by Clif Droke, GoldSeek:
A CNN Money article this weekend provided contrarian investors with a moment of clarity. “Trump and Cruz predict stock market ‘crash’” the headline proclaimed. Contrarians couldn’t find a more emphatic statement of mainstream bearish capitulation than that.
The market opinions of high-profile public figures are always as fascinating as they are instructive. Most public figures have only an elementary grasp on the financial markets; this is doubly true for politicians and political candidates. In instances when these figures make public predictions about the market it’s almost a guaranteed contrarian bet that they’ll be wrong.
“The problem with using monetary policy to juice the system is that it creates bubbles,” Cruz said. Trump expressed a similar sentiment when he said Americans were “being forced into an inflated stock market and at some point they’ll get wiped out.”
Never mind that both statements can be disproven. A loose monetary policy doesn’t create bubbles; it can feed or augment them but not create them. Bubbles are a manifestation of mass investor psychology and are the result of synchronized human endeavor. Central banks can provide liquidity to fuel asset bubbles, but the Fed has no control over how or when a bubble gets started.
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