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My perspective on the US stock market and economy
24 Mar 2023 (539 views)  

A friend recently asked me for my thoughts on the current state of the US stock market and economy. It's worth noting that economists and stock market analysts hold varying views on this topic - some are optimistic while most are pessimistic.

As for my own perspective, I believe that the US stock market and economy have been bolstered by low interest rates for the past 15 years or so. This has led to inflated asset prices for properties and stocks, which has made people feel wealthier and more inclined to spend.

However, we are now seeing high levels of inflation, which has prompted the US Federal Reserve to raise interest rates significantly in order to combat it. This increase in interest rates - particularly if it reaches 4% or more - is likely to cause a 20% or greater drop in asset prices.

When you consider the overall value of commercial and residential properties, as well as stocks, the potential losses are staggering. While current accounting practices allow for losses to be spread out over a longer period of time, the immediate impact of asset owners having to liquidate their assets in order to meet withdrawals could be devastating. This could result in the failure of these asset owners and spread fear to other entities through "contagion".

While the government may be able to offer some assistance, for example to give liquidity to banks that have suffered a temporary bank run, the scale of this problem is such that it may not be enough to prevent significant economic fallout.

From my perspective, it seems likely that the US Federal Reserve will need to decrease interest rates to a more modest level and accept a higher level of inflation than the 2% target they previously aimed for.

While this decrease in interest rates may provide some relief to asset prices, it is likely that inflation will persist at a higher level for an extended period - potentially averaging around 4% rather than 2%.

Unfortunately, a high rate of inflation is likely to decrease the value of the US dollar relative to other currencies. This will likely result in a lower standard of living for ordinary people. However, given the current circumstances, it may be the best course of action available to us.

Tan Kin Lian

My perspective on the US stock market and economy
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A friend recently asked me for my thoughts on the current state of the US stock market and economy. It's worth noting that economists and stock market analysts hold varying views on this topic - some are optimistic while most are pessimistic.

As for my own perspective, I believe that the US stock market and economy have been bolstered by low interest rates for the past 15 years or so. This has led to inflated asset prices for properties and stocks, which has made people feel wealthier and more inclined to spend.

However, we are now seeing high levels of inflation, which has prompted the US Federal Reserve to raise interest rates significantly in order to combat it. This increase in interest rates - particularly if it reaches 4% or more - is likely to cause a 20% or greater drop in asset prices.

When you consider the overall value of commercial and residential properties, as well as stocks, the potential losses are staggering. While current accounting practices allow for losses to be spread out over a longer period of time, the immediate impact of asset owners having to liquidate their assets in order to meet withdrawals could be devastating. This could result in the failure of these asset owners and spread fear to other entities through "contagion".

While the government may be able to offer some assistance, for example to give liquidity to banks that have suffered a temporary bank run, the scale of this problem is such that it may not be enough to prevent significant economic fallout.

From my perspective, it seems likely that the US Federal Reserve will need to decrease interest rates to a more modest level and accept a higher level of inflation than the 2% target they previously aimed for.

While this decrease in interest rates may provide some relief to asset prices, it is likely that inflation will persist at a higher level for an extended period - potentially averaging around 4% rather than 2%.

Unfortunately, a high rate of inflation is likely to decrease the value of the US dollar relative to other currencies. This will likely result in a lower standard of living for ordinary people. However, given the current circumstances, it may be the best course of action available to us.

Tan Kin Lian