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MARKET ROUNDUP
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 Another day, another record high. That was the story today for the S&P 500 (up just over 10 points to 1920.01) and the Dow Transports (up just over 34 points to 8,110.30), even as the Russell 2000 and Nasdaq Composite continue to lag.Negative 1 percent.
That’s how much the U.S. economy managed to “grow” in the first quarter, according to the government’s revised estimate.
After more than $800 billion in stimulus spending from Washington.
After more than $3 trillion of QE from the Federal Reserve.
After six-plus years of record-low interest rates … record levels of monetary intervention in the U.K., Japan and Europe … and the biggest bailouts in the history of the world.
-1 percent.
Just how pathetic is that? Well, it’s much worse than the 0.1 percent gain the Commerce Department originally reported. It was twice as bad as the 0.5 percent decline economists were expecting. And it’s the worst reading since the first quarter of 2011.
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| Tyson Foods made a multi-billion dollar takeover bid that’s fantastic for shareholders. |
Not only that, but the weakness was broad-based. Spending on business equipment fell at a 3.1 percent annualized rate, while spending on structures sank 7.5 percent. Corporate earnings dropped almost 10 percent, while exports slipped 6 percent. Housing investment shrank 5 percent.
So how did the stock market react to this obviously disappointing news for the “real” economy? It made new all-time highs, of course.
Funny thing is, at the same precise time we were learning that the economy was pretty dismal for average Americans in the most recent quarter, the newscasters on CNBC were announcing a new multi-billion dollar takeover bid that’s fantastic for shareholders! Specifically, Tyson Foods (TSN, Weiss Rating: A) offered to pay $6.1 billion for Hillshire Brands (HSH, Weiss Rating: B). That’s good for $50 a share, compared with JBS SA’s previously reported bid of $5.5 billion, or $45 a share.
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“Can we have an economy where shareholders prosper, but everyone else doesn’t?” |
If that doesn’t speak volumes about the odd environment we find ourselves in, I don’t know what does. Shareholders are making out very well in this environment thanks to massive takeovers, large stock buybacks, profit-boosting job cuts, and other shareholder-friendly actions. But Average Americans aren’t experiencing the kind of strong economic growth that accompanied previous, big stock market rallies in the 1980s, 1990s, or mid-2000s.
As investors, you can certainly profit in this environment. You can buy the shares of likely takeover targets. Or you can buy shares of companies that are taking advantage of the Federal Reserve’s excessively easy money to lever up their balance sheets and buy back stock, rather than, I don’t know, actually open a factory or hire someone.
But as Americans, you have to wonder: Is this situation healthy in the long run?
Can we have an economy where shareholders prosper, but everyone else doesn’t?
What does it say about the effectiveness of all that Fed cash … or all that Washington loot … if our economy is still shrinking at a 1 percent rate despite it?
And can stocks continue to rally if growth doesn’t pick up?
These are incredibly important questions to answer, so please do go to the blog and let me know your thoughts. But you can color me worried about the increasing split between what’s going on in the real world, and what’s happening on Wall Street.
| OUR READERS SPEAK |
Meanwhile, comments are still pouring in on the student loan issue. Reader Bill O. said colleges are simply not properly preparing students for the job market they’ll face after graduation. His comments:
“I’m shocked that the kids can’t get jobs after graduating from our universities. After all, their professors teach them to hate the capitalist system and encourage and even lead them in protests out in the street, against the very companies they are supposedly being educated to work for. Go figure??? Maybe they should try hoeing and picking in the fields.”
But Reader Jay V. believes students need to more fully understand what they’re getting into when they load up on debt to go to college. He said:
“A big problem is a student can just push an electronic button during enrollment for ‘max loan’ without one whit of understanding of the consequences. In effect, we have enslaved a whole generation now of indebted students into involuntary servants who will be stuck with sky-high loan payments virtually into perpetuity.”
And as far as housing is concerned, a couple readers weighed in to say their markets were relatively strong — particularly in Texas. But Reader Bob R. was more pessimistic — not just on housing, but the entire economy. He cited the following factors:
“1) Labor participation rate is at historically low levels
2) More people classified as being in poverty than ever before
3) Products becoming too expensive to make in China are beginning to be made in Africa — so do not look for the repatriation of jobs to America anytime soon”
So what are your thoughts? Is there any hope for this -1 percent economy? Are students to blame for the massive loan burden? Or is it the colleges themselves? You can sound off at the blog.
| OTHER DEVELOPMENTS OF THE DAY |
 I’m sure you are shedding lots of tears for them, but the Wall Street Journal notes that “It is becoming tougher and tougher being a U.S. bank.” Blame placid markets, tight regulation, falling mortgage activity, and more.
Reminder: If you have any thoughts to share on these market events, all you have to do is hop on over to the blog and leave your comments.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
