Blame It On The Fed – Part I: The Brewing Recession

Blame It On The Fed – Part I: The Brewing Recession

For the past month, everybody has hated bonds; now they hate stocks, too! The table shows the percentage fall in equity prices for the week ended April 22, and from their nearby highs. Note that the Russell 2000 has now entered "Bear Market" territory (down more than 20%), and Nasdaq is precipitously close. Percentage fall in equity prices The Russell 2000 is an index of small cap stocks and is a reliable predictor of the health of U. S. small businesses – the heart and soul of the American economy. Nasdaq is tech heavy, and the decline there is a response to the unsustainable P/E ratios in a world where economic growth is slowing. The four most dangerous words in the economics profession are: "This Time is Different!" Dangerous because it almost never is. Most of the time, those words are used to tell the reader that the economic process has changed from the last business cycle. For example, the stock market will behave differently this time as the economy slows or as a recession presents. When it comes to economic process, in a "free market" economy, "This Time is Different" is almost never true. Think of Mark Twain's notion