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MarketWatch's Kellner: Stay Off Wall Street's Bandwagon

By    |   Wednesday, 09 Jul 2014 06:11 PM

Yes, the stock market continues forging higher. But, now is not the time to jump on the bulls' bandwagon, warns Irwin Kellner, MarketWatch's chief economist.

When good news is good news, and bad news is good news, it’s time to take some money off the table, Kellner wrote in an opinion article.

To demonstrate how irrational the market is, Kellner points to the Dow industrials. After a 35% rise last year, the Dow is already up 5% year to date. That makes for a whopping 155% increase over the low of 2009.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

But over the past five years, neither the economy nor corporate profits have grown nearly as much to justify those gains, he notes.

And that's not the only warning sign. Kellner explained that under normal conditions, a pullback helps the stock market avoid excesses.

The market used to see a correction of at least 10% every year. This market has been upward bound for 33 months and counting, making it the fourth longest bull run since the Crash of 1929, he wrote.

And the bellwether 10-year Treasury note provides yet another red flag. Prices are up but recently yields have been lower than at the end of last year. That suggests bond buyers are skeptical about the economic recovery, Kellner wrote.

Stocks are way overdue for a correction, but investors are ignoring the writing on the wall because they want alternatives to low-interest bonds and bills, Kellner asserts.

Ultra-low interest rates lead to bubbles because borrowing costs are dramatically reduced, while saving is discouraged by the paltry returns on savings accounts and less risky fixed-income investments, Forbes contributor Jesse Columbo explained.

These conditions essentially force otherwise conservative savers and investors into riskier and more volatile investments such as stocks, he added

Like Kellner, Columbo blames the the Federal Reserve and it's low interest rate policy for inflating the stock market and creating a bubble.

He provides 23 charts that “prove that stocks are heading for a devastating crash.” Among them is data that highlights the lack of a meaningful pullback in a market that has tripled in value since 2009.

It's not a question of if the market will correct, the question is when, he says.

And whenever the time comes, the story of this bull market will end “in a calamity, erasing trillions of dollars of wealth,” warns Columbo.

Kellner suggests the bubble could burst if the Fed takes away the punch bowl and raises rates. At that point, he advises against walking under any open windows on Wall Street.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Yes, the stock market continues forging higher. But, now is not the time to jump on the bulls' bandwagon, warns Irwin Kellner, MarketWatch's chief economist.
MarketWatch, Kellner, Wall, Street, Bandwagon
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2014-11-09
Wednesday, 09 Jul 2014 06:11 PM
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