Where is Steve Keen now?
by Peter Switzer
Another great day on Wall Street with the S&P 500 breaking through the 1400-level but more importantly it stayed there. The ducks are lining up and I could be close to arguing that the worst is behind us and so I want to know where Steve Keen and the doomsday merchant brigade are now?
Don’t get me wrong, I like Steve Keen, the University of Western Sydney academic who called correctly the fact that the world was awash with debt. And he did it a long time before most experts, but being right once or sometimes, doesn’t mean you’re always right.
The S&P 500 actually ended up 8.32 points, or 0.6 per cent, to 1402.6.
The S&P 500 is now up over 107 per cent since 9 March 2009, when stocks started to rebound off their lows. If an American listened to Steve and his US counterpart, Nouriel Roubini, they would have lost in the crash — down 50 per cent or so and then they would have missed the 107 per cent comeback.
By the way, if you lose 50 per cent in a market slide, you need an 100 per cent turnaround to restore you portfolio’s value.
Unfortunately, here in Australia our S&P/ASX 200 index has only moved from 3145.5 to where it is now at 4277.8, which is only 36 per cent. That’s why I’m always getting stuck into the Reserve Bank’s interest rate policy, which is helping keep the Oz dollar up and this hurts our stock prices.
It’s another reason why I reckon we’re eventually going to see a pretty decent comeback in stocks here but it still could take some time given the current level of interest rates.
To see this happen, we need the US recovery to keep on heading in the right direction and manufacturing out of the state of New York got a better-than-expected read overnight. In addition, the Philadelphia Federal Reserve Bank's business activity index went up to 12.5 from 10.2 in February — it’s been up five months in a row!
We need no shock news out of Europe and no really bad news from China. The latter I’m not worried about but the former is a question mark.
I suspect a sell-off is around the corner but the corner could be bigger than you might expect. But as I have been arguing for 18 months — I want to buy the dips.
Back to Steve, if I had listened to him I would have missed out on the market comeback, which, though weaker than Wall Street’s effort, has averaged about 10 per cent a year and when you add in dividends it could be closer to 15 per cent.
One day all of this debt and extra money supply will prove Steve, as an economist, right on some fronts, but in the real world people have gained jobs, house prices haven’t fallen 40 per cent and true believers in the muddle-through thesis and rational optimism are better off than those who ran scared to term deposits.
You have to be careful when you’re a big call merchant because there’s a hungry beast called the media who love to run negative stories and they don’t give a toss about people losing money on their mindless, headline-grabbing yarns.
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Published on: Friday, March 16, 2012
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