Is a Correction in the Markets Coming?

Recently I as everyone else has have been watching the record highs on Wall Street as of late. I must admit these gains are in line with my expectations as expressed earlier in my article on Economic outlooks for 2014. However some doomsayers have recently crept into the conversation with talk of a correction. Is there a correction coming, quite possibly? But I think it depends on what your definition of a correction is. If your definition of a correction is a break in the record streak of closing highs for the markets, then yes a correction is bound to occur this year. However if your idea of a correction is the idea that we would wipe out the gains made since the beginning of the year or worse and that these gains would be hard pressed to be recuperated? Then my friend I think you should err on the side of caution as I do not see this happening. The doomsayers say that since the middle class is not investing as heavily in stocks as they would like to see then the bottom of the market is bound to fall out. They cite consumer sentiment as proof of this. This, my friend is a fallacious argument and let me tell you why. The average consumer is not investing heavily in the stock market since there has become a new and concerted focus on investing in the long term, i.e. 401K’s and more literally bank deposits. Bank Deposits are up year over year substantially from when the great recession began in 2008. These two are not wholly part and parcel independent of one another. But rather the economic indicators of today make sense exactly because of that turbulent time in our history. In a nutshell consumers want to save. They want to save to buy homes. They want to save for retirement. They want to save to start a family. How else do you explain the relative success of the affordable care act? How they save though differs from household to household (again let’s not forget 401ks). To say that these times are like those times is completely fallacious since the underlying variables are not like one another at all. In 2008 the Federal Reserve was raising rates. Today rates for depositors and banks hover around zero, and treasury notes are being auctioned off in the billions of dollars. In 2008 the wars in Iraq and Afghanistan were raging and Usama Bin Laden was still alive. Today Usama Bin Laden is dead, the war in Iraq is over, and the war in Afghanistan is coming to a responsible end. The blood and treasure expended in these wars cannot be discounted. But neither can the rewards being reaped for success when we were stuck between the metaphorical Sylla and Charybdis.  In my economic forecast I predicted a precipitous rise in manufacturing as the debt began to decrease. This is playing itself out in Silicon Valley as firms, manufacturing firms, technologically advanced manufacturing firms begin to build the technologies and make advances that will play themselves out on the global stage. And with the U.S. trade deficit at some of its lowest levels in years we can now afford to build some of the infrastructure which will advance future growth and make our society more inclusive. So if consumers are worried about a correction that is bound to happen, or one we will likely never see, they need only heed my advice on the econometrics of the past and the realities of today to gain a firmer grasp on exactly what’s happening in the U.S. economy.


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