Posted on 06/05/2013 3:23:36 AM PDT by Kaslin
Sooner or later the Federal Reserve will have to turn off the spigot called Quantitative Easing (QE). And the stock market seems to think it’s better sooner rather than later, because you can only go so long with bad news masquerading as good news.
Concern over an early QE exit by the Fed receded early this week as the U.S. ISM Manufacturing plunged to 49.0 in May.
Over the last two months, persistent rumors about the end of “riskless-trading,” created under the deluge of central bank created liquidity, have translated into a market where the internals breadth and depth do not favor a stock market advance.
Any strength in the economy is met by weakness in the market and any weakness is the economy is met by strength in the market. In other words: bad economy, good stock market and good economy, bad stock market.
You only need to look at a chart of the stock market since the start of the year to see that weakness in the economy far offsets the strength.
Hurray for economic malaise!
People- even stock traders, some of whom are people, I swear- are starting the get the funny notion that the stock market can’t go up indefinitely while the economy slouches around like a Gen Xer, eating all our food, hanging out on the couch and watching reruns of the Suite Life of Zack and Cody.
Take the Monday close.
After finishing down the previous week, the market opened up with brief rally, followed by a sell-off and then around midday, reversed course to close higher than it had on Friday.
Great news right?
Not really. While volume was good, declining issued outpaced advancers across the NYSE, AMEX and the NASDAQ. More distressing is that there were 244 issues making new, 52 week lows on the NYSE, while only 75 issues were making new, 52 week highs.
That’s not a sign of conviction in the market.
^SPX data by YChartsAdvance/Decline- in orange- deteriorates over time
As I have said previously, it’s not how you open it’s how you finish. And the market has tried over several weeks to rally, with up days early only to fade and finish down for the week.
The gold bugs are down, but not defeated. With further deterioration in China and Japan, deflation in things- versus assets- is still the story. But it also means that world currencies will continue to stumble. Here’s another case of bad news being good news for the market. But here’s the thing: metals and the stock market are too often trading in tandem. That tells me that most of the upside in assets, like gold and the stock market has been inflationary rather than a reflection of the creation of real economic value.
Another danger is oil. It’s almost as if the governments around the world want oil prices to remain high for some unaccountable reason? The number one danger to our economy and the market is oil prices. Pay careful attention to any move over $100 per barrel. It used to be we had leaders who understood that cheap energy was good.
Watch the finish this week, because the market faded early, but internal numbers show a weakening market like hurricane that just made landfall. The Fed will continue to pump oceans of money at the market- at least for the time being- so the market still could strengthen, but expect at least a small downturn as the market corrects with a whimper and not a bang.
The market expects that one way or another the experiment in Quantitative Easing is coming to an end, and the market is deciding to end that chapter in the way they want, not how the Federal Reserve wants.
That this comes despite Bernanke not having yet reached his oft-stated goal of 6.5 percent unemployment show too that these here markets are still mostly, kind of, um…free.
I really think at this point it no longer matters which of the many swords hanging over our heads will be the fatal one. What matters is *when* that sword is actually going to drop, and that’s what I wish all the prognosticators would focus their analyses on. Naturally no one wants to put out a hard date, since that’s essentially impossible, but knowing to some degree just how close we are to the edge of the cliff would be beneficial.
I really think at this point it no longer matters which of the many swords hanging over our heads will be the fatal one. What matters is *when* that sword is actually going to drop, and that’s what I wish all the prognosticators would focus their analyses on. Naturally no one wants to put out a hard date, since that’s essentially impossible, but knowing to some degree just how close we are to the edge of the cliff would be beneficial.
Wouldn’t a careful watch on those who are “nominally” in-the-know be a good idea? In the sort of “They are all bugging out of town for unnamed destinations” sort of way.
I’d kinda like enough warning to be among the bunch leaving town, rather than learning about their departure after the fact. What’s worse, many of those who would “leave town” have really already left. They’d be the top-level executives at major banks, as well as the high-rollers in high finance, and most of that crowd globe-trots so much already that it would be hard to tell which is the vacation and which is the escape.
True, true... You do bring up very good points. I’m curious though; Do you think it’s to the point yet, that if you haven’t already prepared then it’s too late? In other words if you already aren’t out of town by now then it’s too late already or do you think we’re at the point where the “Fat Lady” is warming up and just about to sing and you still have some time to boogie out of town?
I don’t think it’s to the point yet where you should already be out of town, though it’s damn close. I know many who have already shifted to more rural locations, though no one of any real consequence. I do think it’s really late to get anything other than a good emergency stash in place. In other words, now is not the time to start thinking about whether or not to buy a place out in the country, and almost past time to actually buy such a place if you already have one in your sights.
I really think the markets in general are fragile enough now that any good shock could be the straw that breaks the camel’s back. Add in all the instability in the MidEast right now, plus Japan’s economic woes, China’s economy bubble and rising pugnaciousness, and the tottering EuroZone, and you’ve got a real recipe for disaster.
Unfortunately, given the wide range of possible scenarios, it’s too difficult to prepare for them. Rather than try to get ready to ride out any one particular scenario, it would probably be more prudent to be able to protect yourself and your family to whatever extent you can manage, even if it’s at the expense of everything else you own as a last resort. Knowledge and training are going to be more valuable during a crisis, and after, than material things.
I’ve thought that too and I agree with you. I hope you are prepared then, it’s going to get rough and I think on a world-wide basis this time.
There is not agreement on a sword’s existence nor danger
There are many men with diverse expertise. They get on their soap boxes and pronounce the gospel as they see it. There are fundamentalists, chart guys, stock guys, bond guys , gold bugs, gold bears, income guys, growth guys and value guys.
The market is however the only true indication of the market. The trend line is the indicator of the collective thought. The day to day change is not the real indicator.
Then the trend line must be interpreted. That is if you invest, you must put your money where your mouth is.
ping for later
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