For general discussion and debate. Possible talking point: the economy and the markets.
It's been an absolutely horrible start to the new year for stocks. I heard yesterday that if the market doesn't rally in the next two weeks, this will be the worst January since 1950.
Of more immediate concern is the following chart:
If you draw a line through the lows going back to March 2003, this is the roughly five-year bull trend line. This week, as you can see at the far right of the chart, we blew through it, and cascaded down.
Lots of people talk about a bear market being a 20 percent or more decline. I've always felt that when you break the bull trend line, you're in a bear market regardless of the percentage drop from the top. As such, unless you want to mince words, the bull market that began in March 2003 ended this week.
Moving forward, the joke on Wall Street for many years has been that the market has correctly predicted eleven out of the last three recessions, meaning that bear markets are rarely an accurate foreshadowing of economic activity. The best example is 1987 when a crash of epic proportions occurred with no subsequent economic collapse.
With that in mind, and with Washington talking about a stimulus package, are we in a recession, or going into one? Is fiscal stimulus needed at this point, or just political expedience? Would Washington be talking about such things if it wasn't an election year?
Furthermore, is Fed Chairman Bernanke to blame for the current slowdown? Should he have cut interest rates more aggressively and sooner? Or, is he between a rock and a hard place?
After all, the monetary easing we've already seen has caused further dollar weakness along with commodities rising causing inflation (first chart is the CRB Commodities Index, second is the U.S. Dollar Index):
As the Fed's real charter is to keep inflation in check, is Bernanke in a bind inasmuch as the economy might need lower rates to grow, but every downtick in such fuels the commodities bull market and the dollar bear market?
Making this simpler, has Bernanke been slow on the trigger because the Fed knows that lower rates are just going to continue to push inflation higher, and they're more concerned with the Consumer Price Index than the consumer?