Interesting exchange on Tech Ticker with Peter Boockvar, an equity strategist at Miller Tabak.
The interesting part isn’t so much the debate about deflation or inflation – although that is a huge factor in where the markets head from here (I suspect deflation for longer than most anticipate) – but about how government intervention makes it difficult to analyze the near term direction of the stock market. It adds another layer of complexity to a task that is daunting, at best, or highly improbable (I mean timing the market).
Boockvar states:
“If I came into work every day focused on fundamentals, return on equity, economic data…company behavior, then I’d be able to tell you where I think the market is going to go,” he says. “But we’re all sitting around waiting to see how the market responds to…what the governments are trying to do to supposedly make things better.”
My message to Peter is the government’s action will take the market down, not up. Why do I say that? I don’t expect an inherently inefficient organization controlled by ego-maniacs whose only real goal is re-election and control to bring about an economy that is $14 Trillion dollars. Also, there is no historical proof that it can be done. Obviously, countries with total government control tend to collapse like the Soviet Union. Cuba isn’t much better. The other major Communist country is China, and it only started to prosper once it embraced free market principles.
The best example may be Japan. It is a developed country that faced the same headwinds that we are now facing, namely a bubble in equities and real estate, too much debt, and a defunct banking sector. The Japanese government has been trying to turn around its economy since 1993 with fiscal and monetary stimulus. Its actions haven’t worked as the Nikkei (Japan’s stock market) is still 75% below its peak reached in 1989 and houses are selling for prices last seen in the mid-1970s. Japan’s overall debt load hasn’t budged from its all time high.
This increasing government debt has led to declining GDP growth.
Any interference by the government cannot be good for the economy unless the government decided to cut spending and lower taxes across the board. Of course, we know what the chances of that are.