Tuesday, January 5, 2016

The Pundits are Shocked

That stocks have cratered globally in the first few hours of the new trading year seems to have come as quite a shock to stock market pundits.

The pundits are overwhelmingly bullish, expecting double digit returns for 2016.  This is simply dusting off last year's failed prediction of double digit returns.  They are all now being trotted out to explain why they were so wrong last year.  The answer they give:  the markets were wrong, they were right.

Remember the real world background.  There is no economy in the world growing at a decent pace.  It is likely that China's economic growth is no better than ours -- barely any growth at all.  Last year, earnings on S&P stocks fell.  That's likely to happen again this year.  So, with that as the set of facts and possible facts, why is anyone looking for strong stock markets in 2016.

Fourth quarter GDP results are not in yet, but most estimates have now been lowered to below one percent (that's an annual number, so we're really talking 0.25 percent -- within the margin of error for zero). This is the economic progress that Yellen and Obama are so proud of, but for the rest of us this is economic stagnation.

This is not to say that markets might not produce a spirited rally today or perhaps later this week.  But, for the year, how do stocks go up when earnings continue to go down and there is no economic growth ahead anywhere in the world for as far as the eye can see.

Meanwhile, government policy in the large western economies is hell bent upon destroying what's left of the free enterprise system, not to mention the rule of law.

The pundits are living in their own glass cage.  They should get out into the real world and try to run a business.  They would learn quickly why stock markets are not headed up for the foreseeable future.

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