WASHINGTON, March 30, 2016 – After a negative open on Tuesday, markets got back on the upswing with remarks from Fed Chair Janet Yellen that were clearly designed to reverse the bad cheer spread last week by inflation hawk James Bullard, President of the St. Louis Fed.
The fun continues in Wednesday morning trading action, as the Dow Jones Industrial Average (DJIA) is up nearly 1 percent as of 11:05 a.m. EDT. The S&P 500 and the NASDAQ are up about 0.75 percent, gaining 15.23 and 37.69 points respectively.
Market action was aided and abetted by a rebound in the price of crude oil. Both West Texas Intermediate (WTI) and Brent Crude are up a little more than a buck per barrel as we write this, hovering just above or just below that magic $40 a barrel handle that both pundits and oil pros think is a crucial breakeven point for U.S. frackers.
Word also came out that the “build” in U.S. crude supplies is coming in considerably under earlier estimates, meaning that the tsunami of oil no one is currently buying or refining is going down; which in turn means that prices could stabilize or even climb a bit if the trend continues.
This will make drivers planning for a cheaper summer vacation via the family jalopy a bit less happy, of course, though prices at the pump should remain a relatively good deal. But all those bankers and vulture capitalists who lent money to mom and pop oil wildcatters—you know, the small drillers currently staring bankruptcy in the face—well, all of them are breathing tentative sighs of relief because maybe all those loans may no longer be in imminent danger of default.
It’s all pretty good news for bulls, anyway, no matter whether any of it is really verifiably true. The very thought that it is gets us back to those good old pre-2015 days when bad news was always good and when the market went up twice as fast on those days when really bad news predominated.
That’s because bad economic news meant that the Fed was likely to let yet another quarter go by without raising interest rates, making even more free money available to fat cats and companies to finance the buyback of their own shares at cheap interest rates rather than risk investing that money on R&D as they should be doing.
As we’ve preached in this column ad nauseam, the share buybacks have the effect of making a given company look more profitable each quarter, even though that’s really an accounting mirage. By removing the bought-back shares from the equation, those ever lower earnings actually seem to get higher on a per share basis.
That’s all roughly 4th grade math, however. If you divide lower quarterly earnings into an ever-decreasing number of shares, the magic happens, making those earnings per share look like they’re increasing. The trick? The available shares are decreasing. Voilà! Magic. Earnings increase while revenue continues to go down, making it appear that less is more.
If you can’t afford to buy stocks in this market, you now begin to understand why the wealthy get wealthier while you seem to get poorer. They wealthy buy investment vehicles—mainly stocks—that keep going up because of all the free money the Fed gives away.
But that money never gets to you because you’re nobody. All that “economic stimulus” we’ve supposedly been getting under the most transparent administration in human history has gone to the wealthy by default. There’s absolutely no “trickle down” here at all.
Money is most economically effective the more often it trades hands, something economists call “the velocity of money.” Problem here is, once the wealthy get that money and buy more stock, that money is parked. You and I don’t get any, so there’s zero velocity. Which is what’s been wrong with this phony recovery for nearly eight years.
Along these lines, we had a big guffaw this morning (or was that a ROFLMAO moment? Gee, the Maven is getting old…), when we read on CNBC the comments of supposedly objective Moody chief economist Mark Zandi on the latest reported U.S. employment numbers, as projected by the always-unreliable ADP report.
In a prepared statement, Zandi exulted,
“The job market continues on its amazing streak. The March job gain of 200,000 is consistent with average monthly job growth of the past more than four years. All indications are that the job machine will remain in high gear.”
Wow. That’s how you make the big bucks in today’s U.S.A. Zandi’s comment is the Washington-New York spin cycle at its finest. Back circa 2008-2009 when employment tanked catastrophically, we were told that it would take months and months and maybe years of the U.S. economy creating over 300,000 jobs a month for America to even get back to employment levels enjoyed prior to 2007. But quietly and relentlessly, the American public has been convinced that a lousy 200,000 new jobs per month is really, really great. The “new normal,” if you will.
But, as we’ve preached in this column for years, given the structural unemployment in the never-publicized government U-6 employment measure — which includes those who’ve run out of unemployment comp or are under employed — our real unemployment number still stands at around 10 percent. And that, of course, is before we count the hordes of unemployed illegal aliens (the correct term) being admitted daily by the first presidential administration in history that actually hates America and Americans.
What we’re driving at here is that at least for the moment, the current rally is being built on the lies and collusion of the government and wealthy individuals and corporations who get wealthier and wealthier while the population at large remains completely confused about what’s going on.
But as long as they can shut the peasants up with soothing fake news, trumpeting crap as brilliance while preventing little if any truth to leak out in the media they almost entirely control, they can continue to play the game and add to their piles of yachts and mansions in swell, really warm and nice places where one can still afford lots of servants.
On the other hand, if you and I can at least get into the market a little bit during the fake fun times, we can play, too, so long as we stay out of the large cap stocks the high frequency traders love to manipulate to their advantage.
Even though it’s a lie, this latest mini-bull market has been a lot of fun. The Maven has now made up about 60-70 percent of the shellacking he took in January and February 2016, which makes him feel ever so much better about riding this latest wave of lies back up. A little longer and the portfolios should be dead even on the year—right before we sell in May and go away.
We’re feeling just about brave enough to accumulate some shares that should do us good in the meantime. If the market settles down a bit more, we hope to share our ideas in an upcoming column. We sim to make sure we’re not being conned again, however, at least in the short term.
Enjoy the spectacle. We’ll be back tomorrow.