Tuesday, June 25, 2013

Beware of the Bear

How many Grizzly bears are there in California? One - the one on the CA state flag. There used to be thousands, but they've been hunted out of existence. Some were captured alive and were pitted against Spanish fighting bulls for duels unto death. This might have something to do with the Wall Street lingo "Bull-&-Bear Market".

Since the 2009 Great Recession, the bull has been winning big, but can this last forever?

To answer this question, we have first to understand the cause of this 4-year bull-run. In the simplest of terms, the US central bank - the Federal Reserve ("the Fed") - has been practising "Quantitative Easing" (QE), i.e. printing $85 billion per month of Monopoly money, or about $1 trillion per year, and injecting it into the bond market - as a "stimulus" to restart the stalled economy. This has the effect of
1. driving the stock market high, and
2. keeping the interest rate low,
the former bolstering the confidence of investors and the latter that of consumers, and both for corporations.

QE, unfortunately, cannot be maintained forever. Its fiscal effect is to pile the printed amount on to the already towering national debt. In fact, it should be ended ASAP.

Easier said than done, of course. Just the vague hint of a "tapering" of QE by Fed chairman Ben Bernanke sent shock-waves through the stock market, not just in America, but throughout the world. His bottom line is that the reduction would be implemented incrementally as of this fall, down to zero some time in 2014. The likely result will be:

1. the stock market will fall, and

2. the interest rate will rise.

Bernanke tried to pacify the market by saying that the tapering won't begin until the unemployment rate has fallen below 6.5%, which may never happen. And even if it does, the tapering will send it sliding again. One thing is for certain. QE must stop, and the sooner, the better. There is no way out of this precarious bubble-inflating exercise but to stop inflating the bubble before it bursts.

The bear will rise again.

Anthony Marr, Founder and President
Heal Our Planet Earth (HOPE)
Global Anti-Hunting Coalition (GAHC)

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