2016/02/09 Commentary: Fear & Loathing in Marketland (late)
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COMMENTARY (Non-Video): Tuesday, February 9, 2016
Fear & Loathing in Marketland
WARNING: Extreme bout of Yellen-itis possible!!
We need to allow that what we are going to review here is not news to our regular readers. These are themes and specific influences that we have been over many times since the beginning of 2015 (and even previous in some cases.) Yet that doesn’t make them any less relevant, as many of the market impacts that our previous analysis foreshadowed are only just hitting the broad financial market psychology. Most important is a key idea that many analysts and portfolio managers could not even begin to fathom from the early part of last year right through the end of 2015. Yet it is finally making its way into market perspective because activity has left it an unavoidable possibility:
The next financial crisis will occur when the investment and portfolio management community (and ultimately the investing public) realizes that the central banks alone cannot restore the robust growth from prior to the 2008-2009 financial crisis.
Any crisis will certainly not occur due to the sort of credit bubble seen into 2008 (as that does not exist to the degree apparent to informed observers back at that time.) And that central bank impotence is finally working its way into market psychology after so many months of most of the financial community waiting with bated breath for a more robust recovery based on micro-analyzing the central bankers’ every move (or lack of it at times.)
As we mentioned at many points in our past year of analysis, it is rather the case on this cycle (as articulated since January of last year) that the political class has accepted all of the central bank Quantitative Easing (QE) as a giant gift to help them avoid any of the heavy lifting involved in meaningful structural reform. While it has evolved in many ways since then, our www.Rohr-Blog.com January 2015 posts It’s Lack of Reform, Stupid! (Parts 1 & 2 on the 19th and 24th) basically summed up the reasons trouble was brewing if there was no change to quite a bit of the old order.
The reason that lack of structural reform is back to being so important now is the looming Congressional testimony from Fed Chair Yellen over the next two days. And whether the Fed’s ‘normalcy bias’ is maintained in the face of obviously deteriorating global and US economic conditions will likely determine the near-term fate of already struggling equities.
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