Reality Bites: Market View Of An Economist

Wall Street keeps buying as the world crumbles away beneath its feet.

US Existing Home Sales continue to collapse as the property bubble burst gathers pace. Down for the sixth straight month, and a whopping 5.9% in this latest month.

UK Consumer Confidence hits a new all-time record low. Just as inflation exceeds 10.1%. With energy rationing just around the corner, it is difficult to find any bright spots in the Northern Hemisphere. And winter isn’t even here yet.

Japan inflation hits an 8-year high. As we all become accepting of the disease prevailing and eating away at the foundations of all of the major economies. The price of inflation is not just on the sticker. It leads to inescapable consumer and business retrenchment of activity.

This, inevitably, takes us to reduced earnings and yes, the question of still over-valued equity markets, opined Chief Economist at ACY Securities Clifford Bennett.

Asset markets, based on greed, can always stretch significantly from the underlying reality. The current situation, the rally of the past several weeks, is but a small example of this phenomenon.

A bigger example would be the post-Covid bull market. If we are to truly have a correction to that shift higher in prices, then the current rally looks more like one of those overhanging clifftops. That could give way at any moment.

The global economy is accepted by all now to be slowing significantly as we have been warning would be the case for the past year. The US is in recession albeit with seemingly strong employment. China is shutting factories due to energy shortages. Europe is likely to be doing so in the coming winter.

Central banks around the world are baffled by the extent of their own failures, and, out of shock, have identified a simple focus. With their heads buried in the sand, muttering understandings of some real-world economic pain, in fact working families in distress, are continuing to hike interest rates aggressively to slay the inflation dragon. Yet they cannot be successful. For this dragon is made of supply problems and profit fattening.

No good can come of this. None at all. Much economic pain is now on track to slam into the USA, Europe, and perhaps even Australia.

Corporate earnings held higher during the first phase of inflation, as that inflation was to a large degree caused by fattening profit margins. This latest wave of inflation will prove destructive to even the lofty towers of Wall Street.

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