"I do hope that it is a two to three week bottoming pattern. However, when I look at the history of bull market corrections, it actually suggests that it might take a little bit longer than two to three weeks," Jacobsen told CNBC's "Squawk on the Street."The piece goes on to quote the observation that "There were two major corrections since 2009. In each case, stocks recovered all their losses within about four months."
Coincidentally, we're just over four months since that article. The DJIA was 16,102 on that day, "correcting" down from 18,312. Today it closed at 15,882. Doesn't sound like it has recovered its losses in four months like those other corrections, does it?
As I've said here many times, the money that the Fed has cranked into the economy has distorted it extremely badly and those distortions have rippled everywhere so that it will take a long time to recover. Check that. It won't recover and go back to being a free market because before that can happen, someone will find ways to inject other distortions into the system. They've essentially completely destroyed the free market. As Milton Friedman said, “Underlying most arguments against the free market is a lack of belief in freedom itself.”
Simple question: Can a small bunch of PhD economists with no market or business experience really manage the entire world’s economy? Of course not. A true free market doesn't need to be managed; it's an almost infinite set of signals and feedbacks that sets prices, sets demands and rights itself. For example, the Fed decided years ago that they want inflation of 2%. Why 2? Why not 1? Why not 3.14159%? Why not a negative number? What theory… what experience… what divine revelation leads them to think that an economy should have annual price increases of 2%? There is none. It is a modern myth. In reality, prices go up and down on supply and demand. There’s no more reason they should always go up by 2% than down by 2%.
Any commanded change in interest rates (the cost of money) to encourage buying or selling, lending or borrowing, distorts the free market. The tired example is the bank loaning you money at low rates to prompt you to buy only moves that purchase forward in time. Now that you have that item, you don't need one and you're paying it off, anyway. Something you would have bought next year, say, moves into this year, but it doesn't change the aggregate number to be made and sold; it only changes the timing of making and selling it. Eventually all of your income goes to making payments on what you bought and you can't add the payments when something breaks and you need a replacement.
Reality is that resources are limited. Prices tell us what we’ve got to work with. Falsify prices and you get errors of omission and commission. After a while, the system suffers from things it shouldna, oughtna done.There are those saying we're entering a bad bear market while the system goes through the equivalent of withdrawal symptoms from all that free money, the delirium tremens. Some say five years of recession, some say 20. I. Don't. Know. What I was looking for when I found this "four months" quote was my technical analysis predictions that we could be looking at Dow 6000 or even Dow 5000. It was in response to seeing a click bait ad that "one expert" predicts Dow 6000.
As Hjalmar Schacht, Germany’s minister of economics in the 1930s, put it: “I don’t want a low rate. I don’t want a high rate. I want a true rate.”
An honest interest rate tells the truth about how much savings are available and at what price. People still make mistakes; they still get up to some pretty weird stuff. But at least the perverts aren’t handing out candy on the playground.
Is the DJIA really heading for 6000? I think it's within the realm of possibility. If I knew for sure, I'd be saying we should all be buying more beans, bullets and band-aids. At those levels, there will be blood in the streets. On the other hand if you can protect your assets now and avoid a bank haircut/bail-in as Peter comments, then when it is 6000 - or 5000 - that will be the time to buy.