I find it amazing that with a 10% drop in the market reached it is now time to buy? Why? Because P/E ratios are good? Because cash flow is good? The economy is still good and strong right? And therefore there is no recession?
It’s a time to buy right? After all it seems all the professional traders are buying… (It seemed somebody was buying today)
Here are a couple of issues:
- When was the last time a recession started when there was a recession or a depression? Come on, be logical here people. When the economy pulls back it was not because the economy was bad. But an economy pulls back when an economy was doing well.
- Many believe that because we have had a 10% correction it’s time to buy. Well, no, because the correction happened too fast. You need to look at the big picture. Take a look at the markets for the past 50 years and a 10% correction is a blip. A real correction would be about 20% to 30%.
I have a problem with how people are interpreting history. While I don’t use history as a guiding principle I look at history to see what is possible. And the reality is that I am not convinced that we have seen the end of this.
Here is the logic problem problem. The Central Banks will cut interest rates when the economy is not doing well. The Central Banks will cut interest rates when people are not spending and companies are having a hard time.
The Central Banks will not cut the interest rates if corporations are doing as well as their balance sheets are saying and if inflation is an issue, and the economy is growing moderately.
Therefore you can either believe one of the two:
- Fundamental economic indicators are stable and thus economy is fundamentally stable and corporations are stable. This means there is no need to cut the interest rate.
- Or, there are fundamental economic problems, corporations are not meeting their expectations regarding earnings, and consumers are not able to spend. This means there is an interest rate cut.
From the way that people and traders are talking you are led to believe that point 1 is the truth and that in October the American Fed will cut the interest rate. I have a hard time trying to make the two ends meet, and don’t see it happening if the economy and corporations are doing well. Thus I wonder why catch a falling knife?