WASHINGTON, February 13, 2015 – U.S. stocks are modestly up this Friday morning as we approach the noon hour. The government, the Fed, and the major media have been delivering a boatload of happy talk this week supporting the nonexistent bull case for domestic markets. But this flies in the face of the kind of reality we discussed in yesterday’s column.
In the free portion of ETF Digest, Dave Fry puts real numbers out that should serve to wipe at least some of the lipstick off the market pig. Addressing the real reason behind many companies’ allegedly increasing earnings, Dave points out what should have been obvious for years.
Banks, corporations and rich guys have been getting bucketloads of essentially free QE money for years while the little guy has languished. No help here for Mr. or Ms. Middle America.
The media blow-dries keep asking why “the consumer” isn’t spending all its apparently ill-gotten gains, the bonanza everyone has allegedly gotten due to those currently amazing prices at the gas pump. But the answer is stupefyingly obvious, and like Lamont Cranston, aka “The Shadow,” the Maven knows: Consumers are using their savings at the gas pump to pay down their massive indebtedness.
The middle class, after all, didn’t get bailed out like banks, brokerages, insurance companies, major corporations and the rich did with all that printing press free money. While they provided that free money via their annual tax bills and via government indebtedness which their kids will have to pay for, they never had and still do not have access to any of this largesse. It was (and still is) only available to those who don’t need it.
Amazed at the perception disconnect, Dave Fry is equally astounded at “the amount corporations spent buying back stocks since 2004.” Bolstered a few years later by the Fed’s ongoing series of quantitative easing (QE) programs as well, its these stock buybacks that have actually created the mirage of increasing earnings.
Money that traditionally would have been spent on innovative new products has been spent instead to reduce share counts, thus bolstering earnings per share like magic, creating better and better numbers out of what are actually flat or declining numbers. Illusionist David Copperfield should be furious at the extent that major corporations are intruding on his turf.
According to Dave Fry, all these stock buybacks make “QE look like a sideshow. This represents the ongoing bid under the market thanks to ZIRP [Zero Interest Rate Policy] which makes being anything other than long stocks and bonds wrong.
“There’s no question this didn’t have much effect on commodity, currency and some single country markets. But for U.S. investors the message is clear: buy, buy, buy.
“Thursday markets belonged to ‘bad news bulls’ since key economic data both sucked and blowed [sic]. Jobless Claims jumped to 304K vs 288K expected & prior 279K as finally lost jobs in the energy sector are starting to show up. And, Retail Sales dropped for the second month in a row to -0.8% vs -0.4% expected and prior -0.9%.”
“I guess if you add it all up there’s $4 trillion in QE and 6.9 trillion in ZIRP influenced stock buy backs meaning nearly $11 trillion has been spent lifting stock prices.
“At the same time the economy sucks. How has this been a good thing beyond enriching fat cats in S&P 500 board rooms?”
As one of the Maven’s old merchant marine buddies once said, “Truer words was never spoke.” Marketwise, we’re looking at one of the greatest combined shell games/Ponzi schemes ever invented.
Sadly, to make money, we have to play, which is what Dave tries to do for ETF Digest subscribers and what we try to do here. So for now, at least, the following algorithm—in place since at least 2008—still pertains when you’re talking about stocks:
Bad news is good. And good news is bad.
George Orwell already opined on a similar topic many years ago in “1984.” But that’s a topic for another column.
Today’s Trading Tips
Aside from perhaps snugging up or shoring up a position or two, we think we’ll take the afternoon off, expecting the market to close slightly up or slightly down before what will likely be it’s weekly Monday swoon. Which will, of course, take place Tuesday because of the President’s Day holiday.
We were ultimately disappointed in the short term performance of our brand new 100 shares of cloud computing company Inovalon’s (INOV’s) Thursday IPO. After popping nicely and letting all the rich flippers snag about a 15 percent profit, the stock closed below its offering price of $27 per share.
It’s lagged this morning, and is slightly up at the noon hour today. Good luck for the Maven. Under house non-flipper rules, we need to hold this puppy for at least 30 more days, so it looks like we may have to survive on that rare-earth mineral Hopium until then. That said, this new issue specializes in the hot medical area, so we may yet cop a few bucks on this one sometime in March.
Have a good holiday weekend. And for those in half the nation, including
global warmists climatistas, stay warm!