| MARKET ROUNDUP | |
| Dow | -69.93 to 16,493.37 |
| S&P 500 | -5.52 to 1,925.15 |
| Nasdaq | -17.13 to 4,352.64 |
| 10-YR Yield | -0.051 to 2.505% |
| Gold | +$11.90 to $1,294.70 |
| Crude Oil | -$0.55 to $97.62 |
If there’s any doubt left that investors are obsessed about Federal Reserve policy, the stock market’s action today and yesterday should have eliminated it.
The Dow Jones Industrial Average plunged more than 300 points yesterday, its worst decline in several months. Then it lost as much as 125 more points today before crawling partially back. Not because the critical economic news on GDP, wages or job growth was bad. But because it was pretty good!
In today’s bizzarro market, that’s actually a negative for the asset markets. The reason? Strong data should lead to the Fed hiking interest rates sooner rather than later, and by a larger magnitude than Wall Street was expecting as recently as a few weeks ago!
It’s enough to make your head spin, I know. But try to follow me here.
This week we learned the following about the U.S. economy:
* Gross Domestic Product surged at a 4 percent annual rate in the second quarter. That was a big swing from the 2.1 percent decline seen just three months prior. Consumer spending, nonresidential fixed investment and other components were behind the strong growth.
* A key consumer confidence index surged to 90.9 in July from 85.2 a month earlier. That was far above expectations, and the best reading since 2007.
* Another gauge of manufacturing activity climbed to 57.1 in July from 55.3 in June. That was the strongest number going all the way back to April 2011.
* The economy created 209,000 jobs in July. That was down from an upwardly revised 298,000 in June, but it marked the sixth straight month of 200,000+ job creation. You know when the last time that happened was? 1997!
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| Jobless filings are falling to the lowest level since 2006. |
* On top of that, the four-week moving average of jobless claims slumped to 297,250, the lowest since April 2006. And the employment cost index that measures wage pressures rose 0.7 percent in the second quarter, the biggest rise in six years!
So just to recap for those of you trying to keep track at home:
The economy just grew at a 4 percent rate.
Manufacturers are the busiest they’ve been since 2011.
Consumers are the most confident they’ve been since 2007.
Wages and benefits are growing at the fastest pace since 2008.
Jobless filings are falling to the lowest level since 2006.
And job creation is running at a pace we haven’t seen since 1997.
Does any of this suggest — in any way, shape or form — that we need zero percent interest rates? $25 billion a month in bond purchases still? Unprecedented support of the banking sector and artificial strategies to inflate asset markets by the Fed?
Of course not!! The Fed is so far off sides with reality that it’s not even funny! The catch? It’s offsides in the exact opposite direction from the mid-2000s!
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“I’d rather have real, underlying, fundamental, healthy economic growth than artificial, Fed-fueled market madness.” |
Back then, it was way too optimistic about the housing industry, the credit markets, and the economy. So it was far behind the curve in reacting by loosening policy. Now it has been way too pessimistic about the economic outlook when it comes to inflation and employment. So it’s far behind the curve in reacting by tightening policy!
And that, folks, is what explains the confusing, “bad” market reaction to “good” news in the real economy. Investors know the monetary heroin the Fed has been force-feeding the asset markets has to go away. They also know that it will lead to some intense symptoms of withdrawal, just like the first round of taper talk did in the summer of 2013.
But you know what? I’d much rather have real, underlying, fundamental, healthy economic growth than artificial, Fed-fueled asset market madness! So rather than freak out and sell this genuinely good news, I’m going to use the correction to get on board with promising stocks … in select sectors … experiencing their own private bull markets.
I’ve highlighted a bunch of ’em, with domestic energy being one of the most promising at this time. So expect to hear a lot more from me on that topic soon!
Meanwhile, what do you think about this market? Should Fed policy be such a huge focus for investors? Or does the real economy matter more? What do you think about the strong data on employment, GDP, and manufacturing? Does it have you feeling better about the U.S. backdrop, or does it seem like more government book-cooking? Â Let me know at the Money and Markets comments section here.
| OUR READERS SPEAK |
I hope you enjoyed the market insights and perspectives shared by my colleagues the last couple of days. It’s good to be back in the saddle again, and catching up on your comments.
