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Death of the Bull? China, oil, economics nuke stock averages

Written By | Sep 1, 2015

WASHINGTON, Sept. 1, 2015 – What a difference a week makes. Although last week’s powerful midweek stock market rally helped restore a bit of faith in the battered U.S. trading system, Monday’s limp and negative follow-through insured that August would close on a negative note. This despite a powerful continuing rally in the price of crude oil.

Unfortunately, to celebrate the first day of the historically bad trading month of September, even that crude oil prop was knocked down with great force Tuesday, as vicious, relentless selling has driven the price of West Texas Intermediate (WTI) crude an astonishing 7 percent to $45.67 bbl. That’s where it’s sitting right now at 1:15 EDT, off a bone-crushing $3.52 in less than half a day’s trading.

This is a market that’s clearly being manipulated by machines, and government regulators should be stepping in to bring this little game to an end. But they won’t. They never do. It might ruin their job chances on Wall Street once they retire from the government with full pensions and become double-dippers. Meanwhile you, the Maven and the rest of middle America sit there holding the bag for their radically improving lifestyles. Is there no justice? Well, that’s just a rhetorical question. We already know the answer to that one.

Add to the oil nonsense the continuing bad news leaking out of the Chinese economy and a poor ISM (Institute for Supply Management) manufacturing index number— it dropped from 52.7 in July to 51.1 in the month just ended—and you want to start singing that song, “Who Let the Dogs Out?” Except that you’d need to change the animal in that title to “Bears.” Like Smokey, they’re prowlin,’ growlin’ and sniffin’ the air, picking off the little guys who remain as the bail out of their last badly damaged positions.

Serendipitously, we were emailed this morning a stark, simple photograph that was described as Napoleon’s death mask. Using this image to head our article today seemed somehow more appropriate than posting our usual variant on Wile E. Coyote’s latest Acme-fueled cliff dive, an image we usually employ to depict a market that’s fast disappearing into oblivion.

But a death mask—any death mask—is appropriate for today’s action. Added to the stock market’s August beating, averages are moving into correction territory for the second time in less than a week, very possibly signaling the death of the prolonged but largely phony bull market the Fed’s QE money-printing programs began to engineer in 2009.

China, oil, and all other nonsense aside, what we might very well be looking at is a long retracement back to where we left off in 2009, since the ascent since then has been driven by endless stock buybacks and funny money, not astounding new products, scientific breakthroughs or good, old-fashioned increases in sales.

Buybacks leave fewer shares out there on the market. Fewer and fewer shares divided by even mediocre earnings provide the illusion that earnings per share are actually increasing, thus bidding stock prices up further. And in a way, that was the Fed’s aim: to inflate asset prices, thus restoring “wealth” to investors large and small who’d lost most of it in the 2007-2010 debacle.

The Fed has been faulted on all sides for doing this. Indeed, a major problem with the tactic has been that wealthy, nimble investors have mostly copped the rewards, while John Q. Public has been left holding the bag for the financing of this largess.

But let’s not forget, the worst president in history, aided and abetted by the most pathetic Congresses in history, never lifted a finger to augment the Fed’s efforts with big tax cuts for business and other stimulus programs aimed not at union paybacks but at hard working, beleaguered Americans. Thus, our much-vaunted (by the administration) “recovery” has in many respects been a mirage.

So now, as the Fed attempts to restore the system to its proper order by getting interest rates back to a normal range, traders and markets alike suddenly realize that there’s no more free money to prop things up. So we seem now to have entered a mass dumping zone where everything is either getting trashed or gamed (like oil and oil stocks).

China certainly hasn’t helped this situation. Neither has that dismal ISM number, the Saudi land battle in Yemen, the apparent Saudi attempt to halt the oil price decline (now failed) or anything else.

Meanwhile, the administration is busy shoring up its PC bonafides up in not-exactly-Democrat-friendly Alaska where the president is in the process of erasing the name of a former, capitalist-friendly Republican president from that state’s tallest mountain. The Maven’s contempt for this shallow, vindictive excuse for an American leader is reaching an all-time low, as if it can go any lower. As they used to say in the Clinton administration, “It’s the economy, stupid.” But in 2015, that’s apparently become an unfashionable concern for this White House.

Nothing much to do today except watch the decline and pray for another bounce, which we’ll likely get again this week. But unless it turns out to be more than a bounce—dubious at this point—the Great, Fake Bull is probably over, which means we should get out of more positions when we can and wait for those pre-Thanksgiving and end-of-year markdown sales before we get back in.

No tips today, except that we and our portfolios all try to survive the week.

Terry Ponick

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17