Deranged Lab Rats
The stock market has regained all of its loses year to date as economic indicators continue to flash red, corporate profits continue to plunge, consumers continue to spend less at retailers, real wages continue to fall, and housing sales continue to decline. The entire dead cat bounce has been generated through corporate stock buybacks, Wall Street lemmings trying to make up for their terrible year to date investing performance, and central bankers who will stop at nothing to verbally manipulate markets higher – since their monetary machinations over the last seven years have been a miserable failure in reviving the real economy.
As John Hussman points out, the market is poised to deliver nothing over the next decade, with a 40% to 55% “dip” in the foreseeable future. I wonder how many barely sentient, iGadget addicted, non-questioning, normalcy bias dependent zombies are prepared for a third Federal Reserve generated a market collapse in the last 15 years?
From a long-term investment standpoint, the stock market remains obscenely overvalued, with the most historically-reliable measures we identify presently consistent with zero 10-12 year S&P 500 nominal total returns, and negative expected real returns on both horizons. From a cyclical standpoint, I continue to expect that the completion of the current market cycle will likely take the S&P 500 down by about 40-55% from present levels; an outcome that would not be an outlier or worst-case scenario, but instead a rather run-of-the-mill cycle completion from present valuations.
The only people who can’t see the recession in front of their noses are central bankers who are paid to lie, obfuscate, and mislead; corrupt politicians trying to get elected or re-elected; and media pundits whose job is to keep the sheep sedated with positive propaganda and a never ending stream of trivialities and drivel. The average person has been experiencing a recession for the last eight years, with stagnant wages, rising living costs, no return on their savings, and rising taxes. Now, even the manipulated government economic statistics can no longer hide the true deterioration as Hussman describes.
From an economic standpoint, recall that economic deterioration typically follows a well-defined sequence, with weakness in what I call the “order surplus” (new orders + backlogs – inventories) followed by deterioration in industrial production (which retreated again last month) and by real retail sales (which have declined for two consecutive months), then real personal income (which is the next measure to watch here), and typically followed only then by weakness in employment indicators. Nothing in recent weeks has changed our assessment of an imminent likelihood of recession, though as I’ve regularly noted, the immediacy of that expectation would be deferred if our measures of market internals improve significantly. Though employment is a lagging indicator, we would still watch for an increase in weekly unemployment claims above roughly 330,000, a decline in aggregate weekly hours over a 3-month period, and an increase in the unemployment rate to about 5.3% or higher to confirm the actual start of a recession.
The central banker action plan of monetary easing, negative interest rates, printing trillions of new fiat, currency debasement, and buying the bad debt of the criminal banking cabal, has not improved the lives of average people living in the real world. They have improved the net worth of the .01% who rule the world. They have succeeded in making the ultra-rich ultra-richer.
They, without a doubt, have made the lives of senior citizens far worse, the lives of middle income working class families ghastlier, and the lives of millennials just entering the workforce debt saturated and hopeless. Their deranged machinations have set in motion a global collapse which will make 2008 look like the stroll in the park on a warm spring day.
Consider central bankers. For the past several years, global central banks have pursued increasingly deranged monetary policies, creating massive distortions in financial markets. It’s easy to point to these effects on the financial markets, as Bernanke, Kuroda, Draghi and other central bankers have emphasized, as evidence that central bank policy is “working.” What we, and others, have found, is that all of this deranged monetary policy has raised the level of GDP, industrial production, and employment by barely 1% from what would have been expected in the absence of these interventions.
It appears the sole purpose of these psychopathic central bankers is to talk up financial markets. Nothing else matters in this warped world of the financial elite. Dick Fisher, former Dallas Fed President, in a moment of truth, revealed the Fed purposely injected the stock market with heroine and cocaine in order to stimulate gains. Now they’ve created an addict. They need ever increasing doses to be satisfied.
The ruling lords of the plantation reap the short term high while the lowly slave peasants reap all of the pain, withdrawal symptoms, and ultimately death. As Hussman points out, even the vaporous benefits have a shorter and shorter high, as the markets are so ridiculously overvalued, the savvy insiders sell into every false rally. Meanwhile, Goldman and their fellow Wall Street co-conspirators sell to their muppet clients, just like 2008.
On January 29, a week after insisting that a move to negative rates was not under consideration, Bank of Japan Governor Harohiko Kuroda announced a rate cut to -0.1%. On February 18 he reiterated that the BOJ was prepared to ease further. He wavered on that stance at the end of February, but shifted again last week, saying that a move to even deeper negative rates was possible. Meanwhile, facing economic erosion in Europe, Mario Draghi came out on February 15 saying “we will not hesitate to act.” He followed on March 10 with his “bazooka” including a rate cut to -0.4%, an increase in the pace of QE, and a broadening of ECB purchases to include investment-grade, non-bank corporate bonds. On Wednesday, Janet Yellen announced that the expected pace of Fed rate hikes this year was likely to be slower than expected, as a result of weak global economic conditions and widening credit spreads.
Aside from a one or two-day knee-jerk response, these moves have had a very little sustained impact on the equity markets. Japan’s Nikkei index is down about 5% since the day after Kuroda’s rate-cut announcement. The Dow Jones EuroStoxx Index is also down since the day after Draghi’s bazooka. One suspects that the response of the S&P 500 to Yellen’s dovishness will be similarly short-lived though we need not rely on that. Given the continued sequence of erosion in economic measures, central bankers continue to point to the financial markets as evidence that their policies are “working.” Now even those effects have become unreliable.
When global markets logically got off to a horrendous start this year, based upon plunging corporate profits, consumers no longer able to support consumption based economies, governments collapsing under the weight of immense levels of bad debt, war raging in the Middle East, plunging oil prices due to a global recession, currency devaluation wars, and civil chaos spreading around the globe, the central banker alarm was sounded by the global ruling elite. Save us!!!
The imminent 50% plunge in global stock markets would put a crimp in the lifestyles of the rich and famous. They needed time to unload their holdings on the dumb money and go short before letting the house of cards crash down again. You can smell the desperation of the deranged central banker lab rats as they frantically push the bar for more stock market gain pellets. But, the number of pellets is dwindling rapidly. Time is running out.
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