Reader Tom weighed in on the merits of Russia as an investment destination, despite the increasing geopolitical risks. His view:
“Russia has vast resources. But Russia also has vast corruption and bureaucracy. On an economic level, I would not invest in Russia, no matter what the promising returns. With one stroke of the pen from Obama or Putin, one could lose everything. The risks are far too great to engage.”
Reader Barbara agreed when it comes to avoiding Russia, but for different reasons. Her comments: “Would I invest in any Russian investments? I’m a patriotic American. Umm … I don’t think so! I don’t care what they have to offer.”
As for the recent column about social media, Reader James weighed in, saying: “Do not use Twitter, never used Facebook. Most of the people I know do not use Twitter either, but their children do … I am 34 years old. Computer programmer/analyst.”
Thanks for the perspective, James. For my part, I don’t use Twitter either, but do use Facebook to keep in touch with family and friends. And I find that many kids and adults are interacting much more these days via sites like Instagram and Pinterest.
If you’d like to weigh in further, on these topics or any others, don’t hesitate to hop over to the comment section.
| OTHER DEVELOPMENTS OF THE DAY |
 The ongoing improvement in the jobs market, not to mention the increase in inflationary pressures we’ve seen, continue to point toward tighter Fed policy. That’s what the Wall Street Journal‘s Fed writer Jon Hilsenrath concluded in his piece today.
Reminder: You can let me know what you think by putting your comments here.
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.
{ 37 comments }
The economy figures are a sham. At the same time, USA is on life support, receiving 1/2 the tax revenue it is accustomed too. Most employment is temporary hire, with no benefits and less pay and hours. No overtime. A whole set of liars run the country, following the Chief of Liars. Justice Dept is crooked beyond belief. Sorry Mike. If you believe these figures, your not a realist. Love your columns, however, your view and mine differ greatly. Buying the Mines and that’s all.
Hi Mike,
Following you religiously for years; usually too busy to comment. But today was different. . .
Since I’m not in a position to do anything about the “boneheaded” course the Fed is on (just thinking about them usually makes me grimace, and today’s article brought this reaction to the fore once again); I needed a laugh.
And I got one!
I thought I’d share with you this wish which was promoted by a comment you made in today’s post: “The Fed is so far offsides with reality. . .”
For some reason seeing the words “Far” and “Offsides” made me think of “The Far Side” by Gary Larson (my favorite cartoonist of all time). My wish. . .
That Gary Larson would come out of retirement and do a weekly cartoon dealing exclusively with the Fed (call it FedSides). What the Fed has done over the last six years could keep Mr. Larson busy for the next century. . .LOL!
Thanks Mike, for keeping it real.
If you like humor you might like this satire on Janet Yellen’s most recent Fed statement. It’s pretty funny.
http://www.opednews.com/articles/Janet-Yellen-s-Federal-Res-by-lila-york-Satire_Satire-140621-334.html
Regarding the economy or Fed policy, it is not a simple either or question. Exony is doing well in large part due to cheap money. When money becomes more expenise, housing, consumer spending and capital investment will naturally be suppressed. Dollar will rise in value and exports will be impacted. Bottom line, can’t separate economic figures from monetary policy…both are important.
My experience with FaceBook makes me think that Social Media is more like Socialist Media. There is a lot of political commentary, almost all of it very left leaning! I don’t think that most of these people even realize that their pushing Marxist ideas!
All phony gov. reports. This mess is going to end in a global depression. Sad leadership.
I’ confused. With the GDP growing and job growth the best it’s been in since 97 with increasing consumer confidence and automobile sales in good shape why is the market tanking,i still don’t get it.
Lets get real,Just follow the charts and candles,dont believe reports,figures, and especially not from BO downwards,they don’t know what the truth is
Mike…I believe you’re to optimistic with this thinking. Many markets are rigged and the statistics are massaged for management purposes. Things are generally dire on Main Street and will be far into the future. Best, Larry
The unemployment numbers published today were called by cnbc as “just right. not so hot as to worry about rising rates; not too cold as to cause worry about growth”. like all government numbers they are found to be lies by objective analysts. As noted above, Main Street is struggling terribly. Add to this the lies about Ukraine and Putin designed to justify yet another unjustifiable war ( remember the WMDs) and you have a government that cannot be believed in any measure. Many technical analysts say the market is overvalued by between 50% and 80%, which is not surprising given the mass of stock buybacks. The trendline on a five year chart shows that stock prices should be back where they were between january and june of 2013 – that is for all US stocks and indices. Only Fed printing has created this accelerated rise . which is why this has been the most hated rally on wall street. I will be happy to see it end to be honest.
Why would the President of the USA order the two American medics who now have the Ebola virus home for treatment on US soil? There has never been a case of Ebola in our country! 90% of its victims die. They could be quarantined aboard a hospital ship and treated there. Why would our beloved President issue such an order? Is it unfair the US has never had such a disease? Everything he does seems contrary to common sense.
Lower gold. Lower oil. Lower commodities.These are not signs of inflation.
yes these are signs of a crazy world and not signs of inflation.
the problem seems to be that when the fed does diminuish the dollar printing there is less money available to buy gold , oil and commodities. which means then not enough demand and too big offer which keeps the prices down.
So how they going to deal with higher interest rates as it relates to all those bonds we’ve been selling? Higher interest rates mean less money goes toward principal, and more goes toward interest.
If the Feds taper much more’ then stocks will fall and that would be bad for Oboma going into the Nov. election. I doubt if they will do much until after Nov. 4.
It seems like more government book-cooking …
Will someone please explain how we can avoid national financial disaster when the debt, including interest payable, is increasing faster than productivity and revenue income. Janet Yellen is simply rearranging the deck chairs whatever she does.
The main issue everybody seems to ignore, is the Fed’s bond-buying. Anything that pushes interest rates from 2 % up to 5%, will devalue the bonds by 250%. That would wipe out the Federal Reserve’s assets.
When that happens, the smart money will have planned on it.
The doofuses who believe whatever Krugman says, will have 20 cents to show, for every buck they invested in bonds.
And your Congressman will be crying all the way to the bank.
Because Congress will have just defaulted on 4/5 of the National Debt.
And gullible Americans will re-elect him anyway.
If we’re too stupid to realize that the crooks we put in charge of our money, stole it already, we will keep getting robbed until we wisen up.
The productive wealth we once had, is gone.
In it’s place, we have crooks battling crooks for the “right” to wrong us. Republicans and Democrats steal. That’s what we need to know, about why we keep getting poorer, every time we elect them.
Dear Bob,
You have hit the nail on the head. I consider myself an independent, however, my definition of a politician is very simple. I wouldn’t trust ANY of them because they are all liars, cheats, thieves and charlatans. The sad part is the absolute stupidity of the masses who are constantly screwed by them being too dumb to understand what these crooks are doing.
Mr. rangel “forgot” that he had a residence in the Dominican Republic, and the morons went and elected him AGAIN! He is only one but it applies to ALL of ten. They don’t fight to get into elected government to help their constituents; They fight like hell for the opportunity to screw their constituents.
