Posted on 09/13/2012 7:02:07 AM PDT by blam
Where Would Stock Market Be Without Fed Intervention?
Stock-Markets / Stock Markets 2012
Sep 12, 2012 - 04:26 PM
By: Graham Summers
We’ve entered a truly dangerous environment in the financial markets.
Economic fundamentals are deteriorating rapidly. Consider the US…
By all counts, the latest ISM (a measure of manufacturing in the US) was a complete and total disaster. In August the ISM hit 49. Anything below 50 is considered a recessionary rating.
However, things are even worse below the surface. The ISM is made up of several components. Its Production component is back to May 2009 levels. The New Orders component is back to April 2009 levels.
And worse of all, Prices Paid is up to 54, up from a reading of just 39 in July.
In very simple terms this tells us that inflation appears to be hitting “lift off” in the US at the very same time that we are entering another recession that could potentially be on par with that of 2008. And with corn and soybean prices at or near record highs, we could be on the verge of a stagflationary disaster combined with a food crisis at the very same time.
We get additional confirmation of a major economic contraction from corporate earnings. Recently we’ve seen earnings forecast cuts from Fed Ex, Bed Bath and Beyond, Proctor and Gamble, Adobe, Starbucks, McDonald’s and more. Indeed, when you remove financials, S&P 500 earnings FELL year over year for 2Q12.
This is hardly indicative of a strong economy. The fact a record number of Americans are on food stamps doesn’t bode well either. And the Rasmussen Employment Index indicates worker confidence is at levels not seen since the FALL OF 2008!
Against this backdrop, stocks have rallied higher and higher on hopes of more liquidity from global Central Banks. As a result, the market has completely disconnected from underlying economic realities. Based on the business cycle alone, the S&P 500 should be closer to 1,000. And even the NY Fed has revealed that without the impact of Fed meetings, the S&P 500 would be at 600!
This is a truly staggering admission from a Fed official. This is the Fed admitting to us, point blank, that without investors trading based on hopes of Fed intervention, the markets would essentially be even lower than they were in March 2009.
Again, this is a truly dangerous environment. Because if investors lose faith in the Fed or ECB, then it’s GAME OVER. This process is definitely already underway already as the impact of each successive intervention by a Central Bank is having a shorter and shorter lifespan.
I cannot say when exactly the Central Banks will lose control of the markets. But we’re not far from it. Some major takeaway items you should consider:
1) The Fed will likely be dismantled or restructured in the coming years. It’s clear from various dynamics that some Fed Presidents are positioning themselves to replace Bernanke if Romney wins. Moreover, even former Fed Presidents are admitting they’re concerned about the future of central banking.
2) Politicians, worldwide, have proven incapable of implementing real fundamental fiscal reforms (all the talk of “austerity” is a lie as few if any countries have begun a serious process of deleveraging). Central Bankers are beginning to catch on to this game and are increasingly blaming politicians for the fact the Crisis has yet to be resolved. Look for this relationship (between Central Bankers and politicians) to continue to deteriorate with serious consequences.
3) Europe will be the first area in which the “End Game” hits. We’ve just had the promise of “unlimited” bond buying. In terms of verbal intervention, you cannot go any further than this. When this promise turns out to be a bluff (see yesterday’s article for why this will prove to be the case) then the markets will crater.
I give this last item perhaps a month or so before it takes hold. Unless Germany completely changes and goes along with the idea of Eurobonds (unlikely given that it violates the German constitution and would cost Angela Merkel her bid for re-election in 2013), then the ECB is essentially out of bullets. You cannot say “unlimited” and bluff about it. And the ECB is doing nothing now but bluffing.
Wonder if it could have anything to do with paying people to do nothing, and taking away the accumulated capital of those who have worked for it?
Naaaah....
You can’t print your way to prosperity..........maybe we should call it ‘printsperity’........
I don't know, but my pea brain tells me the market was started to promote free trade and give investors a way to make some money.
That means (if I'm correct), what people wanted was what people got and if they wanted more or better, competition would develope the more or better.
The buggy would make way for the automobile and etc.
That's about all I know.
I assume, by the title, that gummint interference has complicated and muddied the water of vision so that not many can invest with factual faith (I just made that up ... sounds good to me)
So the answer is .. imHo ... MUCH better off
It’s more than odd that the destination of huge chunks of the “stimulus” money was never publicly aired. You’d think they’d have been trumpeting it, like GM bailout, or 100,000 new police, or midnight basketball programs, or whatever, no matter how ludicrous. Instead, silence.
Where would GOLD be without it: I estimate around $750.
The usual Fed defenders will be here in 5, 4, 3, 2, 1...
I don’t see the link on his page to “Free Reports”.
Am I blind?
6500
Now, political considerations are the one true market maker. Don't buy paper. Buy stuff including real estate. Even if it goes down in price it's still land and is crucial for survival.
Not exactly correct. ISM stands for Institute of Supply Management, an industry organization of supply chain managers.
I occasionally get polled for this survey.
It is a fairly accurate indicator on whether industrial activity in the United States is expanding, contracting or stable.
August is a traditional month for expansion as is September. On a seasonally adjusted basis, August was down sharply. In dollar terms, it was up slightly. Not looking good at all, but too early to proclaim disaster as many businesses are simply on the sidelines taking a "wait and see" approach.
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