Are you an investor who is interested in taking a ride in the United States stock market rollercoaster? If you are then reconsider your position because the stock market is on the verge of “self-destruction,” at least according to David Stockman, former Reagan budget director and bestselling author of “The Great Deformation.”
Writing in a blog post on his Contra Corner entitled “Don’t Buy This Dip: The Fed Is Not Your Friend,” Stockman opined that last week’s two percent sell-off is probably being analyzed as an opportunity to buy back into the market that is controlled by the “well-trained seals and computerized algos which populate the Wall Street casino.”
It could very well be an error to do so, says Stockman, a well-known critic of the Federal Reserve System.
“But that could be a fatal mistake for one overpowering reason: The radical monetary policy experiment behind this parabolic graph is in the final stages of its appointed path toward self-destruction,” averred Stockman. The Federal Reserve’s “madcap money printing campaign was a drastic error because it failed to account for the immense roadblock to traditional monetary stimulus that had been built up over the last several decades — namely, ‘peak debt’ in the household and business sector.”
The Dow Jones plunged 317 points Friday, which was the worst decline in February and erased this year’s gains.
As a lot of economists and central bank opponents can attest to, the Fed’s monetary stimulus have not enhanced any kind of recovery in business capital spending or consumer borrowing. Despite the paucity of improvements in the overall economy, Fed Chair Janet Yellen has vowed to continue with the current monetary policy.
“Instead, the entire tsunami of monetary expansion has flowed into the Wall Street gambling channel, inflating drastically every asset class that could be traded, leveraged or hypothecated,” he added. “Stated differently, 68 months of zero interest rates had virtually no impact outside the canyons of Wall Street. But inside the casino, they provided virtually free money for the carry trades, causing an endless bid for leveragable and optionable financial assets.”
It has been previously noted on many occasions that the government and mainstream economists expect the consumer to ramp up their consumption habits and attempt to re-attain the American Dream. However, Stockman believes these individuals will play the waiting game for a very long time.
“The 10,000 baby boomers retiring each and every day between now and 2030 will not be adding to household debt; they will be liquidating it,” the former Michigan Republican Congressman noted.
Stockman further added that businesses are not increasing their capital because consumer demand is not at the level it was once and isn’t growing at conventional recovery rates. In fact, according to Stockman, it never will again because they are suffering from “the constraints of peak debt and the baby boom retirement cycle ahead.”
What should an investor do? Avoid the stock market for a little while.
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