June 8, 2014
Weekly Market Outlook
By Keith Schneider
Not to be outdone by his US counterpart, namely the Federal Reserve, Mario Draghi lowered interest rates yet again to .15% to spur sluggish growth and fight off deflation.
Getting people to spend money when they are not in the mood is a hard mentality to break. This concept is clearly illuminated here in the US by the fact that equity prices are at record highs yet both individual and institutional ownership is at 50 plus year lows. Draghi and the ECU are having a similar problem as banks are sitting on massive reserves because those who want to borrow, can’t and those that can, won’t. The tactic of the European Central Bank charging banks to hold their money was meant to force those banks to those reserves flowing back into the economy.
After the Great Depression that started in 1929, millions of people lost their entire savings they put in banks and never regained their trust in financial institutions or the stock market ever again. It was called a depression era mentality. My grandfather who lost his hard earned savings, never trusted a bank again and kept his fortune in the soles of his shoes. My mother never lost those memories either.
Fast forward circa 2001 and then to 2008, when many got crushed first by the internet bubble and then hit again by the housing crash, with many losing their homes so it’s not surprising that few seem to trust this stock market and prefer to sit on the sidelines while the market soars. Some want to attribute the slow velocity of money to an aging demographic worldwide, but it’s not the primary reason
The jobs report on Friday was very strong spurring US Equities to new all- time highs, but interest rates didn’t budge on the news. Just maybe it’s starting to make sense, a modest and improving recovery that still needs its monetary training wheels, all because consumers are scarred by two asset bubbles in 7 years. They are struggling emotionally to borrow, spend or participate in the markets
There is still time for those left behind to get in and get caught in a climatic top coming soon to a theater near you. In this market as in the Wild West, you are either the quick or the dead. Parabolic moves offer the greatest reward but for those inexperienced, it will be most costly.
Every week you'll gain actionable insight with:
