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Who are you gonna believe? Me or your lyin’ eyes?
You’ve probably heard that line. It’s often attributed to Groucho Marx, but actually spoken by his brother Chico in the 1933 comedy Duck Soup.
I thought of it this week because of the crazy divergence between how the markets are behaving and what the economic data is saying. In short, investors are being forced to ask whether the markets have it right … or if the data does.
Just think about it: Stocks have rallied in the last week. But they still suffered the worst start to a year ever. The spread between 2-year and 10-year Treasury yields just collapsed to the lowest since 2007, while the yield on the 5-year recently hit its lowest since the summer of 2013.
Junk bonds? Emerging market debt? Bank stocks? Leveraged loan prices? They’ve all bounced in the past week with stocks. But they remain near multi-year lows.
Then there’s gold. The yellow metal soared $200 an ounce off its lows in just the last couple of months. Gold-mining stocks had their biggest monthly rally since 1998. And both are holding on to the lion’s share of their gains. That suggests investors don’t want to let their “chaos insurance” go.
All of those are negative market and economic signals. They suggest the economy could be headed toward or into recession.
But the latest economic data hasn’t shown a huge deterioration yet. Some figures actually beat the relatively downbeat forecasts since the start of 2016.
Overall retail sales rose 0.2% in January, while a core reading used in calculating GDP gained 0.6%. Durable goods orders climbed 4.9% in January, bouncing back from December’s 4.6% plunge.
Construction spending rose a greater-than-expected 1.5% in January to the highest level since 2007, driven by public projects and non-residential activity. And the ADP Research Institute said that the U.S. economy added 214,000 jobs in February, topping the average forecast of 190,000.
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| Are the markets too gloomy? |
So what gives? Are the markets too gloomy? Is the data telling the truth? My best read, frankly, is “no.”
The deterioration in credit markets is widespread, severe, and persistent. The tightening of bank lending standards is getting more intense. The inability of policymakers to pull in the same direction is a major risk factor, as is the fact that countries aren’t substituting fiscal action for untested and potentially dangerous monetary “fixes” like negative interest rates.
Even the economic figures have some hair on them, if you take the time to look beneath the surface. The ADP report showed manufacturing losing another 9,000 jobs, and the ISM manufacturing index held below 50 for the fifth month in a row in February. That’s the longest stretch of readings below that level, which marks the dividing line between expansion and contraction, since the tail end of the last recession.
Pending sales of existing homes just fell by the most in any month since December 2013. And even the supposedly strong February auto sales figure missed forecasts, with the seasonally adjusted annual sales rate coming in at 17.5 million vs. estimates around 17.8 million.
Manufacturers needed to offer much more “cash on the hood” to move the needle, too. TrueCar research found incentives rose 11% from a year earlier.
At Ford Motor (F) alone, they reportedly jumped $530 per vehicle on average from February 2015.
Bottom line? I still believe a major credit market and economic turn is underway. That doesn’t preclude shorter-term rallies. Some of them will be vicious as that’s the nature of volatile bear market-style environments. And it doesn’t mean you can’t find some diamond-in-the rough investments.
But it does continue to suggest — as I have since last summer — that you should be cautious with your investing strategies.
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By the way, if you missed my recent webinar “Finding Profits as Markets Falter and Gold Soars,” don’t worry. I’ve arranged for the event to be posted on YouTube at this link. I think you’ll find it incredibly timely and valuable, given the fact gold prices just hit a one-year high and gold mining stocks just notched their best month since 1998!
As a reminder, the event also included noteworthy gold and market experts like Brien Lundin, Brent Cook, and Peter Schiff. So make sure you carve out a few minutes to view it online here.
Until next time,
Mike Larson
P.S. The death of the American dream is coming. Nothing will ever be the same again for you or for your family. The America we know and love will be no more. The fallout of this historic event will be horrific for the unprepared. It will trigger all-out panic — first in the U.S. bond market … and later in the stock market. It will destroy millions of jobs … sentence most Americans to a “dark age” of depression and poverty … send gold and silver prices careening higher … and push the U.S. government to the brink of collapse. Click here to learn how to protect you and your family in the upcoming crisis!
Recommended Articles by 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.
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The markets are always right. The data is not as wide and disperse.
The “American Dream” is actually returning…. Just as 2007 was 1929 and 2009 was 1932, the latest political/economic cycle is unfolding regardless of what Weiss believes…..
The Liberal Progressive cycle is returning to the scene as the American voters are awaking to the disaster of the 28 year Conservative cycle which began in 1980 and ended with another Stock Market Crash and a Depression….
