WASHINGTON, July 12, 2016 – After taking a heavy post-Brexit vote hit, Wall Street seems to have recovered with a vengeance, with the Dow Jones Industrials (DJI or DJIA) briefly topping its all-time intraday high in Tuesday trading action thus far before moving back into its usual yo-yo motion as the bears once again try to mount an attack on the bulls.
It’s all bewildering in a way, since there’s still no evidence that U.S. and international corporate earnings are on the upswing, which, historically at least, is what’s almost always driven markets to newer heights. So what happened after the initial Brexit blast?
Zero Hedge’s “Tyler Durden” cites evidence showing that the world’s central banks have once again gone on a buying spree to prop up markets after the UK’s destabilizing pro-Brexit vote. While noting what most analysts noticed earlier this spring, retail investors, often via mutual funds, have massively withdrawn money from the markets resulting from 2016’s earlier January-February massacre, a miserable 6-8 week stretch that also damaged the Maven’s portfolios. That money has yet to return. So why are markets on a tear once again? Where’s the buying coming from?
Answer: Central banks, once again putting most of their efforts into propping up stocks rather than channeling policy toward saving what’s left of the West’s middle class. Durden’s detective-economist-source for this data is an updated report by Citi’s Matt King who notes a recent “surge in net global central bank asset purchases to their highest since 2013.”
When these guys put their money (actually our money plus vast quantities of borrowing that will never be repaid) into world stock markets on a massive scale, the consequences are almost always what we’re seeing now, a kind of Potemkin Village Wall Street where stocks go up, earnings continue to go down, but PE ratios continue to look pretty good since corporate oligarchs are using bucket loads of low-interest money (our money) to buy back shares to increase the illusion of continued or increasing profitability.
Problem is, both liquidity and the velocity of money (the amount of times a newly-created dollar changes hands) still remain elusive for the average Joe.
But The Powers That Be and their financial media lapdogs continue to massage a rosy economic scenario, the better to boost the chances of Crooked Hildabeest becoming America’s next un-freely-elected President this fall. Here’s a good example from CNBC, clipped from an online article with this orgasmic but misleading headline:
Finally! Americans see raises in paychecks
Well, yeah. If you happen to be a bottom dog. Check out and remember for a moment this article’s lead paragraph:
“Don’t look now, but a long-overdue rise in worker paychecks is beginning to take hold. And those raises are flowing all the way down to the bottom of the income ladder.”
Now, here’s the info that follows, with an occasional snide aside from the Maven:
“Wal-Mart Stores has announced that more than 1.2 million employees would get a raise in 2016, eventually bumping up its minimum wage to $10 an hour. Last summer, McDonald’s raised the average worker’s pay to almost $10 per hour….”
(And, of course, Wal-Mart’s lower-income customers will be paying higher prices to finance this Obama Administration-forced wage move, negating its economic effect.)
“Starbucks said it will raise worker pay in its U.S. stores beginning this fall, Chief Executive Howard Schultz said in a letter to employees on Monday. The company said the move will boost paychecks between 5 percent and 15 percent for roughly 150,000 workers in 7,600 U.S. cafes.”
(Watch the price of that Skinny Latte you buy each morning go up and up to finance this one. Any chance Schultz will be selling less high-markup drinks?)
“JPMorgan Chase said Tuesday that the nation’s largest bank will begin handing out raises to the 18,000 workers at the bottom of the company’s wage scale.”
(But those in the middle will get stiffed, enabling Jamie to keep those ever-increasing mega bonus checks he gets.)
“‘A pay increase is the right thing to do,’ JPMorgan CEO Jamie Dimon wrote in an opinion piece for Tuesday’s The New York Times.”
(The usual virtue-signaling statement follows Dimon’s effectively zero-based wage policy, which is sure to cause great joy among JPM’s middle- and upper-middle class employees whose wages will largely continue to stagnate. The Times reports. They decide. Now, back to CNBC.)
“It’s also become increasingly necessary, as a tight labor market is making it harder for employers to fill new positions or hold on to the workers they have.
“For decades, American workers’ wages rose roughly in line with the amount of goods and services they produce. In 2001, however, for a host of reasons that economists are still debating, those wage gains began to stall — even as workers continued to produce more per hour.”
Who in the Sam Hill is CNBC trying to kid in that final paragraph? The average American worker’s wage has remained virtually stagnant vs. inflation since the waning days of the Ford Administration when the nation was mired in a nasty post-Vietnam War recession. This is pure pro-Democrat Election 2016 propaganda. Here’s why.
That first paragraph we asked you to put in your memory bank creates the illusion that the big “wage increases” the headline touts are floating all boats, when in fact, they’re only keeping lower class noses barely above the water line, even as the middle class—which doesn’t figure at all into this article—sinks lower and lower via stagnant wages. This is the slow motion effect of this administration’s essentially socialist policies. No matter how much you know, no matter how skilled, the idea is for everyone to make the same money in the end. Incentives? Who needs ’em? So how’s that hopey-changy stuff workin’ out for ya?
In the meantime, Janet Yellen’s Federal Reserve continues to flounder, as oligarchs, their companies, and stock markets continue to lead Fed policy, not follow. Money continues to pump up stocks, while zero spending power via significant middle class wage increases assures that the market’s upward trajectory remains a fiscal mirage that’s out of the reach of most U.S. citizens, as an exasperated PIMCO (a very major investment company selling stock and bond funds and ETFs to the general public) Tweet points out:
— PIMCO (@PIMCO) July 12, 2016
As always, the middle-class taxpayers who foot the bill are getting fleeced by both the rich and the poor, which is why the middle class is sinking slowly in the West. #NoLivesMatter.
We’ve gone on record once again with the truth, weighing in against the cretins currently in control of Washington and New York. The Thought Police are sure to get us in the end, but someone has to speak up before we all gurgle down the commode of fiscal destruction. Clearly, a few people still need to tell the truth. These don’t include Democrats, those who vote for Democrats and, increasingly, the asinine morons running the #NeverTrump house card game where everyone in the GOP gets to lose.
On the other hand, given that people like the Maven and his readers are still hanging in there investing in stocks and bonds—whilst evading, when possible, the Predator Class that’s manipulating markets out of normal channels—let’s take advantage of the cynical situation described above and see if we can’t extract a little money from the Big Clowns for a change by looking at investments they generally ignore.
We presented part of our pre-autumn investment thesis in yesterday’s installment, putting our readers on alert for that big REIT-led change to the S&P 500 index when REITs and securitized real estate investments in general will separate out from the S&P financials to become their own investment sector on September 16, 2016, forcing many, many changes and shuffles in various index-driven ETFs and mutual funds. (Read our previous article here.)
Today, we merely wish to emphasize our continued belief that for now, at least, despite handsome gains in some stock sectors, our approach is to primarily hold on to our high dividend-paying preferred stocks for now.
However, today we’re sneaking in tiny positions in a pair of Schwab ETFs—that company’s REIT ETF (symbol: SCHH) and its “fundamental” (algorithmically balanced) small cap ETF (FNDA). If markets weaken this afternoon, we may also add tiny positions in Guggenheim’s Equal Weight S&P 500 sector ETFs that follow the healthcare (RYH) and tech (RYT). Being equal weight as opposed to many ETFs that give heavier weight to larger companies, these ETFs still move in the general sector direction, but mostly without the kind of terrifying volatility that keeps small investors out of the market.
It’s mostly an up day today, at least as of 2 p.m. EDT, so the action’s we’re noting will likely be it for the afternoon, since we generally prefer to buy when markets are tanking. That way you get better prices. (Although occasionally you do get hosed when you do this.)
The over all philosophy for buying stocks is generally to treat them the same as you do when you buy stuff at a department store. Only buy merchandise when the vendor (in this case Mr. Market) is marking that merchandise down.
*Cartoon by Branco. Republished by arrangement and with permission via LegalInsurrection.