Registered: Dec 2007
05-14-13 11:58 PM
Quote from Daal:
Reverse Tepper principle?
Things continue to be fine(strong economy or ok economy) = fed talks hawkish, stocks tank
Things go bad (economy weakens) = stocks tank, then after 10-15% correction, Fed comes to the rescue
The issue could be that stocks might hold if things go bad because of the perception that the Fed will always rescue. But that perception could be wrong because a stock decline might be NEEDED for the Fed to 'wake up' and do something about it, its easy to get complacent with stocks at highs
The boogeyman lurking in the background here is margin compression driving a fall in corporate earnings - which on a cyclical basis seems inevitable, and in fact Q3 and Q4 of last year saw contractions in earnings on an annual basis.
Congress can re-inflate margins by increasing the deficit (assuming wage growth remains stagnant) but the Fed cannot. The Fed can try to boost P/E ratios to compensate, but this can only go so far.