Thursday, December 12, 2013

Don't Say I Didn't Warn You!

I have been writing about the Bernanke Bubble for many months now. For those new readers, that is the stock market bubble caused by "Quantitative Easing", an administration policy that has made the rich much richer. Anyone that knows anything at all about economics realizes that QE,printing new dollars to purchase government bonds, cannot go on for ever as it cuts into the value of every existing dollar.

Just last week I wrote that I saw one possible way to get out of the bubble without it bursting. That would be if the big money thought that there was still some upside room in the market. Well yesterday the Dow dropped by almost 130 points on speculation that tapering of QE would start after the New Year. This morning, as I am putting the final touches on this blog, the Dow is down another 65. Seems like there is not too much confidence in the upside.

I was rather surprised that they are saying that tapering would start so soon. Particularly, based on the nomination of Janet Yellen as the next Fed chairperson, I Thought that they would hold out until after the election. This may still happen, but it is looking less likely.

Both Ben Bernanke and Janet Yellen are very smart people and are well schooled in economics. But they, like most liberals, are enamored with the theories of John Maynard Keynes. The problem with Keynesians  is that when the government pumps the economy and it doesn't work, they think they aren't pumping hard enough. Well, they have been pumping so hard that it is hurting every American except the super-rich. The Fed knows they must stop.

I believe that it would be their preference to wait until after the election to give cover to the Democrats. But if they believe that the cover for the Democrats is blown by all the problems with Obamacare they may see no advantage in waiting.

So, one way or another, there will be a sell off and the market will go down. I would not be shocked to see the Dow at 12,000 under normal circumstances. The other problem for those that are heavily invested is, will the lens of the ongoing problems with Obamacare magnify the effect on the sell off? It could even drive the market under 10,000.

When this happens, and I think it must, a lot of money will be lost by some, and a lot of money will be made by others who find someplace close to the bottom and grab bargains. I really hope my readers protect themselves and possibly pick up some of those bargains. But please don't say I didn't warn you.

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