MONEY JUNGLE © Leo Haviland April 14, 2014

The S+P 500 high on 4/4/14 at 1897 probably is an important top. “US Stocks: Shadows and Signals” (2/3/14) remarked that “during the darkest days of the worldwide economic crisis of late 2008/early 2009 as well as during the subsequent recovery, Federal Reserve Board easy money policies have played key roles in encouraging bull moves in the S+P 500 (and many other equity playgrounds). Likewise, the elimination of some of these schemes, particularly previous rounds of quantitative easing (money printing), has occurred alongside highs in American stock benchmarks. What does tapering foreshadow? The Fed’s recent decision to reduce (taper) and eventually eliminate the current gigantic round of money printing warns that a notable top is or relatively soon will be in place.”

As it has in the past, the Federal Reserve will try to prevent a substantial stock marketplace tumble. But unless the S+P falls around ten percent, they probably will say or do little of note. However, if the S+P dives ten percent or more, the Fed lions probably will roar about their determination to sustain recovery. A slump of about 20 percent from a peak (especially if it occurs quickly) boosts the chances that they will slow their current tapering program.

Within and across fields such as stocks, interest rates, currencies, commodities, and real estate, the ardent hunt for sufficient “yield” by “investors” and others never ceases. Recall the glorious Goldilocks Era which preceded the worldwide economic disaster that emerged in mid-2007 and accelerated in 2008. As the Goldilocks Era neared its end prior to those dreadful days, packs of marketplace players eagerly foraged around in diverse (and sometimes very remote or complex) landscapes for adequate yield (good “investment” opportunities; fine returns). The global economic recovery began around mid 2009, with calendar year real GDP growth resuming in 2010. Over the most recent year or two in financial marketplaces (and especially currently), as during the late stages of the Goldilocks Era, the search for yield increasingly has become widespread and rabid. Such sustained heated quests, when reviewed alongside other indicators, warn of economic dangers.

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Money Jungle (4-14-14)
Charts- S+P 500 and others (4-14-14, for essay Money Jungle)