From a fundamental perspective, the economy is weakening which will create more downward pressure for stocks.
Stocks rallied last week although, as I noted last week, technically speaking, stocks look weak.
Stocks, by my analysis, weakened even more last week. The first four trading days of the week were negative followed by a nice rally on Friday. Despite the rally, technicals in the stock market are breaking down by my measure.
According to the Investment Company Institute, at the close of the first quarter of 2021, the total assets held in retirement accounts in the United States was $35.4 trillion. Given that the ‘official’ national debt is approaching $30 trillion, if politicians could get their hands on the retirement account assets, the nation’s fiscal problems could be solved, if only temporarily.
Worldwide debt is at record levels. When the currency creation stops or slows, I expect to see an ugly deflationary environment emerge as the debt is purged from the system.
The economy and financial markets are extremely artificial, with asset prices rising largely due to massive levels of currency created by the Federal Reserve. Artificial economies and artificial markets always, eventually reverse following the basic rules of finance and economics. The late economist Hebert Stein stated that “if something cannot go on forever, it will stop”. That statement is as profound as it is simplistic.
With the Fed staying the course as far as easy money is concerned, look for the real inflation rate to continue to accelerate and look for the Fed to continue to say that inflation is transitory or come up with some other narrative to explain away the rising inflation rate as attributable to something other than reckless Fed policy.
This past week, after the Federal Reserve’s Jackson Hole, Wyoming symposium, Fed Chair, Jerome Powell commented on Fed policy. It was widely anticipated that the Fed Chair would discuss the ‘taper’, or the Fed’s plan to slow the rate at which currency is being created. The Fed Chair, in many respects, disappointed!
Is a Stock Crash Imminent? For more than a couple of years, I have been of the opinion that stocks have been overvalued. Over that time frame, except for early 2020, stocks have continued to rise.
Many of the world’s central banks are beginning to raise interest rates in response to higher levels of inflation.