Get ready for a 4,000-point Dow drop

[marmar]

(MarketWatch) The stock market has an empirical rule: interest rates lead stocks. And the current interest rate environment is pointing to a massive decline for the U.S. market.

Consider: The Federal Reserve has taken rates to the lowest level in more than a generation. This has energized stock prices. The Fed has persisted in its directive to “stay the course,” having made no raises in the discount rate for more than seven years. Such monetary policy has no precedent; this is the longest stretch of accommodation by the Fed in the post-World War II era.

But there’s Fed-induced rates, and “actual” rates. The most widely followed Treasury markets are the longer-term 10-year TMUBMUSD10Y, -1.88% and 30-year TMUBMUSD30Y, -1.75% markets. These two markets are highly sensitive to longer-term actual interest-rate pressures. For example, banks use longer-term Treasurys to make decisions on pegging personal loan rates to clients for mortgages, businesses, and other uses. The commercial and industrial areas of the economy also are susceptible to the actual cost of money.

Are there parallels to this current market environment? Yes — 1987.

The summer that year began with a slow, methodical rise in actual rates. Yet the Fed did not raise the discount rate, even though actual rates suggested otherwise. The fall of 1987 arrived with the stock market having hit an all-time high in late August, unfazed by this unsettled condition. ..................(more)

http://www.marketwatch.com/story/get-ready-for-a-4000-point-dow-drop-2015-06-10?link=MW_popular

[leveymg]

1. Negative real interest rates are an ongoing gov't subsidy to Big Banks. Stocks would collapse

without it.

Krugman calls the rise in market prices due to an assumption of continued public support for stock prices "Pangloss Value." He attributed the 1997 Asia Crisis to that very type of "market failure." The Dot-com bubble blowout of 2000 and the '98 Meltdown had that aspect, as well. Happens again, and again, and get worse each time.

[yeoman6987]

2. Lets hope. It will be nice to purchase more shares every month

We need a correction yesterday. This is exciting news.

[Warpy]

3. Well, the QE tap has been closed long enough

that the money's got to go somewhere else, it's not making more money quickly on inflating stock prices. Commodities are about to get a lot more expensive, IMO.

The market has been flat for many weeks, 18000 plus or minus 500. It's as high as it's going to get and the only way it can go is down, and it needs to.