I DO NOT BELIEVE ANYTHING OUR PRESENT ADMINISTRATION SAYS ABOUT THE JOBS
GROWTH. EVEN IF WHAT THEY SAY WERE TRUE, THESE ARE MOSTLY PART-TIME JOBS, AND ARE BEING ABSORBED BY OUR OLDER CITIZENS. QUITE FRANKLY, OUR NATION IS IN THE BIGGEST MESS I’VE SEEN IN MY ENTIRE 83 YEARS ON EARTH. I CAN REMEMBER GROWING UP IN THE AFTERMATH OF THE GREAT DEPRESSION; AND I DO NOT REMEMBER THAT EVEN THEN, OUR NATION WAS IN SUCH POOR CONDITION, NOR WAS THERE SO MANY PEOPLE THAT FELT LIKE THEIR OWN GOVERNMENT WAS AGAINST THEM, LIKE TODAY. WHEN CAN YOU REMEMBER BEING TOLD WHAT YOU MUST BUY ? LIKE MANDATORY HEALTH INSURANCE. OR THE CONSTANT REGULATIONS BEING IMPOSED ON BUSINESSES; DRIVING MANY TO GIVE UP AND JUST QUIT. FRANKLY, I’M BETTER PREPARED FOR WHAT IS HAPPENING THAN MOST PEOPLE MY AGE; BUT I AM CONCERNED ABOUT OUR YOUNG PEOPLE.
Apologies. 80%. Not 250%.
Just having a senior moment, here.
Hey there! With a mere handful of players today, compared to the yesteryear, controlling the markets with huge positions, I may be wrong where my perception is this. A few holding so much power, when a couple of players decide to cash in on a position, there should follow tremendous fluctuations in the securities at play. This in turn may open a door of opportunity, whereby short plays may offer great paydays ahead. The trick will be, who and when. The who and when is the future in the securities. Verses the Greed and Fear of yesterday. Also, plenty of good people are waiting patiently for gold to shine, one more time. Who and when are those shorting gold and silver too, when will those shorts get dropped? Enabling a great thrust upwards in the gold and precious metals? Thanks for reading. Cheers!
Greetings!
I often wonder, how blatently stupid is the government, anyways? Good investors, and there’s plenty, often rake in at least 40% per year on their portfolio. Why is it, that a government cannot creat the same, or better, performance? Is it that perhaps, a government only knows how to SPEND our tax money, and SPEND that 7 trillion GDP that rolls in every year? For heavens sake, kindly take that government by the hand, lead that government to the fresh, clear drinking water, and get their damn lips wet. Surely, with God on our side(Bob Dylan 1962), surely America can dring of the fresh, clear water that will lead the economy out of this debt ridden scourge to the promised land? freedom! Independence! Good health! And, yes, wealth too! Cheers!
The method of calculating unemployment statistics has been altered so much over the years that they are always questionable at best. If the Fed is actually using these statistics and other politically modified statistics to adjust monetary policy it is unlikely to end well. The total number of full time workers would seem to be a more significant barometer of employment/unemployment. Anyone paying attention knows that the economy is still weak and that the inflation rate is much higher than reported. Whether the market has factored this in already or is just starting to face realty remains to be seen.
The Fed is punishing the american economy with tightening their policy when there are good news. It seems they dont want to have the economy in good shape.
We live in a crazy world where stocks go down when economy shows good shape as investors know this means bad news from the Fed. So the Fed is punishing also investors. This does not give positiv signals for the economy and has to lead to a big clash and worldwar. I think the Fed does know that the value of the dollar is in danger and that the whole monetary system could collapse as the moneyprinting and bad deptbuying of the centralbanks cannot resolve the debtproblem on the longterm. We all know what this means: a global war.
we live in a crazy world
Maybe people don’t believe ANY of these figures anymore.
Looking around me, I sure have trouble believing what they are saying.
Thanks for the insightful update.
Very interesting and informative read. Always enjoy your updates. However, I DO NOT believe one word about the figures they are spewing out!
The FED cannot raise interest rates as the Interest on the National Debt would EXPLODE. As the economy sinks further into stagnation, tax revenues will fall. Those pushing austerity will ONLY push us closer to the EU and Japan. I believe we need a wage led revival of the economy promoted by Heiner Flassbeck, German economist. The bottom 50% of the US have had stagnant wages for 20 years which depresses their consumption and these working poor do in fact contribute to productivity but are not rewarded. Supply side economics is a sham.
