It's quite obvious that the entity that desperately needs liquidity, the American people, are not getting it and would not have anywhere to spend it if they did receive it other than to finance past obligations incurred during the go-go days of pre-global collapse (aka the year 2008). This dilemma pops up in poor earnings quality and finally, it has triggered a decline in the venerable Dow Jones.
Watching CNBC can be humorous : some of the guests are either paid off by big time establishments to promote a story that runs counter against facts and logic, or they are painfully naïve. The dreaded "January Effect," the uncanny tendency of markets to register losses for the year if the first month is a loser, is very much in play and this is something that every investor needs to pay attention to.
This isn't the annual Madden NFL simulation, where a computer game is used to forecast the winner of the Superbowl. For one thing, the financial markets are a real-time indicator of supply and demand across the entire spectrum of tradable goods and ownership rights. Any recurring theme in the markets necessarily involves real money dictating price trajectory. The Madden simulation pits two teams that have actually qualified for the final event, so 94% of variability has been eliminated from the simulation and since the Superbowl is typically held on a neutral site, the computer has an easier chance of forecasting a winner based on statistical attributes. And just to point out, Madden failed to predict a Seattle Seahawks victory.
The January Effect is different : there's always a reason why markets move the way they do and if investors are feeling hesitant about keeping the party going, especially after such a "fine year" we had in 2013, then this is a trend worth investigating. Monetary policy both at the Fed and abroad certainly play a role. I tend to believe that the deflation in consumer discretionary and staples are far worse than government officials are letting on. Even the NASDAQ index, which is clearly the best performing one out of the three majors, has several companies on their massive rolodex whose forecasted earnings growth rate are, shall we say...questionable.
In fact, the last 5 years have been questionable. We are facing some very unique circumstances that will lead to unexpected results, at least unexpected by the mainstream financial media. Unfortunately, it doesn't have to be this way : sometimes, it really does matter where you start from...