Is it time for a major Market Correction?

I don't support activist monetary or fiscal policy. The non-activist approach: markets are self correcting so keep interest rates steady and balance the budget. You get healthy boom and bust cycles with this approach. The problem is that people want to have an economy that only booms, so they mess with interest rates reducing them to ridiculously low levels, they print and devalue money, and they run deficits - this is the activist approach. The problem with this approach its that its as silly trying to breath in without ever breathing out, trying to trade without ever taking a loss, or trying to arrange the world where everything is up and you only have peaks with no valleys.
Goverment confiscates 50% of the money you earn and then devalues the other 50% you actually get to keep. When money gets devalued it gets devalued for all so who really benefits from this senerio?
 
Quote from Kensho:

I don't support activist monetary or fiscal policy. The non-activist approach: markets are self correcting
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Like 1929. Those were the days.
 
Anyone who thinks that monetary policy activism works and wants to point to the Great Depression as an example, thank you for pointing out the perfect example of why monetary policy activism doesn't work. In the 20s the activist fed established cheap credit standards that were an absolute joke and everyone took advantage of it. And when the recession came the activists made things worse by cutting the money supply by 1/3. There probably wouldn't have been a depression as severe as the one we had without the activist bozos at the head of the fed reserve.
And we would not have been any better of in the 20s and 30s if the activists were inflationists like Bernanke/Greenspan at the head of the fed reserve. They may have saw the 'dangers' of a natural market correction and a natural downturn in the economic cyle. To prevent such deflation they would have printed money like no tommorow, reduced interest rates to 0 continuing non-existing credit standards, and encouraged the fiscal policy activists in the government to spend like crazy.
But we would not be any better off if the inflationists had their way instead and prevented the huge market and economic decline of the 30s by inflating their way out of it in order to avoid feeling the pain. 20 years later....We would have had a tremedous amount of debt and a completely devalued currency. We wouldn't have had the money to defeat Germany and Japan and later reconstruct those economies. We wouldn't be in a position to be the largest creditor to the world. We wouldn't have been able to defeat Soviet communism and its expansion. Instead we'd be dependant on foreigners to finance our debt like today.
The generation of the 20s and 30s engaged in excesses but at least they were responsible enough to pay the price for thier own mistakes. The depression was a great gift in that sense, they suffered and atoned for their own mistakes so future generations wouldn't have to. The attitude today is to engage in excesses, and let future generations pay the price.
 
Amen, Kensho.

Unfortunately, modern US seems to think that monetary inflation is the panacea.

Btw, another issue to factor in, is that while currently interest rates (e.g. 10yr around 5%) are still low by historical standards, the american economy is MUCH more leveraged than any time in the past. Addicted to low IRs.

Plus the extreme complacency, as evidenced in all sorts of credit spreads.
 
Quote from let it run:

I hate to play Devil's Advocate here but I want to give the doomsayers of the past 18months or so some more scope to look around for reasons why the bullish nature of global equities doesn't necessarily have to be all hype and that the billions of billions that gets invested globally everyday isn't necessarily done so by stupid people with you guys being the sane ones who see it as a load of 'smoke and mirrors'

Firstly, people tend to forget, even just a handful of years after the event, just how bad severe market corrections are. I'm not focusing on US equities/economics specifically here but just take a look how long it has taken the DJ to recouperate from the mini nightmare at the teurn of the millenium. I think this is a case where people would rather not get burnt by watchiing their investment go to the moon, only to watch it come crashing back, which blindsides you from making any money. I suppose this is just the same as the old 'climbing the wall of worry' phrase. Basically, all I am trying to say here is that people waste too much time saying 'this wont last' because they are subconsciously harbouring reminders of 1987/2000 which prevents you from even contemplating that this run up in equities is a) no historical freak or over-reaction compared to prior market runs b) might have genuine merit

I know I am rabbling here but every time I hear about twin deficits and inflation, the same one sided story comes out i.e. the world has gone mad, and I think people need to start looking at the other side of the equation before smugly sitting back for another 3 years of market gains thinking they are right to stay out!

Again, the above is not my opinion, it's just what I see as the flipside to the constant one-sided arguments I see on here.
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One sided arguments are fun though...

I really hate making short posts, but you pretty much covered the bases I would have, except...

My grandfather told me this, "Never listen to Doomsday or Apocalypse advocates. If they're right, and so far they're 0-for-a-Trillion, we're all fucked anyway so you have nothing to worry about." Okay, so he really didn't say that, but it would have been funny as hell if he had.

If its really as bad as all of you say, what's the point in worrying? If the US goes belly up, so does everyone else. Except Cuba, they're the only ones out there not completely reliant on us in one form or another.

Let's all start investing in banana boats! Yippie.
 
Looks like the media also think a correction is due. This article from the Sydey Morning Herald today. Let's see what happens in the Asia/Pacific markets today (Monday).


Stockmarket braces for fall
By Matt O'Sullivan
May 15, 2006

INVESTORS are bracing for another sell-off today amid mounting fears the sharemarket faces a correction of up to 15 per cent over the coming months.

The bourse has rallied almost 12 per cent since the start of the year but some market watchers warn traders, hedge funds and speculators could "run for the exit" should base metal prices "lose altitude".

The market did benefit from the federal budget and strong company profits last week but analysts expect it to fall by 70 to 80 points today after bourses in the US and Europe slumped up to 2 per cent on Friday night.

Surging prices for gold and base metals such as copper, nickel and zinc - which traded at record highs last week - have underpinned the strength in resource stocks and the broader market so far this year.

But Goldman Sachs JBWere analysts warn of a "big resource sell-off" and predict commodity prices could fall up to 20 per cent over the next few months.

"Anyone out there who seriously is even contemplating spot numbers as a reason to buy resource stocks right now needs to have a long hard look at themselves," Goldman Sachs analyst Richard Coppleson said in a research note.

"Yes, we are in a … commodity boom that will last for years but, in the short term, anyone who is very overweight resources is skating on thin ice."

The period between May and September is traditionally the most volatile, giving market watchers the confidence to forecast a correction of between 5 and 15 per cent over several months.

AMP Capital Investors' head of investment strategy and chief economist, Shane Oliver, said the chances of a correction similar to that in September and October last year when the bourse shed about 8 per cent was high.

"I think the risk of a correction is quite high … every man and his dog seems to be talking about a correction right now," he said yesterday. "We are now in a period that is normally rather tough for markets."

While potential triggers for a correction exist, such as concern about further monetary tightening in China, rises in interest rates, bond yields and oil prices, Dr Oliver emphasised that it would not precipitate the start of a bear market and fair value for the local bourse remained 5700 points.

Dr Oliver expects the market to shed up to 80 points this morning due to the lead from overseas markets. "I think it seems pretty likely that we are going to have a rough Monday," he said.

Building products company James Hardie kicks off another busy week for equities, releasing its full-year results today ahead of Macquarie Bank's tomorrow.

Sugar refiner and building products maker CSR will issue its results on Wednesday, less than a week after chief executive Alec Brennan announced he would hand over the reins to an as-yet-unnamed successor next year.

But Macquarie Equities' private client adviser, David Halliday, said investors' attention would be on commodity prices rather than company earnings.

"Commodity prices are going to be the drivers for the week - that is really where people are focusing their attention," he said yesterday. He agreed the market would probably fall up to 70 points today, but remained bullish about the long term.
 
Quote from Millano:

Like 1929. Those were the days.
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Maybe you should read America's Great Depression by Murray Rothbard. Even if you disagree with his conclusions, it is obvious that American government was very activist.
 
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