With the S&P 500 gaining on its March high we have to wonder if the cyclical bull market is in the midst of another upleg. Short answer: fat chance. Long answer: what do I know? Let’s deal primarily with the short answer as for those familiar with these writings, the long answer doesn’t require much explanation.
First off, any good market hypothesis must include considerations of the opposing viewpoint so let’s get the bullish factors out of the way first. Here they are:
You used to hear it all the time in the 90s: it’s the new economy, man! Endless prosperity and boundless new highs in the stock market were ours to enjoy forever. That is, until reality rode back into town right around the year 2000.
Those days have long since passed so I’m here to welcome you to the NEW new economy. Don’t ask me what it is because I don’t know. But that’s OK, because no one else knows either. You see, the rules have changed, only no one is quite sure how. What we do know is that things have gotten really, really weird.
Forget about market fundamentals: P/E ratios, debt ratios, earnings, blah blah blah. Forget about technicals: Double-tops, support, resistance, who cares? Those concepts were relevant in the good old days, but not in our super-duper never-a-bear-moment, new and improved 21st century government/central bank managed and manipulated market.
That’s right folks. I’m talking about market manipulation and I’m here to tell you that the idea is no longer the exclusive domain of wackos and nutjobs like me. Market management has become so blatant, so undeniable that even Stephen Roach of uber-mainstream Wall Street firm Morgan Stanley recently wrote “I am not a believer in conspiracy theories. But the Fed’s behavior since the late 1990s is starting to change my mind.”
Ford and GM bonds on the verge of “junk” status. Consumer price inflation “surprisingly” high. And just when you thought our trade deficit didn’t really look like that of some South American banana republic, it hits another record high.
Yes folks, as the smiling gentlemen in D.C. will rush to assure you, these are the makings of a healthy expansion, and solid, albeit “measured” economic growth. Everything remains on track as rampant speculation in real estate by the gluttons for punishment who didn’t quite lose enough in the collapse of the stock market bubble (but will soon have what’s left of their heads handed to them on a platter) make quite clear.
I submit to you, dear reader, that most everything you’ve heard about the economic recovery is a pack of lies, a fraud, a joke, propaganda, twaddle and fiddle-faddle, sprinkled with a liberal dose of bullpucky and a pinch of hogwash for good measure.
Now that we’ve gotten the niceties and formalities out of the way, let me share with you how I REALLY feel.
Have you noticed? Stocks are falling. Oh, not enough to give the bulls nightmares at this point. Perhaps it’s just another dip in the eternal bull market, yet another buying opportunity. On the other hand, there’s a very good chance that recent weakness is signaling the end of the cyclical bull and re-emergence of the secular bear.
While the overall trend remains upward, cracks that began to appear some time ago continue to grow wider. A glaring divergence between the Nasdaq Composite and the other major indices tops the list.
It’s been an interesting week so far and one that may very well herald a major turning point in the U.S. financial climate. Stocks got battered after failing to penetrate the cyclical bull market high, copper surged to a new 14-year high, gold had its largest one-day advance in some time. And flying well below the mainstream radar, the CRB Index of commodity prices broke out to a new bull market high, its highest in decades.
Fascinatingly enough, while the prices of just about everything continued to surge into the stratosphere, the dingbat mainstream financial press worked overtime to assure everyone that prices aren’t actually rising. The “tame” CPI report “edged up a TINY 0.1%” we’re told. Energy costs “went down significantly” (someone ought to tell $51 crude oil which apparently doesn’t read the CPI data). According to official reports, it was merely a “small increase” and inflation “remained very much under control.” Tame tame tame!
In case you haven’t noticed, the stock market hasn’t done all that much this year. After a very promising late-2004 rally petered out right from the opening bell at the first crack of 2005, we’ve mostly been working our way back to even. It hasn’t exactly been an awe-inspiring market and if January is any indication, (some say it is), the rest of the year doesn’t promise to be much better.
We’ve talked ad-nauseum about the imbalances in the market and the U.S. economy. We’ve talked about the overpricing of stocks, the record deficits, the lack of savings, the credit bubble, the trade deficit. And yet despite all of our talking, the market obviously isn’t all that convinced of the potential threats. Does the market know better?