Amazing

"Sometimes it takes the worst pain to bring about the best change." - Anonymous

Today the US economy sputtered out truly weak employment numbers.  This was followed up with a 1.7% factory order contraction.  Neither should have come as much of a surprise but what is amazing is the recovery in the stock market.  Initially the market sold off almost 1.5% before staging a massive recovery and accelerating into the black on the basis of a rally in the NASDAQ.

What is amazing to me is that anyone is buying stocks at these levels and particularly in the face of weak economic numbers and a future that is looking increasingly weak.  I understand that the stock market is forward looking so it must be seeing a new round of quantitative easing coming as there is nothing that I can see that should spark a rally outside of the Ponzi scheme that is Federal Reserve money laundering.

Let's take a look at what the market faces from here; the weak oil prices will continue to put a lid on any growth out of that sector while providing some relief for the consumers, however with the weakness in the economy coming from the strength in the dollar layoffs should continue undermining the resilience of the consumer.  Furthermore China, Europe and Japan are slowing so limited growth can be expected from those regions.  Weakness will continue in emerging markets as the strong dollar is creating havoc with those financial markets and their access to capital; money is repatriated to the safe haven of the US hurting access to capital forcing governments to raise rates to protect their currencies.  Corporate earnings season is also about to start and we should start to see the impact of a slowdown overseas plus a strong dollar so I expect those to be weak. Finally margin cash is at an all time high so the ability to continue to buy stocks is limited.

With all of this bad news it certainly is a wonder that the market participants see a reason to buy but that is exactly what they are doing this afternoon.  Who cares about all of the above when you are convinced that the Federal Reserve will once again step in to rescue the poor and needy investment bankers.  The fact that after more than $4 trillion dollars of stimulus we are still grinding forward is of no concern to anyone it seems.  In fact the Federal Reserve is still talking up the coming interest rate hike and this is right after they voted 9 to 1 against raising rates at the last meeting!  Market strength is coming from the massively over valued bio tech sector so I guess market participants are finding a last banner of hope on which to fly their flags.  It is certainly working for now but don't get fooled.

Another interesting fact is that the government will spend nearly $4 trillion this year while collecting roughly $3.5 trillion.  These are records by the way.  Tax revenues are up 25% since the market crisis but our leaders have managed to increase their spending by 33%, way to go!  By now we should be firmly into budget surplus particularly when you are borrowing money at close to zero.  If interest rates were to rise we would quickly see this deficit balloon back into the trillions as the cost to the government of a 1% increase in borrowing costs is $200 billion.  Were we in a budget surplus position right now I would have to say stocks would be the way to go but with all of the above it is truly a marvel to me to see the market rally.

I guess I should not be surprised but even after all of these years it can still amaze me to see resilience fly in the face of reason but, more often than not, reason wins out.  So for now I will remain firmly on the sidelines and watch with amazement as the global experiment that is money printing plays its manipulative tune on the markets.