Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Correction, Watch for Bearish Downtrend

Stock-Markets / Stock Markets 2010 Jan 24, 2010 - 08:37 AM GMT

By: Peter_Navarro


In my previous weekly newsletter, I urged extreme caution in the market until the question of whether the market was at the beginning of a correction had been resolved. This last week, with the American stock market taking its worst set of consecutive losses since bouncing off the March lows, we got our answer. The market is definitely in a correction.

The next question is whether this will be a brief and mild technical correction or the beginning of a longer term bearish downtrend signaling a dreaded double dip recession. We are going to have to watch this situation very carefully, but the Obama administration is certainly not helping investors now.

I don't buy into the conventional buzz that President Obama "caused" the markets to drop last week with his latest heavy-handed regulatory initiative to downsize the big banks. That certainly didn't help financial stocks, but this was a market ripe turnover for more fundamental reasons.

I especially don't buy the argument that the rising probability that Federal Reserve Chairman Ben Bernanke will be fired likewise contributed to the market's downturn. You can certainly make the case that firing Bernanke would be better for Wall Street. Here's why I have been advocating that Bernanke should be fired since last October in this newsletter.

To the argument that Bernanke helped rescue the financial system at its darkest hour so he should be reappointed, it is important to remember that it was Bernanke's actions that helped get us to that darkest hour. In particular, first as a board member of the Federal Reserve and then as its chairman, Bernanke helped perpetuate the low interest rate environment that fueled the housing bubble which caused the crash. (The analogy that the astute CNBC economist Larry Kudlow uses is: Bernanke should not be credited with fixing the window, because he's the guy that broke it.

Now here is why Bernanke should be fired. First, he truly and mistakingly believes that the Federal Reserve can save the US economy simply by maintaining ultralow interest rates. All that belief is doing is swelling the Fed's balance sheet and creating conditions for a severe bout of future inflation.

Second, Bernanke's ultra-easy money policies are debasing the dollar and thereby creating havoc with the global economic recovery. The dollar is falling not just because of the low interest rates per se. Bernanke has also spawned a pernicious carry trade in which speculators borrow dollars at low interest rates and then go invest those dollars globally in commodities and emerging markets.

Moreover, as the dollar falls and drags down the Chinese yuan with it, this dynamic erodes the competitive advantage of countries around the world with respect to both the United States and China and thereby slows down their export growth and economic recovery. It is beggar thy neighbor on a grand scale.

Finally, Bernanke has sought to turn the Federal Reserve from a central bank entrusted with maintaining a sound currency and economic stability into a regulatory octopus. In doing so, he has undermined the credibility of the Federal Reserve and created an enormous political backlash.

The politics of this are particularly interesting. Several months ago when I began my anti-Bernanke campaign, Bernanke merely faced some Republican opposition. Now, with Senators like Barbara Boxer of California and Russ Feingold of Wisconsin jumping the Bernanke ship, his nomination is in deep doubt. This is as it should be. We do not need a Federal Reserve chairman with a 30% approval rating who got us into a mess and whose prime qualification seems to be that he sort of helped us get out of it -- when we're not out of it at all. Enough said.

In summary, at this point, cautious investors may want to be trimming positions and moving to cash. For those with an appetite for risk, my favorite strategy has been to use TWM, an exchange traded fund for ultra-shorting the Russell 2000 index. To gamble is human, to speculate is divine.

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in