Why do Wall Street Crash Predictions Consistently Fail Lately?

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NYSE
New York Stock Exchange
NYSE
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.

2 COMMENTS

  1. With all due respect Mr Schiff (comments section), you stated in Feb of 2014 the employment base was crashing but we just ended the best jobs growth in 15 years when we closed 2014. No one has any money to chase goods but you predict rampant inflation and get excited about Gold (at the same time). The market you say is cropped up by easy money (which I agree with to a certain extent) is also supported by all time record corporate profits and a sound diverse economy. While in early 2014 things did appear a bit dodgy due to the phony Govt shutdowns and U-6 was hanging a bit high, it has since decreased dramatically. We have low inflation (actually a big drop recently due to energy prices). We have a falling budget deficit taking pressure off rates naturally. And of course the US govt and its armed forces use a lot of gas and oil and that will shave even more off. Tax collections are near or at all time records as well. We have a private space industry, electric cars, grew solar jobs at 20x the rate of regular job growth and are out of two very expensive wars which increased the needs for borrowed funds (more pressure off long term rates). I know a handful of people like you in my daily life, though you are more well spoken and research things, these people are negative on everything.” Everything is on the verge of collapsing” and has been for years. Yet the rest of us move on. Right now we need two things 1- A huge infrastructure investment and 2 – A way to handle wealth inequality and especially money parked in offshore accounts and “out of the game” so to speak. Historically speaking interest rates were very low for a very long time prior to the 50s. They might stay low for a while longer. I actually see more deflationary pressure than inflationary pressure. That will remain as is until wealth is accumulated by the people that can raise prices (the masses) and I don’t see that coming any time soon.

  2. Why do Wall Street Crash Predictions Consistently Fail Lately? Easy — every day there are dire predictions of a crash. Since the market does not crash daily, or even every other day, then by definition most such forecasts are wrong. It took awhile in my investing education, but I finally learned to pay no attention to the “experts”. I just do my thing, and make money year after year. Even in the Great Recession, I just maintained my positions and within 18 months my money had doubled (after taking a huge plunge). I came out way ahead as opposed to anyone who panicked & sold.

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