Citing previous market corrections and Fed changeovers in 1987 and 2006, Eric Janszen says to expect a lot of turbulence as the market deals with the uncertainty of a post-Bernanke Fed.
Eric Janszen is the author of "The Post-Catastrophe Economy: Rebuilding America and Avoiding the Next Bubble," a member of the Boston Economic Club which meets at the Boston Federal Reserve Bank, and also the founder of iTulip.com, which hosts 50,000 members from around the world engaged in macro-economic debate, trend forecasting, and market analysis. Here, we share a few key insights from his recent interview that’ll be airing Wednesday for subscribers (click here for more details).
First, to understand Eric’s track record on the stock market, which is published and updated at iTulip.com, he recommended selling all equity holdings in March of 2000 and then shorting the market again in December of 2007. Here, he explains iTulip’s position on equities, as shown in the following chart below:
“The Asset Price Inflation (API) era of the FIRE Economy [Finance, Insurance, and Real Estate] began in 1996. Since then monetary policy has been used to affect the price level of financial assets (stocks and bonds). Subsequently these markets became tools of economic policy. But there’s no free lunch; CPI inflation has eaten away at gains since the first inflation of the stock market 1996-2000. We exited the stock market in March 2000 and will not re-enter until Asset Price Inflation is abandoned as a monetary policy tool and free market philosophy is restored.”
Diving into the interview, Eric predicts that the markets are going to see a lot of turbulence in 2014, particularly in relation to the uncertainty that will result as we transition from one Fed chairman to the next. Citing historical precedents we’ve seen in the past, Eric says:
“[A]ny change in leadership at the Fed always perturbs the market, particularly the bond market. And, if you think back on the transition from Volcker in August of 1987, three months later the stock market crashed. The folklore is that had something to do with fast trading and computerized trading and all that kind of stuff, but actually that crash started in Hong Kong and worked its way through Europe to the US, and it was triggered by the bond market being very concerned about what this new Fed chairman was going to do, whether he was bond friendly or not. Volcker clearly was; it was harder to be more bond friendly than Volcker, so that was the concern. Then, if you remember the transition of Greenspan, and got out while the going was good in 2006 of January, then we had of course the massive crisis a year later under Bernanke’s watch. And Bernanke was brought on specifically to deal with this crisis; his whole resume was about dealing with the Great Depression and then reflating an economy that was facing a debt deflation. So, the next person up in the batting order seems to be Yellen, although there are others that have been discussed that would make me even more nervous, like Larry Summers…I think that markets are very likely to look at these candidates with some concern and make the calculation that the safest thing to do would be to get out and see what happens later.”
Along with his outlook for the rest of 2013, Eric and Jim also discuss the effect shale oil has had on the economy, dollar, and gold market. Eric believes that the shale boom was a major cause for gold correcting off its highs and why this trend will reverse once our net export position begins to worsen. To hear more about his thoughts on this issue airing Wednesday and to gain full access to our premium content, please click here for more details.
To access our archive of previous shows and guests, please click here.
