New Stock Offerings Could Help Cause 30% Market Correction

Mark Mobius, a senior portfolio manager at Templeton, has been making market predictions for decades and is widely regarded as being good at it.

He told Bloomberg that global markets are in for as much as a 30% correction this year after rising nearly 70% in some countries. Part of the reason Mobius believes the markets will go down by such a breathtaking amount is that investors will pull money out of current positions to put capital into new stock and bond offerings.

Mobius may be right and, if so, the effects would be far reaching. Consumer confidence has been bolstered by rising share prices. Companies have been able to raise money, even in the recession, as stock markets have moved relentlessly higher.

Consumer confidence may be one of the most critical factors to retail sales in the crucial fourth quarter and to the recovery of the housing market. A 30% correction could undermine most of the activity in those two markets. That, undoubtedly, will cause more layoffs and the vicious cycle of jobs and consumer spending could begin to spin in the wrong direction just as it appeared that the overall economy is improving.

Mobius is smart, but it would be good if he was wrong for once.

Douglas A. McIntyre