written by reader Are we doomed for a pullback?

By Anonymous Questions, June 17, 2014

Travis, I’ve been a long time Stock Gumshoe reader, and find your analysis and critiques of recommendations by Motley and other invaluable.

Question – I’ve read much lately by Bob Wiedemer (Aftershock Investor), Harvey Dent, etc., about the likelihood that we’re going to see a bursting of the dollar bubble and gov’t debt bubbles in next 6 – 24 mos., given the massive amount of dollar printing, and gov’t borrowing.

While not an economist, I’m guessing that you have / Stock Gumshoe have some opinions on the macroeconomic outlook over that timeframe. I’ve really seen nothing but any noted economists taking issue with Wiedemer, which I find interesting. If he weren’t more or less correct that we’re likely to see a big correction sooner or later, then I would expect scholarly articles by economists out of U of Chicago, Harvard, etc., taking issue with him. I haven’t.

What is your take – are we doomed for a pullback, why / why not?

Thanks.

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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Phoenix2006
Member
Phoenix2006
June 17, 2014 6:27 pm

In response to “Are we doomed for a pull back ?” I have been a fan of the authors of Aftershock for some time. I have read all their books & they are one of only a few that called the stock & real estate crash. They published this in their 1st book written in 2005.
From their writings ,I believe thetime frame will be more like 24/36 months, but I also believe it will happen to some degree. They say the last 2 bubbles to pop will be the $ & Gov debt. This will be the price that all of us will pay for all the funny money the Fed has printed. When this happens, this is what they call Aftershock, games over & it won’t be to pretty. I wish I could believe Washington would have the guts to take this on, but I cant.
Bill M, Irregulars
Bill M,

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Esther
Esther
June 17, 2014 11:36 pm

Martin Armstrong’s blog has a more global perspective. He seems to expect an eventual crash, but only after a huge run up in the American stock market over this next year, as money flees other countries and comes here.
You may find his blog interesting – http://armstrongeconomics.com
Sharon

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arch1
Member
June 18, 2014 5:52 am

If we go back to basics currency is nothing but a promissory note to receive a certain quantity of money. Money is a durable commodity that people will accept as payment for things that are non-durable like food , housing,entertainment, etc. Historically we have used gold or silver as money but now the money of the USA is the “full faith and credit of the USA”. In other words the ability to tax the productivity of the citizens & the value of all public property. Ultimately a promissory note relies on faith that the issuer will return full value for the amount promised in the note.
The stock market is a derivative of the above, but values stocks by their ability to repay purchase price plus a profit guaranteed by future earnings of the issuer . As more stock is issued the ability to repay is lessened by dilution the same way printing more currency dilutes the money of governments. Both are irrational systems and subject to “bubbles” and their bursting. Anything irrational cannot be made rational,therefor no one can rationally predict when a bubble will burst. With all the turmoil on the world scene the USA seems a strong haven for fulfilling promises compared with other nations.
That is why the dollar is the worlds reserve currency. That is subject to change as the the might of the USA weakens. When is a guess. fa

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Tom M
Irregular
Tom M
June 19, 2014 3:53 pm

Let’s face it, currency is just a placeholder. It is NOT intangible as suggested in the prior post Say what you want about public sector spending, but until there is no longer a need for a stable currency the US currency will be the currency of choice. Watch what happens when the world order is upset: an immediate flight to US currency and US bonds as a safe haven. People have been warning about the imminent collapse of the US Treasury for years (think Stansbury) but all I see from here is companies making good money.

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arch1
Member
June 19, 2014 4:33 pm

Tom; You have made my point, Currency is exactly as tangible as a contract, a bond, a stock or other similar legal instrument. Exactly as a stock may be diluted & lose value so may a currency.

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meassassin
Member
June 19, 2014 11:49 pm

Ahh the age old ‘fiat’ vs ‘commodity’ discussion, and the new age, when will the USA lose its ‘reserve’ status, discussion,

IMHO
FIAT is not so bad when properly controlled and not borrowed from a Bank. Commodity is only good until the overseers sell of all the commodity.

Reserve status, ahh what a great place to be. Unless it goes to your head and you begin over-spending, realize you CAN overspend and no one notices/cares, then you ratchet it up every year thereafter. Ever since we took it from England, oh those were a great few decades of prosperity, but since particularly around the 80’s as we decided ‘trickle down’ was a good thing and opened up the tap, added to being full FIAT since the 70’s, added to borrowing said FAIT from a private institution……

I’m not a conspiracist by nature nor desire, but, when you do a full, true history of banking and go back at least to the Red Shield coin shop, through the actual reason for the War of Independence (Jefferson and Franklins words, not mine), it will definitely blow your mind.

How long until the Zombie Apocalypse?

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John Pugliano
Guest
June 20, 2014 12:32 pm

The market will pullback when valuations get out of alignment. S&P500 is at fair value today, assuming about a 6% growth rate: 1960/17 multiple = 115 earnings

But if earnings come in at 107, say 2.5% growth, then they’d be trouble. What could reduce earnings? Failure to pass input costs along to debt strapped consumers, or lack of consumption because discretionary income is going to food and fuel.

What I find amazing is that when the Fed reduces their GDP growth estimate [by as much as 38%] the market rallies to new highs: http://www.investablewealth.com/gdp-reduced-markets-hit-new-high/

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