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Saturday, May 28, 2016

The Stock Market Won't Crash, Yet

"The Stock Market Won't Crash, Yet" - The Barron's Cover Strikes Again

Submitted by Tyler Durden on 05/28/2016 10:41 -0400

When it comes to Wall Street superstitions, few things - even fading the most recent Dennis Gartman call - beats the Barron's front page article jinx: just when you think something will never happen, Barron's confirms it on the cover, virtually assuring that it does.

In which case, be afraid bulls, be very afraid, because if past is prologue Barron's just green-lit the next crash.

The Barron's argument:

The current period of gain has lasted more than seven years and propelled the stock market averages to new highs. But since the peak of last May, the market has faltered, briefly touching double-digit lows early this year. Bears have begun to wonder whether the crash to which the market is always headed is just ahead.

Probably not.

Well, not anymore. In the article, author Gene Epstein unveils such quantitative pearls as:

[T]here has been just one market crash over the past 35 years that wasn’t accompanied by a recession: the 12-month decline of more than 20% from August 1987 through August 1988. Arithmetically, this crash would not have happened were it not for the largest one-day plunge in U.S. history: Black Monday, Oct. 19, 1987, when the market tumbled more than 20% in a single day, the only one-day bear market on record. The previous crash on a single day that was at all comparable ran in the low-double digits and occurred 58 years earlier, in October 1929.

if a one-day crash does strike every 58 years,the next one is due 58 years from 1987, or in 2045. So if we treat the Black Monday–induced crash as an outlier, we are left with just three market crashes over the past 36 years plus one near crash, all four coinciding with the past four recessions.

So smooth sailing for the next 30 or so years then? He then presents what he believes are various reasons why there will be no crash this time. Among these are: stocks valuations are "not too exuberant"; that the inflation-adjusted house price is not above previous peak; that the yield curve is not flat or inverted; and that the price of oil is not surging.

One can, of course, debunk each one of these reasons simplistically with the following rebuttals:
But the simplest reason why the entire Barron's article has scrap value at best is that not once does it mention the only thing that does matter, and which saved the market from its most recent crashes, namely central bank intervention as the only recourse left in this centrally-planned global market where as the central bankers themselves now openly admit, their only mandate is to keep asset prices buoyant.

Whether it is the "Shanghai Accord", or the BOJ's attempts at creative monetary policy a la NIRP (which ended up being a huge mistake), or constant Fed president jawboning, or hints of helicopter money, the fact simply is that there is no market left: there is simply frontrunning of central bank intentions to either push stocks higher or lower.

That's it, and with every "policy failure" intervention, central banker credibility gets shorter and shorter, to the point where even the G-7 has to step in and say fiscal stimulus will be critical as monetary policy has lost power to push growth higher.

As such, in a "market" like this one, any attempts to predict future prices are not only naive and silly, but futile. It is, in fact, the same as saying that the market will crash just because Barron's cover page says it won't.

Source: Zero Hedge

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