Why do Wall Street Crash Predictions Consistently Fail Lately?

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By Jacob Maslow

New York Stock Exchange

Remember only a few quarters ago when there was a supposed ‘Witching Hour’ for Wall Street when several economic indicators lined up and predicted a stock market crash? Well, the witching hour passed and the Dow Jones Industrial Average set record after record. Turn on CNBC or any other finance cable channel and there’s always going to be a talking head or economist pundit rattling on and on about volatility but, at the end of the day, nothing happens. Let’s face it-predicting a market crash is a tough business. People who have been at it for several years now are looking less and less credible. Yes, I’m talking to you, Peter Schiff of Euro-Pacific Capital!

Are these people nuts? Are they liars? Thankfully, the answer is a resounding NO. While many would benefit because they might be betting on precious metals, the real reason why they predict a stock crash is because of sound economic fundamentals. There is just too much exuberance in the market considering the fact that much of what drives stock prices are central bank intervention, easy liquidity, easy borrowing, and interest rates that seem glued to zero or near zero. This is all very alarming because despite the helicopter presses of central banks, the real health of the global economy remains spotty.
Okay, we get all the above but why do Wall Street crash predictions seem to consistently fail? Part of this is timing, if left to ‘natural’ market forces, nasty corrections are inevitable. Fortunately or unfortunately, depending on which side of the debate you’re on, Fed intervention is always a hair trigger away. Also, the global finance market, as interconnected as it may be, always has ‘bright spots’ that can provide safe refuge for investors ‘fleeing to quality.’ Finally, there are market hedges like commodities or treasuries that investors can take refuge in to weather a beating happening in the equities market. Considering these fast moving elements, it’s no surprise crash predictions seem to always fall flat. While the market can suffer a multi-day correction, it always seems to bounce back.
The question remains whether it can continue to do this now that there is a commodities slump, a growing sense of exhaustion with central bank interventions, and a global economic growth slowdown (with the US as the only major exception). One thing is for sure: 2015 will bring some interesting times.
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