I found these two comments pretty interesting. The first is from Morgan Stanley’s Gerard Minack who says that the sustainability of the bull market makes sense since the last few recession scares didn’t materialize and now investors are conditioned to believe that any economic weakness and subsequent market weakness will be brief (via BI):
“This resilience is in part understandable: prior years’ mid-year setbacks typically had an overlay of systemic stress. This, for now, is pure-and-simple macro disappointment.
But the more important factor seems to be the strong consensus that any weakness will be temporary, with growth set to improve in the second half. …Despite downgrading forecast June quarter GDP (partly as payback for upgrading March quarter forecasts), second-half forecasts are little changed, and point to significant acceleration later this year.
On top of this, there’s a growing view that any near-term weakness will lead to further policy stimulus. Our team expects the ECB to ease monetary policy. More enticing – but, for now, far more speculative – is the view that the tide is turning against fiscal austerity.”
On the other hand, we have Warren Mosler of AVM and someone whose market and monetary acumen I highly respect. He says it’s different this time:
“During the last two post 2008 double dip scares I made the point that the 9% or so deficit was too large for that to happen, and instead recommended buying the dips.
This time the deficit has been proactively cut to maybe a less than a 5% of GDP annual rate, in which case I see a meaningful chance of negative GDP.
And one that is not being discounted by a market that’s remembering that the last two double dip scares didn’t materialize.”
I still don’t see a recession on the horizon and I think that the government’s easing involvement is being increasingly offset by the private sector. I’ve been saying this now for years and it’s been a key point in understanding the balance sheet recession. Where the market goes in the near-term is anyone’s guess, but the economy doesn’t look like a recessionary one if you ask me…..
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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