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Should the recent declines in US Equities be a surprise…..of course not !!

For all those faithful Market Doctor followers out there, last week’s pathetic employment report along with the significant decline in the major Equity Indexes over the past month should simply be no surprise.  Since late in 2011, we warned that the then positive reports in job growth would be short lived and that the trend of joblessness would eventually return in 2012.  We also repeatedly warned of the bubble state of affairs in US stocks and that technical patterns without fundamental support can be very dangerous.

May’s declines in the major Equity Indexes are simply an asset value readjustment to a more realistic economic scenario.  And that scenario involves a horrible state of affairs in Europe (that gets worse with time); an exploding deficit in the US with elections quickly approaching; continued job destruction due to globalization; the potential for tax hikes in 2013; negative real interest rates and a yield curve that is twisted; and simply an odd state of affairs regarding what QE stimulus is really all about. 

If that’s not enough, just take a look at the recent nonsense that transpired with the Facebook IPO just a few trading days ago.  It’s almost as if the market needed a trigger point to tip it into sustained losses and the controversy and price depreciation following this IPO looks to be that event. 

Economic growth and job creation you say?  I say negative real interest rates and a perverse yield curve indicate otherwise.  Kicking the can in Europe and the US is simply not a medium or long term solution.   Fasten your seatbelts, it may just be a very rough ride ahead.

Oh, by the way…it’s someone’s birthday this week. Can you guess who?


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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