{"id":1000674,"date":"2018-09-11T21:00:30","date_gmt":"2018-09-11T21:00:30","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=1000674"},"modified":"2018-09-11T21:00:30","modified_gmt":"2018-09-11T21:00:30","slug":"warning-75-chance-of-bear-market-2","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1000674","title":{"rendered":"WARNING: 75% Chance of Bear Market"},"content":{"rendered":"

By Brian Maher<\/a><\/span> <\/p>\n

\"Chart\"<\/a><\/div>\n

This post WARNING: 75% Chance of Bear Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

A raging hurricane \u2014 Florence \u2014 menaces the East Coast.<\/p>\n

Landfall is expected Thursday\u2026 by which time it may attain the fury of a Category 4 tempest.<\/p>\n

Meantime, a different type of menace drifts into view\u2026<\/p>\n

One prominent market indicator is presently blaring its loudest warning in 50 years.<\/p>\n

What does it forecast?<\/p>\n

Answer anon. First we take a reading of markets today\u2026 while the weather holds.<\/p>\n

Stocks were up and away today.<\/p>\n

The Dow Jones ended the day 114 points in green territory.<\/p>\n

The S&P closed 11 points higher\u2026 the Nasdaq, a hearty 48.<\/p>\n

But to the topic under discussion\u2026<\/p>\n

The Goldman Sachs Bull\/Bear Market Risk Indicator is a market barometer tracking the following metrics:<\/p>\n

Stock valuations, growth momentum, unemployment, inflation and the yield curve (the spread between short-term and long-term interest rates).<\/p>\n

No single metric throws off sufficient light to read by.<\/p>\n

But string them all together, says Goldman’s Peter Oppenheimer\u2026 and you’re on to something:<\/p>\n

\n

All of these variables are related. Tight labor markets are typically associated with higher inflation expectations. These, in turn, tend to tighten policy and weaken expectations of future growth. High valuations, at the same time, leave equities vulnerable to de-rating if growth expectations deteriorate or the discount rate rises, or, worse still, both of these occur together.<\/em><\/p>\n<\/blockquote>\n

This indicator has mirrored closely the S&P’s forward performance since 1955.<\/p>\n

The higher the reading, the greater the risk.<\/p>\n

And now\u2026 Goldman’s number crunchers claim their indicator is \u201cflashing red.\u201d<\/p>\n

It gives 75% odds of an impending bear market.<\/p>\n

Not since 1969 has it recorded such heightened levels \u2014 and such heightened risk.<\/p>\n

In fact, lower readings preceded the 2000 and 2008 bear markets:<\/p>\n<\/p>\n

But returning to the all-important question:<\/p>\n

What next?<\/p>\n

Goldman concedes two possibilities\u2026<\/p>\n

Possibility one: A \u201ccathartic\u201d bear market (English translation: a devastating collapse that cleans everyone out)\u2026<\/p>\n

Possibility two: A \u201clong period of relatively low returns across financial assets.\u201d<\/p>\n

That is, not a crash, but a dismal slump \u2014 not a squalling rain, but an endless drizzle.<\/p>\n

Which is more likely?<\/p>\n

We anticipate a \u201cmelt-up\u201d\u2026 followed by a meltdown perhaps next year or the year following.<\/p>\n

A crash, that is.<\/p>\n

But the Goldman men incline toward the drizzly forecast.<\/p>\n

Stock market valuations hover at or near record highs, they grant.<\/p>\n

But inflation is just now finding its legs.<\/p>\n

And they believe \u201cstructural factors\u201d such as globalization’s disinflationary bias may keep it caged.<\/p>\n

A lower inflation means the Federal Reserve will not be forced to raise interest rates nearly so hastily.<\/p>\n

That, in turn, means the market is less vulnerable to a rate shock.<\/p>\n

Hence, Goldman’s gradualistic outlook.<\/p>\n

You may prefer a slow motion bear market to the \u201ccathartic\u201d sort that comes by way of a single knockout blow.<\/p>\n

But catharsis has its points\u2026<\/p>\n

Once done, the business of recovery can proceed immediately \u2014 as a village can build anew after the hurricane knocks it flat.<\/p>\n

The \u201clong period of relatively low returns\u201d is rather a long gray twilight, a death by inches, an extended and demoralizing siege.<\/p>\n

Goldman projects this protracted bear market could last five years\u2026 until 2023.<\/p>\n

Why so long?<\/p>\n

Two reasons:<\/p>\n

    \n
  1. The U.S. has already expanded fiscal policy and its debt levels and budget deficit are rising, which could make it difficult to find room for significant easing. <\/em><\/li>\n<\/ol>\n
      \n
    1. There may be room for U.S. interest rates to be cut in the next downturn but less so than in other downturns. <\/em><\/li>\n<\/ol>\n

      Thus Goldman concludes:<\/p>\n

      \u201cEven if the next economic downturn turns out to be mild, it may prove difficult to reverse.\u201d<\/p>\n

      These Goldman fellows sound lots like Jim Rickards.<\/p>\n

      Jim’s been high on his rooftop for years, hollering the same warnings to anyone with ears to listen.<\/p>\n

      Debt at all levels has swollen to dimensions truly obscene, Jim insists.<\/p>\n

      Meantime, he says the Federal Reserve should have begun to tighten in 2009, 2010 and 2011:<\/p>\n

      \n

      If they had raised rates, many would have grumbled, the stock market would have hit a speed bump, but it wouldn’t have been the end of the world.<\/em><\/p>\n

      We’d just had a crash. But by the end of 2009, the panic was basically over. There was no liquidity crisis. There was plenty of money in the system. There was no shortage of money and interest rates were zero. They could have tried an initial 25-point rise but didn’t.<\/em><\/p>\n<\/blockquote>\n

      Instead, \u201cHelicopter\u201d Ben Bernanke found the courage to act\u2026 by opening the monetary floodgates.<\/p>\n

      That is, he found the courage to cave before the entire financial and political establishment.<\/p>\n

      That is, he found the courage to boot the soda can down the road\u2026 and inflate a gargantuan bubble so doing.<\/p>\n

      Perhaps if our courageous banker had instead found true courage \u2014 the courage to raise.<\/p>\n

      Regards,<\/p>\n

      Brian Maher
      \nManaging editor, The Daily Reckoning<\/i><\/p>\n

      The post WARNING: 75% Chance of Bear Market<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

      …read more<\/a> <\/p>\n

      From:: Daily Reckoning<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

      By Brian Maher This post WARNING: 75% Chance of Bear Market appeared first on Daily Reckoning. A raging hurricane \u2014 Florence \u2014 menaces the East Coast. Landfall is expected Thursday\u2026 by which time it may attain the fury of a Category 4 tempest. Meantime, a different type of menace drifts into view\u2026 One prominent market […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[366],"tags":[],"class_list":["post-1000674","post","type-post","status-publish","format-standard","hentry","category-dailyreckoning"],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1000674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1000674"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1000674\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1000674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1000674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1000674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}