A Progressive/Liberal will be President in 2016 and a Liberal Progressive Majority Congress will emerge, despite the billions the 3% are throwing in an attempt to keep their lackeys in office…
Look for GATT and NAFTA to be abolished, American Corporations returned to America, Glass-Steagall reinstated, the borders really closed, taxes on the 3% restored to Pre-Reagan levels, the deficit shrinking, American jobs returning and a Liberal Progressive appointed to the Supreme Court…
Then as from 1932 forward, the “American Dream” for the 97% will return, again….
Eagle495, I can only hope and dream that you are correct.
Books,
Classic Economic/Political Cycle history… Been going on in America since our founding….. Liberal Progressive Cycles roughly 50 years… Conservative Cycles roughly 30 years….. Markets soar under the Progressives and Crashes at the ends under the Conservatives, again and again and again….. Lincoln was a Liberal Progressive back when the Republican were the Liberals….. Liberals grow and Conservative destroy…..
Eagle 495……….your thesis is a pipe dream!
are talking to yourself, sawbuck?
Stop living an ideology and start looking for the truth.
Pick up a history book… And read it….
As I recall reading, from ’32-’39 depression continued, with an especially nasty downturn in ’37 after Roosevelt was re-elected. Stop reading your biased, democrap historical re-writes. $10 TRiLLiON in debt over eight years (by 2017), truly great leadership, putting Reagan to shame is Obama.
Nope…. The stock market bottomed in 1932 and headed up a lot. It pulled back in 1937, then resumed it’s climb…… Our Grandparents loved FDR so much they re-elected him 4 times……. The debt went parabolic up beginning with Reagan… Look at the charts and history books…… Do you work for the GOP? You guys would do better if you were to try telling the truth for a change
I spect this mornings job report is full of bullcrap and I got some ocean front property for sale cheap right in the middle of the desert southwest.!! (<:
Mule
You got that right, Mule. The Democrats “close the border”? Just the opposite….we will see 10s of millions of unchecked, illegal economic aliens flooding our country to take the few jobs available. And taxes? They will rise to the 90% levels that Bernie has promised. Forget your livelihood…..forget your savings…..BIG GOV will take it all. And law? One more leftist on the SC and your rights will be gone forever…including First Amendment, Second Amendment, and property rights. God save us.
If you do some research, you will find that the borders “Opened” under Reagan as a method to further destroy American Middle Class Labor jobs…… Then came GATT and NAFTA and the Glass-Steagall removal, all GOP initiatives…. Are you part of the 3%?
Eagle, you’re wrong about Glass-Steagall- it was Robert Rubin, Larry Summers and Alan Greenspan under Clinton who pushed that through with passage by a Democrat House and a Republican Senate. Likewise Clinton gave us NAFTA.
That is a lie… Do some research and quit taking what is on the right wing rags as gospel…
Go to Wikipedia and look up Gramm/Leach/Blyle…… They (All powerful Republicans) wrote the legislation to remove Glass-Steagall. Then every Republican voted to remove and a few Democrats… The GOP had a veto proof majority, but turncoat Clinton signed it….
Greenspan was appointed by Reagan.
On NAFTA, again, go to Wikipedia: It was written and passed by a Republican Majority Congress under H.W. Bush….. Turncoat Clinton participated in the “Formal” signing, but it was already law under H.W. Bush
Do your own homework if you want to know the truth, rather than believing the false GOP Propaganda from the “Liars Party”…… :(
Are you?
avg Americans already pay 50% taxes when combining FICA, income, property and other taxes; but unlike the social democracies in Europe, the bigger portion goes to keep a standing army n navy to attack others with, not to provide social welfare. Bernie has not promised anything like a top tier rate of 90%. Go check his website for issues and how he pays for his proposals. BernieSanders dot com
I agree debt and financial strength are serious concerns. But from my abode, the economy is booming like it was 2006-2007. Concrete trucks are everywhere, houses are being built all around and real estate prices have moved up sharply. Labor is in short supply also.
So, I believe this market has another leg up–after then I don’t know.
Yes Al everything is booming until as mentioned above the banks choke off all of this easy credit. Would not surprise me that the Fed will up rates again after reading the 242,000 new job numbers. They want to stick us with a couple more fast rate increase before this house of cards collapses. I will also make Obama look bad just at election time.
Where AI B., Colorado?
I agree with eagle 495 its time for a change and i say we need a man like trump who has the GONADS to change the current system some one needs to break up what is going on in this country big banks/ politicical bull sh–/ and the rich that run this country trump used his own money to me that says alot.i dont beleave that he can be bought. He couldnt be any worse than OBUMER GOD/GOLD/GUNS PLEASE PRAY FOR OUR COUNTRY
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Carl Icahn just took remaining equity in Trump Entertainment in bankruptcy court; I think Trump may be another NY shill just like Hillary, who knows how much he owes to how many others? but you are correct that the GOP elites are running with their hair on fire over his campaign and their loss of control.
