I keep hearing that whenever “stocks are rising” it’s a good thing.
I completely disagree. If a market move is warranted by earnings and fundamentals, then yes, a sharp move higher is great. But if the market is rallying based on false hopes, or even worse, is in a bubble, then it’s actually very bad for stocks to move higher because it means the ensuing collapse will be even more violent (a la 2000 and 2008).
With that in mind, this market has essentially moved up almost non-stop since December 2012. This entire move has occurred against worsening economic fundamentals.
While the cheerleaders on TV applaud this move, it’s important to consider the “big picture” for the economy and market as a whole. Here’s the big picture:
1) Earnings, the primary driver or prices, are falling. If you exclude financials earnings for the last quarter, earnings are down2.9% year over year.
2) Economic activity, the other driver of stock prices, has fallen too, leaving stocks diverging sharply to the upside.
3) The “smart” money is fleeing the market en masse (institutions, wealthy private investors, etc.).
4) The problems in Europe have not gone away. They’ve been shuffled under the carpet until Germany’s elections. But Spain, Portugal, and even Italy are rapidly descending into financial chaos and insolvency.
5) Japan massive experiment with monetary policy is proving to be a disaster with industrial production falling while costs of living are rising. Japan is skirting on the verge of financial collapse.
6) China is experiencing a hard landing, if not economic crash. If you look at their electricity consumption their GDP growth is barely 2.9%. Yet the entire world continues to believe the People’s Republic will produce 7% growth ad infinitum. Good luck with that.
Folks, there is no other way to put this… the markets are in a massive bubble. And when it bursts, things will get ugly very FAST.
For more market insights and commentary, visit us at:
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Best Regards
Graham Summers
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