Here Come the Money Helicopters!
Here Come the Money Helicopters!
by Bill Bonner February 10, 2016
[font color="blue"]The Negative Wealth Effect[/font]
By Bill Bonner, Chairman, Bonner & Partners:
Since the start of the year, the Dow is down about 7%. But certain stock market sectors have undergone a much harder pruning. First, energy
then the tech
and now banks. Shares in too-big-to-fail bank Citigroup are down almost 28% so far this year. And shares in Europes biggest bank, Deutsche Bank, are down by more than 36%.
As always, we dont know where this leads.
But as we warned at the start of the year, it could be the beginning of a serious bear market. And more! As Nobel Prize-winning economist Paul Samuelson put it, the stock market has famously predicted nine out of the last five recessions. Further study shows that a stock market plunge of 10% has about a 50% probability of presaging a recession
100% of the time!
Hope thats clear.
But a stock market plunge not only predicts trouble in the economy; it also causes it. The Feds treasured wealth effect in which investors, seeing the value of their portfolios rise, feel richer and rush out and spend works in both directions. When stock prices fall, investors pull back on spending, and the economy goes into a cold funk.
The further stocks fall
the more the likelihood that the economy will follow. This has the central planners worried. .........(more)
http://wolfstreet.com/2016/02/10/here-come-the-money-helicopters/