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Will the “Least Loved” Bull throw a “Taper Tantrum?”Gary Dorsch It’s been dubbed the “Least Loved” Bull market in history. The US-stock market rally is now 57-months old, and over this time period, the S&P-500 index has climbed a “wall of worry,” rising +170% from its March 9th, 2009 low, and hitting an all-time high, above the 1,800-level. But only this year, did it begin to earn the grudging respect of smaller retail investors. They’ve plowed $175-billion into equity funds so far this year, after withdrawing $750-billion in the previous six years. The “Least Loved Bull” now ranks as the fourth biggest percentage gainer in history. If it can manage to avoid a -20% swoon over the next three months, it would become only the sixth Bull market to celebrate its fifth birthday. It’s managed to accomplish this impressive feat, amid the weakest US-economic recovery from a recession since the 1930’s. Since President Barack Obama took office, the pre-tax profits of Corporate America have doubled to $2-trillion per year. However, for Middle America, disposable income adjusted for inflation, has declined. The Median household income fell to $51,404 in Feb ‘13, or -5.6% lower than in June ‘09, the month the recovery technically began. The average income of the poorest 20% of households fell -8% to levels last seen in the Reagan era. Higher paying jobs lost during the “Great Recession” are being replaced by lower paying, or part-time jobs in the Obama recovery, which hurts the middle class. Hourly pay grew by just +2% /year, on average, for the past 4-years, the weakest 4-year stretch. According to the latest data from the Census Bureau, the US has already passed the tipping point and is now officially a welfare society. Today, more Americans are receiving some form of means tested welfare than those that have full-time jobs. No, that’s not a misprint. At the end of 2011, the last year for which data are available, some 108.6-million Americans received one or more form of welfare. Meanwhile, there were just 101.7-million people with full-time jobs, including both the private and government sectors. The danger is the US has already developed a culture of dependency. No one votes to cut his own welfare benefits. Thus, the vast wealth on Wall Street hasn’t trickled down to Main Street. Instead, shareholders reaped the rewards of increased profitability, at the expense of workers.
Federal and state governments have spent a combined $5-trillion on various welfare programs over the past five years. However, that pales in comparison to the Fed’s handouts to investors on Wall Street. US-equity values have increased $14-trillion over the past 57-months. Across the Fortune-500 companies, the average chief executives pockets 204-times as much as that of their rank-and-file workers, that’s disparity is up +20% since 2009. Perversely, the compensation of the S&P-500 chieftains is often linked to the ruthless slashing of jobs and wages in order to increase the companies’ profitability. In theory, that boosts stock prices, and CEO’s collect about 90% of their compensation through the exercise of stock options. The widening gulf between the struggling masses, and soaring corporate profits, CEO pay and the stock portfolios of the Ultra-rich - is the result of policies being carried out by central banks and their political masters around the world for the benefit of the financial elite. This year, the Fed is printing $85-billion every month to buy Treasury bills and mortgage-backed securities. Similar measures are being carried out by the Bank of Japan. The European Central Bank, and the Bank of England are keeping their lending rates pegged near zero percent to support the banking Oligarchs. This coordinated policy is intended to channel speculative funds into the stock markets, inflating share prices, while, state treasuries are saddled with even bigger debts, and leaving the working class to foot the bill. US Stock market Tracking MZM Money Supply, - On Wall Street, the Nasdaq-100 index is +32% higher compared with a year ago, and is trading at its highest levels in 13-years years. The S&P-500 index is +27% higher, enjoying its best year since 1998, even though S&P-500 company profits are only +4.5% higher than a year ago, on average, with revenues up just +3%. Small-caps, whose fortunes are largely linked to the US-economy, outperformed the Multi-national large caps by a large margin. The Russell-2000 index soared +35%, its best year since 2003, and is trading at 75-times its 12-month trailing earnings, while the US-economy is on pace to generate growth of around +2.3% for 2013. Furthermore, the money-minting Bull market has gone 790-days without a correction of -10% or more, – ranking as the third longest streak ever. Since 1928, there have been 94-corrections of -10% or more, occurring 322-calendar days apart, on average. Many traders suspect the Fed is clandestinely buying stock index futures on dips to enable the market to defy the law of gravity. Still, no matter how profitable, popular, or resilient – the Bull market won’t live forever. The average lifespan of a Bull market is 58-months, as in four years and ten months, which will be reached next month in early January. Of the 5 Bull markets that made it to their fifth birthdays, they posted gains of +21% in Year Five, on average. Traders need to keep their fingers on the pulse of the aging Bull as it enters its retirement years. Nobody rings a bell to let everyone know when to run for the exits before the Bull eventually dies. However, the most common causes of death for Bull markets are well-known, such as (1) overvaluation - when stocks are selling at dangerously high price-to-earnings ratios. (2) “A can’t-lose, stocks-can-only-go-up” mentality also signals market mania and trouble ahead. Other Bull-killers include (3) the onset of economic recessions and job losses, frequently preceded by a sharp rise in interest rates. (4) Less frequent are unexpected events with shock value, known as “black swans,” like war in the Persian Gulf, which rattle investors. Over the past few years, whenever the stock market suffered a -5% pullback, traders didn’t panic. Instead, they figured the Fed would ride to the rescue, with the “Bernanke Put,” by injecting more of the performance-enhancing and life-sustaining QE-drug. The Fed’s massive injections of liquidity – funneled into the coffers of the Wall Street banks, were a shot of adrenalin that artificially inflated the stock market, and bypassed the vast majority of Americans. There is also the invisible hand of the Fed, through intervention in the stock index futures markets that provides a safety net for the financial aristocrats.
Traders began to notice the US-stock market performed better and suffered only short-lived pullbacks of -5% or slightly more, - lasting about one month from peak to trough. The stock market then took about two months to recoup its losses. While the Fed was inflating the high octane MZM Money supply +$1.3-trillion over the past 1-½ years, to as high as $12.2-trillion this week, the combined market value of NYSE and Nasdaq listed stocks increased +$6.5-trillion to an all-time high of $24-trillion. That’s a super charged beta of 5-to-1. Belatedly, the small retail investor began to recognize that the stock market is ruled by the Fed, not by fundamentals. Everyone wanted to jump on the QE bandwagon, especially after super-dove Janet Yellen was anointed as the next money printer in chief at the Fed. The Fed has turned the rules of the game - upside down, making bad economic news a reason to buy stocks, and good economic news a reason to sell them. Good news is construed as a reason to sell stocks, if traders think the Fed might use the data as an excuse to scale down the size of its QE injections. For example, the Dow Industrials dropped -700-points in mid June, after Fed chief Ben “Bubbles” Bernanke hinted at winding down its money printing operation. In simple terms, what matters most to the stock market is the easy money flowing from the Fed, and to a lesser extent, the profits and buybacks of the listed companies. On Nov 12th, Dallas Fed chief Richard Fisher admitted, “We’ve changed and impacted the markets because of our intervention and I understand there’s sensitivity, but markets should also bear in mind that this program cannot go on forever.” However, what matters most, is not what is actually the case, - but what traders believe is the case, and how they choose to act on that thinking. It doesn’t necessarily need to be true to matter; sometimes, it just needs to be believed by enough people. In the case of Bernanke, Yellen and Chicago Fed chief Charles Evans – the widely held belief is that their hard core addiction to QE is unshakeable, - as is the unrelenting pressure from the White House to monetize the Treasury’s debts. To read the rest of this article, please click on the hyper-link located below: http://sirchartsalot.com/article.php?id=184 ### Dec 4, 2013 321gold Ltd |
