The stock market is obviously headed for difficult times.
You know it. I know it. And every smiling idiot in an expensive suit who pops up on those TV business channels to utter the words “buying opportunity” knows it.
But when?
Stock prices have declined in five of the last eight trading sessions, including yesterday’s 113-point drop in the Dow Jones industrial average. That would be no big deal, except that investors have come to expect stocks to always rise.
The Dow is still up more than 17 percent this year, 22 percent from a low point last November and a stunning 134 percent since the bad old days in 2009.
And all those gains have been occurring during bad economic times, thanks almost entirely to the Federal Reserve’s Hail Mary pass, quantitative easing.
Known by its nickname, QE, this Fed program of wanton money-printing has made Wall Street very happy, fleeced savers of trillions of dollars of income and achieved almost nothing when it comes to getting the economy going again.
With that as its epitaph, QE will soon be taking its place alongside the corny-yet-harmless Whip Inflation Now campaign from the 1970s in the Economic Hall of Shame.
Not surprisingly, QE’s inevitable demise has Wall Street nervous.
But what specific event is likely to ruin this party? I got together with my dog, Daisy, and came up with these scientific calculations of odds. Daisy, you might be interested in knowing, thinks the stock market will hit a ruff patch in the months ahead (But, to be honest, she says that about a lot of things.)
Here are the contenders:
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The St. Louis Fed’s gathering in Jackson Hole, Wyo., Aug. 29-31: Fed Chairman Ben Bernanke has better things to do than attend this important meeting. But the odds are still 20-1 that someone among the group of Fed wannabes will say something stupid enough to frighten Wall Street.
The end of summer: Technically, summer ends on Sept. 21.
But Wall Street has always gone by its own calendar.
Labor Day is Sept. 2, and the stock market typically trades in low volume through that week. When the grown-ups show up for work on Sept. 9, they’ll see what a mess the amateurs have made of the market and readjust prices. Odds: 10-1.
ï®* The next gross domestic product report: That’s scheduled for 8:30 a.m. on Aug. 29. This will be the second report on how the economy did in the three months that ended this past June.
Interpretation is important here: The first report showed annualized growth of just 1.8 percent. The revision coming Aug. 29 could raise that growth — which would be a bad thing for those hoping the Fed won’t ease off on its money printing. Odds: 50-1 that this’ll cause a stroke on Wall Street.
*Corporate earnings: Companies should start reporting profits (and losses) in bulk in late October.
Wall Street is expecting unbelievable earnings growth in the second half of the year. That’s un-believable — as in, not to be believed.
If sales don’t pick up, profits will probably come in light once again and Wall Street will be heartbroken. Odds: 50-1 that this’ll do it.
* Anniversaries: When September and October arrive, professional traders get nostalgic about the crash-iversaries of the past, as in 1987 and ’89. That means the odds jump to 10-1 that something bad will happen during this time period.
This is the opposite of out-of-sight, out-of-mind.
* The Fed’s Open Market Committee meetings on Sept. 17-18 and then again on Oct. 29-30. Odds: 2-1 that Wall Street will get an ulcer waiting to see if this is when QE gets KO’d.
* Interest rates: The rate on the government’s 10-year bond has risen 109 basis points since early May. Put another way, that’s a lot.
If rates continue to climb like that, it will soon hurt corporate earnings, and it’s already causing growth in the housing industry to slow. This could easily be the big one. Odds: 7-1.
* Naming of new Fed chairman: President
Obama isn’t going to shock anyone with his pick. If it’s not Larry Summers, it’ll be Janet Yellen. The president won’t be going to the bullpen for a lefty. Odds of this being a market killer: 100-1.
* Something else: Wall Street is always done in by something unexpected. An Asian economy suddenly softening. Another financial scandal. Anthony Weiner not getting in trouble. Odds: Even.
So who knows?
Just remember this: Wall Street traders can move fast. So they won’t wait for any of the above events to actually happen. They’ll anticipate — and you probably won’t.
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The problem with our government’s prosecutions of financial wrongdoers is that authorities never go after anyone big. It’s tough when these big shots make campaign contributions that help put the prosecutors’ bosses in office.
Yesterday, US Attorney Preet Bharara indicted two people in JP Morgan’s London Whale scandal. But he indicted guppies and didn’t even include the whale, Bruno Iksil.
I don’t know about you, but I want to see some higher-ups put in shackles. Up until now, Washington has been content with making companies pay big fines while their execs get off to loot and pillage another day.
Jail ’em! That is, if you want to restore confidence in the legal system and the financial markets.