By Steve Goldstein, MarketWatch
You might think the hard-money, recession-at-every-corner crowd would be predicting an imminent reversal in the stock market given the 20% gain for the Dow Jones Industrial Average this year.
Thorsten Polleit, the chief economist at Swiss metals trader Degussa, explains why he thinks an economic boom will continue , with stock prices also strong.
“As long as there is still room for pushing the market interest rate down further, the chances are reasonably good that the boom continues, and that the bust will be adjourned into the future. As per the charts below, current market interest rates in the U.S. have not reached rock bottom yet. Corporate and mortgage credit costs in particular still have some way to go before hitting zero,” he writes in an article for the Alabama libertarian think tank, the Mises Institute.
“The decline in market interest rates is only one factor among many others which explain why stock prices have gone up in recent years. But it is a significant factor, and it contributes to the build-up of a price bubble,” he says.
To be sure, Polleit expects a very hard landing. “The severity of the crisis that must be expected to unfold at some point in the future — at the latest when all market interest rates have been pushed onto the zero line and investment returns have become negligible — is driven to ever-higher levels. This is something we do know from the Austrian business cycle theory. But it is certainly not enough to come up with a reliable forecast,” he says.
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