Tags: Farrell | Bernanke | rates | crash

MarketWatch's Farrell Calls a Top, Predicts an August Spiral of Doom

Thursday, 23 May 2013 08:13 AM

By John Morgan

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MarketWatch columnist Paul Farrell, never a stranger to dire forecasts, is out on a limb with a prediction that Federal Reserve Chairman Ben Bernanke will be out by August, ultra-loose monetary policy will end as interest rates point skyward and a market meltdown will follow.

Oh, and if that's not enough, he also called a top in the Fed-driven bull market in his Wednesday column.

"So America's facing three historical endings: The bull market that started in March 2009, the Fed's cheap-money policies and the 30-year bull market in bonds," Farrell wrote.

Editor's Note:
See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

Fed watchers are expecting a safe bet for Bernanke's replacement, most likely Janet Yellen, current vice chairman of the Fed and a former chairman of the Council of Economic Advisers under President Clinton.

But why August for a Fed chief shakeup, rate increases and a crash?

"Here's the logic: Obama reappointed Bernanke in August 2009. He's predictable. August is quiet. Earnings season over. Congress on vacation, not that they haven't been on vacation for a while. Wall Street will be sunning on Fire Island and Nantucket."

Farrell predicted that whoever follows Bernanke will preside over quick rate increases. Rates "can't stay at rock-bottom, dirt-cheap, give-away prices that help banks but are killing the rest of America."

He cited Pew Research Center figures that found the wealthiest 7 percent of Americans saw their net worth grow by 28 percent between 2009 and 2011, while the remaining 93 percent saw their net worth decline by an average of 4 percent during the same time span.

When rates do go up, they will go up quickly, according to Farrell. "And America's 95 million Main Street investors will be unprepared. Markets will crash," he predicted.

Farrell said big investors are already preparing for an inevitable meltdown spurred by interest rate jumps by hedging their long positions.

However, some believe that the market might not be on the verge of capitulation.

"The bears keep getting steamrolled and the bulls keep adding to positions," Walter Zimmerman, senior technical analyst at United-ICAP, told CNBC.

"Looking at the near-term indicators, it looks like all we're likely to get here is a bull market correction," he said. "And that's a ways away, but it would still fit the bill for a broadening top pattern."

Zimmerman's target for the Standard & Poor's 500 is 1,790, CNBC reported. JPMorgan Chase strategists raised their S&P 500 year-end price target to 1,715 on Friday, and Goldman Sachs' target is 1,750.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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