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There are many pundits predicting the end of the world for the stock market and an equal amount cheering for more good times. How can you blame the positive thinkers? The market is at or near all-time high levels with no real end in sight. The primary stimulus is the Federal Reserve’s “quantitative easing” or free money to keep the markets liquid and inflating the overall economy. This allows for the companies to repurchase their stocks to keep the prices high. This practice ends on 10/29/14, fueling the market down-siders.
My view is that the easing stabilized the market. It wasn’t the best method but there was no other alternative once all the political representatives decided to outsource the decision downstream to force the next group to make the hard decisions. It ended with the Federal Reserve. Since the Federal Reserve was viewed as unpopular due to the stock market crash of 2008, they could handle more negative press then others if the decision was bad.
Going forward, will we see more market corrections? Yes. Will we see a crash like in 2008, No (less than 5% probability). With all of the clean balance sheets in the market today, the seeds for the stock market crash of 2008 are not on the soil to be grown.
The article talks about the warning signs from the previous five major stock market crashes before 2008: 1853, 1906, 1929, 1969, & 1999. The warning signs are: reduced money supply (less quantitative easing), corporate stock buyback programs reduce, and declining productive growth. The main problem with the argument is that there is now real analysis of what is the trigger point for each to allow for a major stock market collapse. Is it 5% decline in productivity growth? Or how about 20%? Maybe 55%? Sometimes 70%?
LEAN SIX SIGMA TEACHING POINT: This is why the monitor & control process in Program Management and Lean Six Sigma DMAIC is important. This forces the participants in the project to understand the driving forces of the project and surrounding forces, takes into account the risks for both negative and positive tail results, and holds the project team accountable for the metrics in case of unexpected results. If the team was not projecting the metrics properly, maybe the under lying logic of other areas and assumptions need to be reassessed. Thus, it is important to monitor & control your results but also be accurate on what you are measuring toward. If anything occurs that is not expected or predictive, we need to reassess our assumptions to figure out why this occurred.
In our scenario with this article, we need to track the status of the “quantitative easing” program (stopped 10/29/14), Company stock buyback programs (still progressing as of 10/29/14), and the worker productivity rate is declining (declining from previous reports as of 10/29/14). Thus, per the metrics in the article, 2 out of 3 qualify for a stock market crash. The main holdout is the stock buyback programs. This might be something to watch in the near future. Happy Investing –Invest in the Long-Run not Short-run!!
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
The following blog is the opinion of Gary Kapanowski and Garykapanowski.com. It is the sole intent to broadcast this opinion from Gary Kapanowski and Garykapanowski.com exclusively and not to reflect on any other institutions or organizations associated with Gary Kapanowski or Garykapanowski.com.