Now that the Dow Jones Industrial Average broke past the 18000 mark, the biggest job most market players have is to resist temptation. Unless you are playing the market based solely on momentum, it is very difficult to resist the conventional wisdom that the party will keep going. One only needs to think back to 2008 when the market finally crashed after several warning dips. Will 2015 be the year when the perfect storm of fundamental economic weakness, weakening Chinese GDP growth, deflation in Japan and Europe, and low-cost oil finally combines to unleash the Mother of All Market Corrections?
While it is anyone’s guess whether 2015 will be the year of the Big One, one thing is indisputable: equity markets are so plumped up and bloated by dubious valuations due to cheap stimulus money. Central banks have been printing cheap money hand over fist in the delusional belief that the majority of this money will actually help the real economy. Wrong! Most stimulus funds used to buy up private and public bonds stay in the financial markets. Instead of stimulus funds working their way from Wall Street to Main Street, Main Street still remain weakened and wobbly. Regardless of the rosy jobs figures the government has been publicizing, there are still too many economists and market observers to convince. One only need to look at overall housing figures and durable goods figures to see that all is not well. If these and other trends persist, the positive aspects of the economy might not keep pace.
