Economic guru Dick Bove predicts that a fundamental change to the financial markets will make trading very comfortable for the future.
"Simply stated, in the decade following the financial crisis, money availability was increased through quantitative easing and the cost of these new funds in real terms was negative," the equity research analyst at the Vertical Group wrote for CNBC.com.
"The financial crisis is now over and the aberrational financial values created by the manipulated market are ending," he stated. "For a decade there has been a great deal of money around at real prices below zero. This era is over," he wrote.
To be sure, U.S. stocks turned lower in early trading on Thursday, with investors still on edge as volatility in financial markets persisted following the worst declines in more than two-and-a-half years earlier in the week.
Wall Street ran out of steam on Wednesday after an early surge as investors were still cautious after a bruising sell-off that saw the Dow Jones Industrial Average post its biggest intraday drop on record this Monday.
The market’s main gauge of volatility, the CBOE Volatility Index .VIX, fell to 26.18 on Thursday, still more than twice the level it held over the past few months. The index hit its highest level since August 2015 on Tuesday.
Meanwhile, Bove explained that such a sea-change transformation is important because it comes at a time when the demand for money is rising.
"First, the United States government is going to push its $20 trillion debt much higher. Second, the probability of accelerating growth in the economy with moderately higher inflation indicates that the private sector needs more funds. Third, the resumption of economic growth in the Euro zone indicates more money is needed there to maintain forward momentum," he explained.
"Increased demand for funds at a time when the growth in supply is easing will drive money costs higher and financial values lower. This is about as fundamental as it gets," he wrote.
"To argue that a shift in money availability; a shift in real interest rates; and a shift in the value of the dollar; have no fundamental impact is simply folly. A folly driven by a lack of understanding concerning how valuation works. The markets are undergoing a far more important change than a technical adjustment," he warned.
"Be very cautious as to how you invest your money at this time."
Investors are weighing whether the sharp swings are the start of a deeper correction or just a temporary bump in the nine-year bull market, spurred by concerns over rising interest rates and bond yields, Reuters explained.
“While volatility in the markets has eased over the last couple of days, it has remained at very high levels - probably a sign of the ongoing nervousness among investors which may leave markets vulnerable to further declines,” Craig Erlam, senior market analyst at Oanda said in a note.
Federal Reserve officials have played down recent turmoil in global stock markets, sounding as resolved to push ahead with gradual increases in interest rates as before the rout, Bloomberg reported.
“Having a bump like this has virtually no consequence in my view of the economic outlook,” New York Fed President William Dudley said Wednesday at an event in New York. “My outlook hasn’t changed because the stock market is a little bit lower than a few days ago. It’s still up sharply from where it was a year ago.”
“That said, if the stock market were to go down precipitously and stay down, then that would actually feed into the economic outlook and that would affect my view in terms what’s the implications for monetary policy,” he said.
Dallas Fed President Robert Kaplan said on Thursday the central bank could hike rates three times this year and the recent market volatility in itself was not enough to change his base scenario.
For his part, President Donald Trump has some advice for investors: they’re making a “big mistake” by selling off stocks amid good economic news.
Trump, who has repeatedly praised Wall Street gains during his first year in office, dismissed recent market gyrations.
“In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down,” Trump said on Twitter.
“Big mistake, and we have so much good (great) news about the economy!”
(Newsmax wire services contributed to this report).
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