On Sunday, CNNMoney published an article describing the stock market as the “crummiest year for U.S. stocks since the implosion of Lehman Brothers.” Does this mean Americans need to be prepared for a slide back into the Great Recession? Did it ever actually end?
Experts are pointing the finger at modest earnings, valuations, and China as the prime drivers moving the market down. However, what I see is the natural outcome of 20 (or more if we include Greenspan starting in 1987) years of government attempts to control the economy. We are seeing a market adjustment but, in my opinion, it is the market trying to find an authentic bottom.
How Did We Get Here?
Let’s start with seven years of near zero interest rates from the Federal Reserve. We can also look at, after the 2008 Stock Market Crash, the Fed deciding to purchase $800 Billion of debt and mortgage backed securities. This was after Congress passed the Troubled Asset Relief Program (TARP), a $700 Billion fund to purchase bad assets and equity from financial institutions.
Obama then signed a $787 billion economic stimulus, called the American Recovery and Reinvestment Act, just 4 months after TARP. A month later, the government jumped in to bail out General Motors and Chrysler. We could keep going, but let us not dwell on the past, right?
If you have been following the news recently, you know Congress just passed a temporary measure to keep the government running until December 11th. If Congress does not raise or suspend the debt ceiling before then, we will face a government shutdown. The current debt ceiling is $18,1 Trillion. What has all this debt bought us?
The False Recovery
Obama, and his supporters, credit his stimulus plan for the “economic growth” since he took office. Unemployment is down significantly (now roughly 5.1%), and we have had steady job growth over long period of time. Sounds good, right?
What about the stock market? Since October 10, 2008, the S&P 500 is up more than 852 points (or 77.5%). The Dow Jones Industrial Average is up over 6146 points (or 59.5%). Sounds good, right? Then how do we explain the S&P being down 5.22% YTD, and the Dow Jones losing 7.58% of value?
If we take this down to the individual level, despite the fact the economy has added the most jobs growth since 1999, incomes are 6.5% below 2007, before the Great Recession, and 2.3% lower than 2009, when the recession ended. Moreover, workforce participation is the lowest it has been since the 1970s. Things are getting worse, not better, for the average American.
It is possible for the S&P to drop to 1526, and the Dow to drop to 14066. These are not the lows from the 2008 crash, but the closing numbers a year earlier, October 5th, 2007. The next crash may not return us to the lows 2008, but could still potentially wipeout eight years of gains. This is because government intervention never allowed our economy to heal.
Government Touching Stuff
What we have had is seven years of the government picking winners and losers. The government has spent massive amounts of taxpayer money believing if they exerted more control over the distribution and exchange of wealth, they could create prosperity. How does that seem to be working out for us?
Americans need to stop having short memories. The housing bubble manifested because of government touching stuff, attempting to control the distribution and exchange of wealth, not Wall Street. The Clinton Administration used the housing market as a social program, wanting to make it easier for “poor people” to get mortgages and realize the American Dream. The road to Hell is paved with good intentions.
We all saw it, and many of us participated in it. We were given cheap and easy money. There were easy to get 110% mortgages. You could easily get no-doc mortgages, with stated value and stated income. It all caused a feeding frenzy, and a false housing market. It was unsustainable. Few wanted to admit it though, especially the Democrats who protected the house of cards Clinton created to the very end, then acted surprised and pointed fingers when it collapsed.
The Next Stock Market Crash
I’m just a commentator, a talking head, not a financial expert. However, I do closely follow what is going on, and pay attention to the trends. The stock market seems to be testing for a bottom. If that is where we are at, then I believe we will see several years of a flat economy.
Unfortunately, I am of the mindset stocks are still overvalued. and there is plenty of potential for the stock market to go lower. Government touching had investors forgetting how bad the underlying economic situation is, and a new false market was created. The “good years” of the stock market, since 2008, were manufactured by government attempts to control the distribution and exchange of wealth.
The end result has been more wealth in the hands of the few, and more reliance on the government for the many. There are a record number of families on food stamps. Roughly 15% of the population lives under the poverty line, a 50 year record, and the Middle Class is shrinking. The economic interventionism of the government has been a failure.
The decline before the 2008 stock market crash started over a year before, mid-July 2007. The stock market today has been in decline since the beginning of March. We all need to keep a very close eye on what is going on. For me, I am out of the stock market until further notice. If the government again tries to prop the economy up, the whole process could be slow, painful, and prolonged.