For those who believe that the U.S. stock market feels like it will never decline (and that global easing is the panacea for growth and will produce ever-rising share prices), I suggest you look at the price of gold in mid-September 2011 and/or the price of Apple's ( AAPL) shares in late-September 2012. At those points in time, investor sentiment was at an extreme. Now look at the subsequent price drops following those heights and where those prices stand today. Gold futures have dropped by almost 10% since last Thursday's close, following a lengthy decline that had already occurred, and Apple's shares now stand at near $425 a share compared to $700 a share just six months ago. Holders of gold (or gold-mining shares) and/or Apple shares feel far different today than when the commodity or shares were embraced in an extreme sentiment pull toward inappropriate valuations months ago. The only thing I remain certain of is the lack of certainty and that some of the emerging fundamental and technical conditions are consistent with classic top signs over stock market history.
Global Growth Is Slowing, and a U.S. Recession Is Possible
Instead of producing an acceleration in economic growth in the U.S. and elsewhere, it is my view that global growth is now starting to slow to a rate that jeopardizes the bullish consensus on corporate profits. In the U.S., it can now be argued that the marginal impact of more monetary stimulation is not only having a limited impact but that it may be beginning to even have a negative effect on growth in the real economy by robbing interest income from the savings class. I maintain an out-of-consensus view that a recession in the U.S.by 2014 holds about a 50% probability. Meanwhile the outlook for the European economies deteriorates almost daily. This is particularly true for the southern countries in the eurozone that appear to be in an economic death spiral. The most recent economic data out of France has been much worse than generally forecast, and, not surprisingly, Germany appears to be catching a bad economic cold. Last night, following weaker-than-expected economic data from the U.S. and eurozone, China's GDP economic data and industrial production release failed to meet expectations, serving to reinforce the notion that the pace of global economic activity is moderating. But even before yesterday's data, China's rosy economic outlook could be disputed as the on-the-ground data are generally inconsistent with the public healthy growth releases.