HomeMost Popular Unmasking the Market: Debunking 6 Beliefs About Potential Depression

Unmasking the Market: Debunking 6 Beliefs About Potential Depression

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Introduction

Several weeks ago, an article proposed the possibility of a prolonged bear market between 13-21 years and potential long-term depression. This notion elicited critical feedback from readers, centering on six key contentions. The first two were addressed last week.

For reference, please see . This week, we will explore sections 3 and 4 of the critique.

Dispelling the Myth of Fed Control

One frequent belief in the investment realm is that the Federal Reserve wields absolute control over the market. Yet, historical evidence suggests otherwise. The existence of the Plunge Protection Team, a government entity, has not thwarted market inefficiencies, disorder, or crashes. In fact, market volatility persisted despite its efforts, leading one to question the team’s efficacy.

It is common to attribute the market’s recovery in March 2009 to the Fed’s intervention. However, this is misconstrued. An analogy can be drawn from children impatiently awaiting a traffic light to turn green. Similarly, the market’s upturn resulted from internal forces, not external stimuli. The legendary Alan Greenspan also recognized this inherent mechanism, specifically remarking that market exhaustion, not Fed actions, triggers a turnaround. Notably, the Fed’s rate cuts and liquidity injections didn’t avert the 2020 market collapse.

Conclusion

Ultimately, the prevailing certainty that the Fed’s actions single-handedly dictate market performance is flawed. The complexities of financial markets undermine the notion of absolute external control. While acknowledging the possibility of an extended bear market, it is crucial to scrutinize conventional beliefs and explore broader market dynamics.

Stay tuned for the final segment of this series, which will outline the criteria and indicators to monitor over the next two years, shedding light on the potential trajectory of the market and the likelihood of a prolonged bear market.

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