Down the Rabbit Hole… Bizarro Market Hits 14,000

Rodney Johnson | Tuesday, February 5, 2013 >>


There is a story line in the Superman comic strip where the superhero passes into an alternate universe. In the new realm everything is opposite of what would be normal. Ugly is prized and bad acts are rewarded.

In this new place Superman struggles because everything he knows seems to be backward. Eventually, he figures out how to work within the system and then returns to his own place, where things are back to “normal.”

Now it’s our turn.

Welcome to the Bizarro Stock Market.

Falling earnings? Yep.

Weak economic growth? More like negative.

Ugly employment? Got it.

Fear and pessimism? All over the place.

Stock market on a tear to new highs? Right on!

Oh, and there is one more teeny-weeny aspect to this economy and market we need to mention…

Got a central bank plunking out $85 billion a month on top of $2 trillion already printed in the last four years? Why, yes… yes we do, thank you very much.

To hear everyone talking on TV and the radio since the market broke 14,000 last Friday you could easily assume the surge is due to positive economics. Durable goods shot higher, we’re told.

Well, they moved up by 1.4%. Not quite a moonshot.

More jobs were created though… but really slightly less than we need to keep up with population growth (which explains why unemployment ticked higher even though there was some job creation).

Earnings have grown, and they are typically a backbone for the markets, right?

Well, yes, earnings are positive… but the rate of growth fell from double digits to low single digits and overwhelmingly guidance has been lower.

The real factor – the only factor driving the markets higher – is that all the newly created money must go somewhere.

It is not being lent, creating new debt in the U.S. economy. It’s not being put to use hiring people. Instead, these bucks are sitting on the books of really big banks (think mega, too-big-to-fail, gotta-be-bailed-out-again banks), who then use the excess capital to build trading positions where they buy… stocks.

The game is great as long as money is cheap and interest rates are low. So these institutions are making a very rational decision. As long as cheap money and low rates abound they’ll keep piling into risk assets like equities.

When the economy posts puny numbers like weak employment and low or even negative GDP growth, the banksters know one thing: the Fed will keep its foot on the gas, and that will make their equity investments go even higher.

So here we sit as individual investors and taxpayers, watching this Bizarro Market where bad news pushes markets up. We all know that this can’t go on forever.

Printing money is theft. It’s stealing from all who have accumulated savings.

Artificially low interest rates are another form of theft. They take from fixed-income investors and depositors what they would have otherwise received in income.

Only, when you push the population too far they will revolt. They cannot take too much more of higher prices for food, energy and healthcare while their savings and paychecks dwindle.

But where and when is too much? $2.5 trillion? $4 trillion? We don’t know. The only thing we are sure of is that it was not $1 trillion in new money… or even $2 trillion.

We the people have not demanded an end… yet.

We will though, because it is all of us as consumers and taxpayers that are paying the price of the money printing while the banksters reap the profit. The same banksters we bailed out, mind you.

Until we demand an end to this, expect the markets to keep their upward bias.

The good news is that we don’t think the status quo will last very long. Judging by consumer indices, the average guy is already very pessimistic about the future. When enough people figure out it’s the Fed causing us such pain, there will be a call to account.

When this happens, the Emperor of the Market will be seen to have no clothes and will come crashing back down to earth.


Rodney

Ahead of the Curve with Adam O’Dell

Same Game, Different Year

Markets love round numbers. Today it’s “Dow 14,000!”

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Categories: Markets

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.