Your statement that “The tightening of bank lending standards is getting more intense.” is a good thing. Banks and lenders in general allowed individuals with no or poor credit to participate in the lending industry demise of 2008. I blame “Madison Avenue” and the lending industry for promoting the “If it is there, I will buy it” syndrome of people wanting something they were not willing to save for and the easy money coming out of second loans on their homes to buy such “needs” as a new BMW. … If lending policy is tight, it should be based on both the lending industry and individual consumer track records. What ever went wrong with saving?
That is correct!
Mike,
I enjoy your analysis, and you write well. You make a consistent grammatical error that irritates the hell out of me, however. It is simple to learn to correct. Here it is, from today’s issue:
“I thought of it this week because of the crazy divergence between how the markets are behaving and what the economic data is saying.”
“Is the data telling the truth?”
Data is plural (the plural of datum) and requires a plural verb. The economic data are saying. Are the data telling the truth?
Please correct this error in your writing. I have many pressing things to do, but I have taken time out to write this note to you, so you can see how irritating it is to read this fundamental error by an intelligent, educated person.
Thanks.
Jim Henslin
Siiiiigh, here we go again. Jim, you may not be wrong but you are not correct either…Please see http://grammarist.com/usage/data/ for refutation of your position.
Also, please stop starting sentences with “And” which is verboten in English grammar as “and” is a conjunction, used usually in the place of a comma or semicolon to tie two thoughts together in a single sentence. In addition, the use of “And” at a start of a sentence is redundant, which clutters sentences and makes the thought following the use of “And” at the start of a sentence less powerful, declarative and/or clear.
The jobs report leaves more unsaid than it says. Of those new jobs how many are part time and how many are at the burger place? How many those jobs are the kind that allow the possibility of buying a house? I will admit my favorite brand is ‘on sale’. I I have often thought the stock market is run by Peter Pan and Captain Hook in Never-Never Land, and the stock brokers are the lost boys.
How many times have markets staged a big fake out rally just before a collapse? Think about it. On the other hand, they sometimes continue on up in the face of all kinds of negative news. Or down, when things seem rosy. At least for awhile. We certainly have reason for a “Wall of Worry” at this time. Keep your stops tight, and follow the trends – Up or Down.
big mistake, chuck. time to buy and hold. stocks are on sale. if they go down more, i’ll buy more.
Jim: You say tomato, I say tomaato… Mariam-Webster dictionary doesn’t agree with you that data is always plural. “Usage Discussion of data
Data leads a life of its own quite independent of datum, of which it was originally the plural. It occurs in two constructions: as a plural noun (like earnings), taking a plural verb and plural modifiers (as these, many, a few) but not cardinal numbers, and serving as a referent for plural pronouns (as they, them); and as an abstract mass noun (like information), taking a singular verb and singular modifiers (as this, much, little), and being referred to by a singular pronoun (it). Both constructions are standard. The plural construction is more common in print, evidently because the house style of several publishers mandates it.” Apparently it can be used as a singular noun. Sometimes there is more than one way to look at things, especially in the financial world.
There are 186 banks in trouble already and more to come. The market has always been impacted on oil. S how come the market is going up. The answer it is not. Wall Strret is in the hole about 6% YTD, Main Street is down 12% YTD, and forget the global problems. Corporations are misreporting their cash flow to get the numbers up the same as the government misrepresents the state of the economy with unemployment numbers instead of the ratio of working people to total people not working and paying taxes.
Your right Bill m its all a big shell game. Wages actually dropped a bit in this report. Wages prop up consumer spending. Consumer spending is 70% of GDP. The boomers are shrinking their spending and heading off into the sunset and the M’s want holidays, meals out and other instant gratification rather than houses with big mortgages and big car loans and numerous IT items. The M’s have to be nimble nomads in todays world the days of a good paying job with a future and benefits are long gone. If it does not fit into a suitcase they are definitely not interested.
I keep graphs on the market every night. When it looks like a real turn around and not a flash in the pan, I will be back in the market.
I would like to see what this refugee crisis from Syria is going to have on Germany the powerhouse of the European Economy.
Not to worry James C Angela M’s pension and benefits are secure. She can live with a bit of a tarnished legacy.
