The state of the economy hasn’t seemed too certain in the last few years. The recession hit us hard, and the lingering effects have kept investors on their toes, constantly wondering what’s next. And while many analysts will tell you that the stock market has improved a great deal and that there is plenty of reason to assume that the trend will continue, experts like Michael Belkin disagree.
Recently, Belkin, a hedge fund consultant and well-known financial expert, was interviewed by Dawn J. Bennett for the radio program Financial Myth Busting. During the Q&A, Belkin expressed concerns that the stock market in the U.S. looks healthier on the surface than it appears. He claimed that, essentially, certain incredibly well-performing stocks are making the overall market look good, while individual stocks and whole sectors are underperforming. This trend and the false confidence that it builds could lead to an economic slowdown.
Here are some of Belkin’s thoughts on the matter:
I think people are being drawn into a false sense that the stock market is okay. Really, it’s a bubble. There’ve been bubbles in Japan, China, the US, and Europe, and really they’re not really going up anymore. Yeah, there was a new high in the NASDAQ, but I think we’re past the peak in the indexes in China and Japan and in Europe. They’ve been going down for a few weeks or a few months. And . . . there’s a story in Sunday’s New York Times called ‘The Economic Forecast for 2016: What it Means for the Election’. Of course, the people who are in power are trying to turn the dial and pull the levers and dangle the strings and make the puppets move, so that the economy looks good for the elections. That’s the game plan in Washington DC, in your neck of the woods. But I don’t think it’s going to work. I think this economic cycle is 73 months long, which is tied for the last economic expansion, which is about 30 months longer than the normal economic expansion. . . . [Industrial] production is turning down, retail sales, rate of change is going down, and while the planes are still full of people . . . the industrial component of the economy has turned down. China, the economic growth is plunging. Emerging markets that used to export to China are not sending boatloads of iron ore to China anymore, so US exports to emerging markets are falling. The dollar is strengthening; that’s bad for corporate profits. I think we’re in kind of a slow decline that will accelerate into a contraction, economic contraction, which usually lasts about 18 months.
If he’s right, this could signal another dip in the economy, leading to falls in GDP, household and disposable incomes, commercial profits, and investing, and higher unemployment and bankruptcy rates. Whether that slowdown could stretch out long enough to qualify as another recession remains to be seen.
Belkin predicts that the country may slip slowly and eventually fall into contraction or recession. He has also expressed concerns over bailouts and the interference of central government banks and their role in this process. Belkin claims that the Fed is out of touch with the economic cycle and that by trying to force the system to move in a direction, they have only ensured that they are left behind by it. However, he does believe their involvement may be the thing that keeps a sudden recession from occurring, since the Fed is so rigorously trying to avoid that eventuality. He emphasizes, however, that they won’t be able to stop the natural progress of the economy – merely stall it.