The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Thank You, Republicans!

02/08/2016

An  old rule of thumb on Wall Street is that corrections (down 10%) can end with a roar, while bear markets (down 20%) end with a whimper.  In other words, there has to be capitulation or surrender by the investors, when they can no longer take the pain.  Getting to capitulation sooner rather than later means the pain ends sooner rather than later.  Bring it on!

The stock market is bearing the uncertainty of (1) China’s slowing economy, (2) the possibility of several currency wars simultaneously, (3) the rippling effects of the oil crash, (4) the Ultimate Whack-Job of North Korea launching a satellite or worse, (5) a worsening refugee problem in Europe, creating instability, (6) rising interest rates in the U.S. while interest rates are falling elsewhere, making the dollar too strong, (7) the increasing possibility of tenacious deflation, and (8) other problems almost too numerous to mention.  All of that is enough to cause pain for investors.  Now, we need to cause capitulation . . .

Watching the Republican debate on ABC, I almost forgot that we are the “prettiest horse in the glue factory.”  We have a relatively stable GDP growth rate and the best job growth in the world.  The economy is still doing better than the stock market.  Even if the economy suffers a recession, which generally means two consecutive quarters of negative GDP growth, nobody expects anything worse than the 6% GDP drop we got in 2008/9.  That doesn’t explain a 10% or 20% drop in the stock market.

While the “PollyAnna” Democrats maintain the economy is very good, the Republicans are scathing in their criticism.  Keep it up, Republicans!  We want everybody to get scared . . .  and capitulate!  

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