none. This is where the next big thing meets the new Great Depression.
We should believe in the hope that new technology creates, while keeping an eye on its Doppleganger, the rapidly out of control debt machine that runs on financial engineering. When private debt runs ahead of public debt the train has already left the tracks. While the Federal Reserve allows bonds to mature, remember those bonds were printed to backstop shaky corporate debt during QE. Now corporate debt is losing value, rapidly, is the patient ready to get up and start walking, or did they just take them off life support? Tense times.
LIBOR is the interest European bankers set for themselves, London Inter-Bank Offered Rate. It has run ahead of the Federal Reserve Rate, and I suspect it will roll over first if rates reaffirm their date with gravity.