Wednesday 10/19/2022
Is the market’s very strong rally the past two days, the beginning of a new bullish trend, or the result of Central Bankers stepping in to support the equity markets, in the same way, the Bank of England stepped in last week to stem a melt-down in their Bond market?
It is my opinion, that even if this recovery rally continues longer than a few days, we will still see another test of the June lows before year-end.
The economic slowdown in China seems to be putting new pressures on Xi’s leadership position as the implosion of the property market together with the zero tolerance Covid policy, proves that real problems need real solutions.
I also doubt that a few months of interest rate increases is going to put the problem of inflation back in the box from which it sprung early this year. It is the result of years of deficit spending and debt creation by Governments and Corporations.
Earlier this year, our national debt reached $31 Trillion Dollars, and the interest on the debt was close to $340 Billion Dollars. As interest rates increase, the interest on the Debt will also increase significantly adding to the annual deficits. Combining that with the factor that rising interest rates will cause a slowing economy. maybe even a recession, means that tax revenue will likely decline.
Increasing deficits and slowing economies not a prescription for good times for the stock market.