The great economic correction continues
While many on main street think the danger has passed and everything is back to normal, the indicators show that we are not through the woods yet, and the economic correction isn't yet over.
No, it's not the end of the world. It's just the Northern Lights above the ash plume of Iceland's Eyjafjallajokull volcano. While the dangers of nature and economic failure seem to have passed us, indicators still say we are in the midst of an economic correction.
Lucas Jackson/Reuters
Oh my鈥h my鈥�
Locusts鈥arthquakes鈥ornadoes鈥� What next? Fire and Brimstone!
There鈥檚 a plague of locusts eating crops in Australia鈥�
Earthquakes are becoming more common鈥fter devastating quakes hit Haiti and then Chili.
鈥淲e could definitely feel it in Buenos Aires,鈥� said our friends. 鈥淚t was very unsettling. The heavy blinds we have up outside began smacking against the house as if there were a wind storm. But there wasn鈥檛 any wind.鈥�
Then, a volcanic eruption in Iceland grounded air travelers between Europe and the US鈥�
And now deadly tornadoes have ripped into the Southern US鈥nd a 鈥済iant fireball鈥� was spotted in the Midwest.
Is it the 鈥渆nd of time鈥�?
Probably not.
At least, you鈥檙e probably better off betting against it. That is, 9 times out of 10, time continues. Every time people think that something totally new has come along, it turns out that it鈥檚 not so new after all.
Like all those goofballs who thought a 鈥渘ew paradigm鈥� meant eternally rising stock market prices in 鈥�99鈥r real estate prices that went up forever in 2006.
You鈥檇 think these people would have learned their lesson when the crash/Great Recession of 鈥�07-鈥�09 wiped out $30 trillion worth of nominal wealth. But they鈥檇 been exercising their optimism for so long that it鈥檚 in pretty good shape. Now, comes the rebound and they鈥檙e ready to flex their good-time muscles again.
The Los Angeles Times reports, for example, that people are 鈥渇lipping houses in South LA again.鈥�
Emerging markets have soared 鈥� almost recovering all that was lost. And consumers, who had retreated from spending money once they realized they didn鈥檛 have any, are once again on steroids 鈥� pumping up sales to give the impression of a healthy recovery.
And there鈥檚 a report that the small fry are finally getting back into the stock market. After staying on the sidelines for the last two years, they鈥檙e now getting up the confidence to tempt the fates. Good luck to them鈥�
Of course, it鈥檚 perfectly normal for people to believe the de-leveraging is over. Who wants to cut back? Who wants to accept a lower standard of living? Who wants to admit that he鈥檚 been a fool? Instead, he鈥檒l tell himself:
鈥淚t鈥檒l all blow over鈥︹�� 鈥淭hings are back to normal鈥︹�� 鈥淭he feds have the situation under control鈥︹�� 鈥淣ow it鈥檚 safe to get back into stocks鈥︹��
Meanwhile, the key indicators are still weak or undecided.
New jobless claims went up unexpectedly last week. The Baltic Dry index is still telling us that there is no genuine pick-up in world trade. The feds鈥� new homeowner tax credit will expire soon 鈥� with property auctions and bank repossessions at record levels鈥nd foreclosures taking their biggest jump in five years.
Robert Shiller warns that we should expect another dip in the housing market.
And the Fed itself tells us that it will keep its 鈥渆xtended period鈥� of emergency low rates a while longer.
What is all this telling us?
That the Great Correction continues鈥nd that there is far more danger on the downside than there is reward on the upside.
叠补谤谤辞苍鈥檚 Big Money Poll tells us that bonds are the most detested asset class. Frankly, we don鈥檛 like them either. But the Great Correction will eventually take a whack at stock prices鈥nd real estate prices鈥nd commodity prices鈥�
鈥onds could be the only major asset to escape!
The big money could be dead wrong鈥ust as the small money is almost always wrong. Bonds might go up as the de-leveraging continues.
We鈥檒l wait to see what happens鈥�
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