Yes, the Fed is tapering because they are currently over stimulating. However, when investors look around, few believe the number being reported by Government. 2014Q1 numbers initially reported were off by 3% (+0.1 to -2.9). Does anyone out there think the economy improved 6.9% (-2.9 to +4.0) in 2014Q2 (a single quarter)? There has been a shift over the past five years involving customer migration from mom & pop local businesses to on-line & national. This shows an increase in market reportable (public) companies with no reporting of the loss in mom & pop local businesses. This is why the real unemployment rate is over 20% mostly consisting of middle class owners of those mom & pop businesses plus the people they hire teens & young adults. The bottom economic classes can’t afford higher gasoline, higher food, and now health care (even at the subsidized rate). Companies serving middle class are disappearing (Macy, Dillard’s, etc). Companies serving lower economic classes (Walmart, Target, McD) are starting to stress. Now, even the high end (Prada, Vuitton, etc) are indicating pullbacks. Finally, there have been huge settlements with DOJ going after corporations with cash (banks, Apple, etc) and no one really knows where those settlements are going. Are these settlements temporarily filling the budget gap so things Appear better? Bottom line is: We’re getting real tired of the spin.
Hello Mr. Larson! My name is Keith D. Jennings from Oak Park, Michigan, and I am what You might call a ‘Newbie’ to the Stock Market World, yet I would seriously like to learn. So My question for You-as busy as You are-is how can someone like Me become schooled in learning the ways of ‘ Wall Street’? You can connect with Me by using My E-Mail Address, which is: ‘BakerSupreme2010@gmail.com’. And Thanks for all the years of Special Insider Reports that You have allowed Your Subscribers to have seen, even a Future Trader like Me (I got some of the things that You were ‘putting down’ through ‘Money And Markets’). Thanks again, Take Care, and I hope to see Your Reply soon!
This problem is a political trick
Call me a doubting Thomas, but I have trouble believing any “statistics” compiled by the government. As the adage states, you know how you can tell when a lawyer, a politician or a governement bureaucrat is lying…his or her lips are moving. Regarding the stock market, the dilemma is… when the banks remove the Fed’s largesse from the stock market and make loans to businesses, will those businesses profits grow enough to replace the market value loss by the banks removal of the excess cash created by the Fed?
The 2Q GDP report was not very credible based on the previous reported underlying data such as durable goods etc.To go from a -2.1 1Q GDP to a + 4 2Q GDP you would need outstanding underlying data…its not there. Look for significant downward revisions by the the 3rd revision by September 26. At least half of the GDP was due to an inventory build…not good. The unemployment picture is still very bad based on the dismal labor participation rate and the quality of jobs…ie the increase in minimum wage part time jobs at the loss of full time jobs. When the population wakes up and rejects the propaganda put out by the MSM houses of prestitution, it will be game over just like what happened in the old Soviet Union. The US economy is still in serious trouble. When the stock bubble pops, reality will set in…and the Fed knows it.
Mike,
The Fed wants us to think they are focused on the economy when determining interest rates and bond purchases. The truth is that they are watching the federal deficit and what higher interest rates would do to the US and world economies. Let interest rates rise to where they should be given the real strength of our economy and government finances go over a cliff and everything crashes when our deficit goes hyperbolic.
Steve
Re: Use of Social Media
I stopped using Facebook. When I tried to remove all of my information……I COULD NOT. They lock you in. Bad, bad stuff. Glad I never put anything “real” on there. I do use Twitter. I found it somewhat hard to understand all the uses at first even though I have been using computers since the 1970s. I find it is quite useful if you wish to contact your congressman or others in the media etc. without all the normal roadblocks. Now…..if they actually read your notes…….that is another question….
Despite the less than rosy news, the Federal Government is still bankrupt, from printing so much Counterfeit, in violation of the US Constitution, Article 1, section 8,otherwise illustrated at: http://www.USDebClock.org
I don’t have the funds to file a bankruptcy petition in Federal Court, Manchester, NH. Where does a Nation go, to file a Bankruptcy notice, with particular relevance to the United State, that Mr.Obama is destroying.