Things are getting better, My wife and I both got got raises for the first time in many years, many years, very many years. We are able to both pay down debt and save for retirement now. An extra 180 bucks a month (between us) makes a world of difference. 401K is just sitting 90% in cash, I can’t afford to lose that. I might need that money one day. One day very soon, However we both keep putting into our 401K’s. Market may crash again so I am some what cutting my exposer, to stocks or bonds. We both do retail, grocery store stuff, so even the smallest raise, means inflation might be happening. Which might be good, until I retire. So I’m still buying stocks in my 401K , However protecting my cash for now. Crash may or not happen. I’m waiting to go back in, however not today. You can’t trade in and out of a 401K, that has lost me and saved me many times. They don’t like you doing that. I don’t mind trading out at a new high, which losses you money, then buying back in at a new low, you only get to do that twice a year. The market is very hard to time, however if I had the option to buy an annunity for every 10,000 dollars in my 401K I would go that route. phuck all this up and down chit. All I want is to know how much I will have to pay my bills in the future.I’m 5-7 years from retiring, my wife is ! year away. I have done very well over the years, Actually not that well , however I always try to protect what I got. Last crash 2008 I traded everything before the bottom (401K) bought back in a little late, however had the money to get back in. Made to me a giant pile of money (just for me) I have a very small account. Like 11K to 27,000 over 8 years while still putting in and getting the company match. It worked for me. I just wish every for every10K, I had to option to buy an annunity, then not care about what ever the market does. I guess it would be a Mini-annunity. Do it 20 times over a life time might just be crazy enough to work, might not. Maybe every 1K Instant annunity for life Would work even better, or just buy dividend paying stocks, Which does not seem to work. I want to know how much and when, I need the saftey of Getting my money back, I would like the option of doing an instant annunity for life, I would have nore money to save money.
Presenting evidence of your good fortune (congrats, btw), as evidence that everything is great is known as anecdotal evidence. Doesn’t prove that things are better, which may be true. An exception doesn’t always prove a rule. Just saying.
You must NOT have been invested since 2009…… Same thing happened from 1932 forward….. A whole lot of right wing believers missed that rally also becasue they bought the GOP cool-aid then also
We are feeling the effects of Keynesian economics. The same philosophy as back during the depression and getting the same results. A good example is the amount of tax application deeds published in the newspaper both back in Michigan and also here in Naples. It tells me there is a lot of suffering going on when people are having a lot trouble paying their property taxes. You can’t believe what the government’s putting out. Bill
Negative Interest Rates on the way, I wonder where I should put my IRA account investments? Stock market?
Perhaps negative interest rates represenst the central banks of this world best option to stimulate investments, yet, then again, it may stimulate consumer spending. Hopefully, saving through investments will prevail.
After living on this planet since 1939, I can tell you Mike that human nature does not always follow what the “experts” say, no matter how many charts you may look at.
What are people doing in other countries where their money is not earning much? They buy American companies.
When American workers have money to invest in companies, which ones will get their money? Dividend paying companies, and strong companies. What will the banks do with all the money they hoarded from the money printing FED ? Invest it, not sit on it, and where? American companies because they are the safest at present. What will the 75 MILLION baby boomers do entering retirement but needing more income and financial safety nets? Invest in strong American companies, and almost 100% who pay dividends year after year.
Look at all the products that people need even in a recession. These companies will STILL hold up well, even Fast Food companies because people need to eat even in Recession times, but not at fancy restaurants where the prices are higher AND they need to pay a tip.
The ship will continue to sail, but not under full speed, just steady as she goes.
And another point, no matter who wins in November, Congress is still Congress, and no single President has the ability from where I sit, to sway anyone.
I agree Dick, that’s all fine and dandy (for the rich). Most ppl don’t have 1M minimum to buy high priced dividend paying stocks, even with 1M, you’re barely making enough income to survive.
looks like a good time to buy to me.
the ism pmi has bottomed. no recession in sight.
I’d like to say “Welcome” to whomever you are…. Nice to have a clear eyed optimist around all of these “Negative Nells, who spend far too much time listening to the Right Wing Screamers and not near enough time doing the Technical and Fundamental Analysis need for a successful investing and trading!… :)
I bitched and yelled when they took our real money away in 1965 that the lessons of fiat money in history would be realized. I thought the house of cards they have created would collapse much sooner. I’m in paid-for real estate that yields a solid 12% ROI and can weather any recession and am debt free.
Chico’s question was heard on TV’s “Dallas” as Sue Ellen quoted what she expected husband, JR Ewing’s, response to be, if she attempted to confront him about her having seen him with another woman.
The recent up run still looks uncomfortable to me. Why? I still can’t find any solid legitimate courses that can propel it to this level, especially when I apply it to reason out the miners. The only acceptable reasons could be short covering and the massive cash inflow from oversea. Hence, this up run cannot be sustainable. This led me to believe the move is a bull trap. Watch out folks, I hope I am wrong.
Wasn’t Martin looking for 31,000 on the Dow a couple months ago?