WASHINGTON, March 19, 2015 – After Wednesday’s massive surprise, stocks are back on the downslope Thursday. As of 2 p.m. EDT, the Dow (now including Apple [AAPL] and excluding AT&T [T]) is off 90-something points while the broader S&P 500 is down a modest plus or minus 8. Only the tech-heavy NASDAQ is doing its happy dance, up a decent but not earth-shattering 11 points or so, likely rebounding from its misery earlier in the week.
It’s as if the markets had a one-day Mardi Gras party and are now back in a Lenten mood again, eschewing meat at dinner and remembering that in the end, dust they art and to dust they shall return.
A number of factors seem to be in play right now. Bears fully expected the Fed to drop the magic word “patient” (regarding impending rate increases) yesterday as did the bulls. And indeed, neither side was disappointed in that regard, save for one simple fact: While eliminating “patient” from their statement, the Fed instead substituted a barrage of verbiage that meant essentially the same thing: No interest rate increase is imminent. More or less. At least not in April.
The reason is really quite simple, no matter how the blow-dried media and stock tricksters try to pitch this. Employment is still not very good when using the broader U-6 measure, which includes both the underemployed and those who’ve dropped off federal/state unemployment rolls even though they’re still unemployed. U-6 still counts both classes, while the official government unemployment stats do not.
“Officially,” we’re approaching the magic 5 percent unemployment number, which the government regards as full employment, more or less. But unofficially, U-6 tells us that number is still in excess of 10 percent, making this prolonged economic slump equal or exceed the agony of the 1930s.
That’s a sad commentary, particularly today, which, for Polish- and Italian-Americans at least is still celebrated vigorously as the Feast Day of St. Joseph, patron saint of workers. Look at our economy and say it ain’t so, Joe.
In other words, there is still great suffering in the land. But not officially. It’s the sort of situation any incumbent politician must love.
But the Fed has noticed this. Ditto the problem with continuing commodity deflation. All this is hinted at very carefully in the most recent Philly Fed regional business report, which employs the usual, careful, hedgy language that all Fedspeakers use to soften the bad stuff:
“Manufacturing activity in the region increased at a modest pace in March, according to firms responding to this month’s Manufacturing Business Outlook Survey. The survey’s current indicators for general activity and new orders were positive and remained near their low readings in February. Firms reported overall declines in shipments and in work hours, while overall employment increased only slightly. Firms reported more widespread price reductions in March, although most firms continued to report steady prices. The survey’s indicators of future activity showed mixed results but continued to suggest that the manufacturing sector is expected to continue growing over the next six months.”
In other words, business is flat, prices for raw materials are dropping, not rising (meaning no inflation, meaning no excuse for raising interest rates), inventories are building and layoffs are occurring (“overall declines in shipments and in working hours”), and forward growth doesn’t look too impressive.
The Fed, of course, is also dealing with current realities on the ground, mainly an administration that does not care and never has cared one jot for the American people, and a key, allegedly co-equal branch of the federal government—Congress—that was thoroughly broken by Harry Reid and Nancy Pelosi and has now ceased to function at all.
In other words, the Fed has no allies in its attempt to get economic conditions back to normal—i.e., normal interest rates at some point—so it’s forced to muddle through and hedge its bets moving forward.
Since the central bank can’t really make policy, it’s forced into a rear-guard action, doing what it can to keep things stable, hoping perhaps against hope, that after eight years of what’s been effectively a socialist dictatorship, a competent, creative adult will be elected to the White House in 2016, which is probably the last chance this country has to begin turning things around before we collapse into permanent third-world misery.
Traders know the current game is over, more or less, but are quite confused about what they need to do next. So it’s likely we’ll continue with a boom-and-bust market, remaining in this situation until we aren’t.
Which makes it really tough to buy and sell stocks and bonds with any confidence at all.
Today’s trading tips
Yesterday’s rocket-sled afternoon rally was likely fueled by a mass of short-covering, as negative bets on stocks were stymied by the Fed’s continued, if disguised, soothing message on interest rates. Today, the selling is back, another clear indication that big investors are continuing the liquidation program that likely began back in October, with a brief year-end and New Year’s rally in the middle.
Since tomorrow is a “quadruple-witching” Friday, we’d expect some kind of half-decent rally. But traders just don’t seem to have their hearts in it.
Ground down by nearly seven years of relentlessly bad policy decisions, only the supercomputer-aided tricksters who run high-frequency trading (HFT) operations are making the big bucks these days at the expense of nearly everyone else.
For this reason, we continue to see markets moved largely by rumor, innuendo and news headlines, with little emphasis on measures of value. Worse, once reliable PE ratios and other measures are being gamed by massive stock buybacks, goaded on by artificially low interest rates. Meaning that “profits” are more and more a result of reductions in share count than a matter of innovation and sales.
We’re simply holding positions today, unhedged, and waiting for clearer tea leaves, something that’s become more and more like “Waiting for Godot.” Midstream (pipeline) and downstream (refinery) oil and gas MLPs are still doing okay even as oil slips again Thursday ($43 and change for West Texas Intermediate [WTI]), tech is happy today after a big bashing, but that’s about it.
We are opportunistically raising cash and waiting for a better opportunity and for the likely lower prices that are already looming on the horizon. Maybe we can cut through the gloom sometime next week, after we get through Friday’s unpredictable quadruple witching fun.
See you tomorrow.