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Markets day to day until election

Media reports and the speculators game that is the stock market continue to amaze:

Dow up on euro zone bailout hopes!

Greece may break away, but euro zone to survive! Dow soars!

Wall Street is bullish again with Spain good news!

Bernanke says Fed is prepared to act!

With all the manipulation they experience, markets stopped being a true gauge for publicly-owned companies’ health a long time ago.

Some companies are still carrying a little more debt than they’d like, but many of them are sitting on pretty substantial stockpiles of cash, too.

Drops in the market should be taken with a grain of salt.

That is, until after November’s presidential election.

It is very much in the current administration’s best interest for the Dow, NASDAQ and S&P to remain at good levels. The Federal Reserve (Fed) being “prepared to act,” signals there is no way the market will take consistently precipitous drops between now and November. If it does, it might cost the current administration the election—they need these indexes at investor-confidence levels, as they are the one piece of the economy that still looks good–at least on paper.

You say investors drive the market and I agree to a point, but institutional investors make up the majority of those who play on Wall Street. They are the ones who do most of the daily buying and selling.

Ma and Pa Main Street typically have the bulk of their stock market investments tied up in their 401ks, which never should have been jammed down our throats as traditional retirement pension fund replacements. These 401k vehicles are not retirement funds, subject to speculation, are at any given time at the mercy of market conditions and can be decimated, if not completely wiped out, when said market conditions suddenly deteriorate. You work hard all your life, invest in 401k’s and may not have much to show for it should your retirement come at a time of loathsome market conditions.

The housing piece of this puzzle is less controllable by the federal government than the stock market. Banks do the lending, and I use that word lightly, as last time I checked, banks are still not lending all that much. Since most of the job growth that occurred during our last bull run from 2009 to recent days was in the government sector and has been pretty much maxed out with many states running huge deficits, we’ve looked to the private sector for job creation now. The problem with this is small and medium-sized businesses cannot get loans they need to expand, from the same banks that are hamstringing the housing market comeback by being stingy with financing.

So to partly summarize to this point, I would suggest housing and employment can continue at even less than pedestrian rates, but the stock market must perform at above average levels if the current administration has any chance for reelection.

In order for this to be the case, the Fed has to be prepared to act!

Ben Bernanke did not tip his hand earlier today for what course of action the Fed will take when it meets next, June 19-20.

As long as the Dow continues to flirt at or above the psychological threshold of 12,000, things will be considered good. And things being good, the Fed will sit on its hands come the nineteenth, finding little need to dig into their toolbox and sprinkle magic elixir on the economy in the form of additional stimulus.

If they deem further stimulus necessary, it won’t be called quantitative easing (QE III), either. It’ll be called something else. This is where good marketing and public relations come into play. Different adjectives and nouns are like a salve when it comes to selling the American public a bill of goods.

Many citizens do not want the Fed further purchasing bank financial assets with newly printed money, whatever the Ben Bernanke gang calls it. The gang knows this as well, and unless the markets hemorrhage losses between now and June 19, the pronouncement at that time will be something akin to, “although developments in the European arena continue to pose significant risks to the U.S. economy, at this time, the economy is still growing, albeit slowly, and further stimulus means will not be implemented. We will continue to monitor the economy for signs of weakness, and will remain ready to take whatever actions necessary to keep the economy growing.”

We now return you to my earlier mention of publicly traded companies, their cash flows and their not hiring…

These companies are as healthy as they’ve been since before the 2008 Lehman Brothers crash—both on paper and in reality. A lot of them are consistently posting great earnings reports.

Why are they not hiring?

One reason (among many), quite possibly, is the stock market bubble we’ve inflated by flooding our capital markets with fresh dollars since that crash, is not sustainable. CEOs understand that another harsh correction in the near term is not out of the question and so have put the brakes on any expansion plans.

Another reason is, like housing, many of these companies remain overvalued and aforementioned CEOs know in their heart of hearts this to be true. Can you say Mark and Facebook?

They will hang on until November, though.

Then things get interesting.

 

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