Last week, the market jumped almost 100 points when ADP indicated the jobs report wasn’t going to be good, but it wasn’t going to be that bad either. When the Bureau of Labor Statistics issued their jobs numbers a day later they were abysmal — essentially no jobs were created. Also, almost a half million people left the work force. There was simply no good news anywhere.
Hence, the market fell even more than it had gained the day before. Of course, you would think it would have fallen far more given the enormous negative magnitude of the report.
However, the market rallied later in the day in part because a report on consumer borrowing came out showing that consumers were borrowing more. Wow, what a relief! Consumers are going more heavily into debt — that’ll save us!
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However, the market completely ignored the news that trading in the largest Italian bank, Unicredit, was halted due to massive selling, which was part of a general meltdown in the Italian stock market that week, which dropped over 7 percent.
In addition, the Spanish market lost over 5 percent last week. Interest rates on government bonds in both countries soared. Contagion from Greece is clearly spreading to Spain and Italy.
If Greece is bad, problems in Spain and Italy are catastrophic. Greece is an insignificant economy. However, Italy and Spain combined produce almost a third of the euro zone’s GDP.
Did the stock market even notice? Not even a blink.
Is the stock market absolutely nuts? Absolutely.
So, what’s a nuts market to do in the face of bad economic news here and even worse news in Europe? Come up with a new mantra! This was a favorite occupation during the Internet bubble. Lots of mantras to try to explain the craziness.
When the bubble first started to pop it was simply a movement by investors from business to consumer (B to C) oriented companies to business to business (B to B) oriented companies. Then when it continued to pop, it was simply a move toward path to profitability (P to P). And, then finally it was an investment move toward internet infrastructure companies. Of course, these were just mantras. All that was happening was that the Internet bubble was popping.
What’s the new mantra now? A bad economy is good. That’s right.
High earnings are due to cost-cutting by companies. Hence, that’s bad for the economy, but great for profits. Of course, this is nonsense but it works great as a mantra.
Here’s another mantra: If Congress actually comes up with a deal to cut the deficit, it will likely have few short-term cuts and mostly long-term cuts. Given that we have just increased our borrowing by $1.2 trillion since 2007, even cutting the INCREASE by $200 billion isn’t very impressive. But, the mantra will be that we’ve turned in the right direction and the problem isn’t short term, it’s long term and hence, that’s where the cuts should be. Again, more nonsense, but a great mantra.
Who knows if a truly ground-breaking agreement will be reached, but I’ve got the mantra ready just in case.
Obviously, I am gunning for the job of Chief Mantra Maker for Wall Street. It’s a lot of fun. Wall Street thinks it’s a lot of fun. And, it’s certainly a lot more fun than doing hard-nosed analysis of the U.S. and world economies that are showing some significant problems.
Defending mantras is easy. It’s all sound bites and if anybody really starts to pound in on it, you just move to another mantra to explain a market that's absolutely nuts. I know how this works and am pretty good at it.
Tell me if you see any job openings.
About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $120 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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