Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Danger: Resist the Temptation to Chase Stock Prices

Stock-Markets / Stock Markets 2015 Apr 05, 2015 - 07:20 PM GMT

By: Money_Morning


Michael E. Lewitt writes: The week running up to Easter ended with a punk jobs report that punctuated a first quarter filled with a stream of consistently bad economic data.

March nonfarm payrolls grew by only 126,000, far below consensus estimates of 225,000. Worse, 69,000 jobs were subtracted from January's and February's tallies. The unemployment rate stayed at 5.5% only because the job participation rate jumped back up to its lowest level since 1978.

And while the *****-eyed optimists who are waiting for the economy and the markets to reach escape velocity like Vladimir and Estragon are still waiting for Godot were rushing to blame the number on the weather, the government reported that 182,000 people reported they couldn't get to work because of the weather in March – in line with historical norms.

It isn't the weather that is hurting the economy…

It is the strong dollar and the crushing weight of debt that are preventing businesses from hiring new workers, building new factories, and starting new R&D projects. Instead, they are buying back their own stock to prop up their own stock prices and holding on for dear life.

No, Really. The Fed Is Robbing You…

Stocks were basically flat on the holiday-shortened week, with the Dow Jones Industrial Average (INDEXDJX:.DJI) and S&P 500 (INDEXSP:.INX) both up 0.29% and the NASDAQ Composite (INDEXNASDAQ:.IXIC) down -0.09%.

Futures were down sharply on Friday when the markets were closed, however, so the opening on Monday could be ugly. In sharp contrast, the bond market rallied after the March jobs report, driving the yield on the benchmark 10-year Treasury bond down to 1.81%.

Investors are moving back their estimates of when the Fed will raise rates to September from June, and more are arguing it won't happen until much later this year if at all in 2015.

The only certainty with respect to what the Fed will do is that they will screw things up. It should have raised rates a long time ago. Low rates are no longer boosting the economy; they are holding the economy back by reducing the incentives for banks to lend to productive projects and depriving savers of a just return on their capital.

Zero interest rates have reduced the cost of funds for the $15 trillion U.S. banking system from roughly $500 billion to only $50 billion annually, depriving savers of $450 billion of annual interest income. This policy is contributing to sluggish income growth and will ultimately make it impossible to justify current asset prices.

A Happy Ending Isn't on the Cards

Either the Fed will start raising rates, and markets will react, or the Fed will feel it has to wait because the U.S. economy is too weak to handle higher rates. Either way, it is difficult to see a positive trajectory for the stock market in the period ahead.

With first quarter GDP expected to come in close to 0%, and S&P 500 earnings estimates continuing to fall due to a combination of lower oil prices and dollar strength, the outlook for equities remains muted.

Goldman Sachs maintains a year-end S&P 500 target of 2100, 2% higher than the index's current level. Valuations are extended with the forward earnings multiple at 18x and other measures such as the S&P 500 Market Cap/GDP and Shiller Cyclically Adjusted P/E Ratio at well above historical averages.

The models of highly respected market strategists like Rob Arnott at Research Affiliates and Jeremy Grantham at GMO project 0-2% 10-year returns for both U.S. stocks and bonds. Investors are going to have to find very skilled managers or unique alternative strategies to flourish in the next decade. Those counting on continued stock market gains supported by Fed-liquidity are going to be very disappointed.

Investors Need to Understand This

While U.S. stocks were mixed in the first quarter, the real action was in Europe and Asia where markets skyrocketed in both local currency and dollar terms. In the first three months of 2015, the S&P 500 ground out a 1% total return (price plus dividends) while the Dow Jones Industrials lost 2% and the Nasdaq gained 3.5%.

In contrast, the German DAX soared by 22%, its best performance since its creation in 1988, and the FTSE Eurofirst 300 Index (INDEXFTSE:.E3X) climbed by 16%, boosted by the European Central Bank's QE program and the collapse of the euro from $1.20 to $1.07 during the same period.

The MSCI Asia Pacific Index soared by 7% during the quarter also driven by expectations of further monetary easing in Japan and China. Unhedged dollar investors enjoyed lower but still high single digit returns that blew away their investments in the U.S.

The markets are telling a story that investors need to understand.

That story is that the only growth that is occurring in the global economy is coming from central banks keeping interest rates at zero (or below zero in Europe where $3 trillion of debt now trades there) reducing the value of their currencies.

European and Asian markets are not rallying because of robust organic growth in those regions. They are rallying because companies in those regions – primarily exporters – are benefitting from cheaper currencies that allow them to sell more goods abroad.

In the U.S., companies are buying back massive amounts of stock (though there is currently a seasonal lull tied to the earnings season that will likely result in stock market weakness) financed with low cost debt that allows them to artificially pump up their earnings without having to grow them.

Junk bond borrowers are not generating enough free cash flow to repay their debt but aren't defaulting on those debts because their borrowing costs are extremely low. Moody's is forecasting a 2.9% default rate in 2015, far below the 4.5% norm of the last 20 years.

The story is that the global economy is addicted to low interest rates and cheap currencies, not that that it is growing organically or productively.

There is a race between the incredible innovation in digital technology that is shaking the world and the dead weight of debt and brain-dead economic policies that are threatening to push the global economy into another financial crisis.

Add to that race the most unstable geopolitical situation in nearly a century and investors should be battening down the hatches, not chasing stock prices higher.

It is a story that is going to have a very sad ending for those who fail to understand it.

Source :

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules