Talking Economics with Jim Bianco: Why Stocks Are Likely to Keep Rising For Now

Dec
17

TrimTabs’ President and CEO Charles Biderman speaks with Jim Bianco of Bianco Research about the current state of our economy in the second episode of a three-part series.

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One Response to Talking Economics with Jim Bianco: Why Stocks Are Likely to Keep Rising For Now

  1. Ed_B on December 26, 2013 at 8:14 pm

    Whenever we start talking about QE and the amounts of money involved, we all need to take a step back and consider the fact that all we know about this is what the Fed, which is not audited, is telling us. IF they are telling us the truth, THEN we know what they are doing. But what if they are not telling us the truth? How would we know? Given this, it would behoove us not to assume that they are telling us the truth, either about the amount of QE, the duration of it, or the amount of taper, if any. Yes, we do need someplace to start the discussion but we should keep firmly in mind that we may be discussing a lot of this under false pretenses due to the quality of the data available.

    I am neither an economist nor a market professional. I am an amateur investor, albeit a successful one with 36+ years of experience. My own personal market evaluation is that it is highly over-valued at the moment. It has been bid up by the excess of cheap money now available via the various QE programs. My estimate is that the current US economy can support a true stock market value of around 1/2 of what we have today and that the excess above this is strictly due to the effect of QE, aka money printing. A Dow 30 Index of around 7,500 and an S&P 500 Index of around 900 would not surprise me, should QE be halted immediately. Not that it will be, of course, I only use that to show what I think would happen to the US stock market should the effects of QE be removed from the conversation. Clearly, the Fed will not allow this and is seeking to taper off their money printing such that, at worst, we enter a long shallow recession that does not create the social and political chaos that a brief but sharp recession does… most particularly as we enter the season for the mid-term congressional elections in 2014.

    I agree with Jim’s assertion that we cannot gauge the health or strength of the US economy by how the market is behaving and particularly not while QE is in progress. It is a matter of record that the stock market of Zimbabwe reached all time highs shortly before its complete collapse, so apparent market strength due to high stock prices is not any sort of guarantee about the health or strength of an economy.

    I also agree with Jim about equity prices falling with QE tapering. The Fed has announced a $10B a month taper that will start in January 2014. The question, as I see it, is whether or not this will adversely affect stock prices throughout 2014 or will there merely be a sharp but brief knee-jerk reaction to the downside that then corrects itself in a few weeks with the market then moving higher. Stock prices gained nicely in 2013. My guess is that they will still gain in 2014, although at a significantly reduced rate… perhaps not the 25% of last year but more like 8-9% in 2014.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

Biderman’s Practices of Success

I recently launched a new online course, Biderman's Practices of Success, on Curious.com (curious.com/charlesbiderman). The key to the practice of success is to be fully present in the moment and to be totally engaged in the important areas of life, particularly when we do not want to be. Read More.

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