{"id":43031,"date":"2013-10-14T08:45:33","date_gmt":"2013-10-14T12:45:33","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=43031"},"modified":"2013-10-14T08:45:34","modified_gmt":"2013-10-14T12:45:34","slug":"stock-market-gone-mad","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/10\/14\/stock-market-gone-mad\/","title":{"rendered":"Has the Stock Market Gone Mad?"},"content":{"rendered":"

By Michael Lombardi, MBA<\/a> for Profit Confidential\"\"<\/p>\n

The stock market\u2026a place where rationality has been thrown out the door in favor of trading for immediate profits\u2026profits based on what the government and Federal Reserve are planning to do next. It\u2019s no longer a place for average investors to make money, as the fundamentals that drive key stock indices<\/a> higher don\u2019t really matter anymore. The notion has become \u201cIf it\u2019s good news, buy! And if it\u2019s bad news, then buy even more!\u201d<\/p>\n

We have been witnessing this phenomenon on key stock indices for a while now, and from my experience, such erratic behavior by the stock market usually comes at the end of a long up or down cycle.<\/p>\n

Congress had decided to \u201ckick the can\u201d of U.S. debt down the road a little longer. When news broke last Thursday that they were planning to increase the U.S. debt limit for a few weeks and then come back to debate it, key stock indices had the best day of the year. Look at the circled area in the chart below:\"\"<\/p>\n

Chart courtesy of www.StockCharts.com<\/p>\n

 <\/p>\n

Hold on a minute!<\/p>\n

Why did the S&P 500 jump so much on the Republicans saying they would put in a temporary new U.S. debt ceiling instead of debating it? Isn\u2019t increasing the U.S. debt load bad? After all, we are the biggest debtor in the global economy.<\/p>\n

Dear reader, this is the new norm on key stock indices. The bad news, meaning we will have higher U.S. debt, is taken as good news by key stock indices. And assets that should be increasing in value are actually being punished. Case in point: gold bullion prices.<\/p>\n

On a very basic level, I question all of this because it doesn\u2019t make much sense anymore. The euphoria has gotten to the point where all the stock market cares about is making sure the government keeps on with its reckless spending ways and that the Fed keeps printing money. In the long-term, we will pay dearly for this kind of thinking.<\/p>\n

So, we\u2019ve come to a point in the line where the stock market is only marginally dependent on the economic fundamentals (and the earnings growth of the companies that trade in it) and more focused on greater debt creation and continued paper money printing. This is not a good sign, and it cannot go on forever; hence, you can see why I remain so cynical and skeptical about key stock indices.<\/p>\n

Michael\u2019s Personal Notes:<\/p>\n

No one wants to hear this\u2026<\/p>\n

The most basic factor of economic growth in this country, consumer spending<\/a>, is flashing a warning sign about the U.S. economy.<\/p>\n

According to Gallup, weekly U.S. economic confidence for the week of September 30 to October 6 plummeted the most since the Lehman Brothers\u2019 fall in 2008. The index suggests consumer confidence is down significantly since mid-September, and it now stands at the lowest level since December of 2011. (Source: Gallup, October 8, 2013.)<\/p>\n

Unfortunately, Gallup\u2019s confidence index is not the only indicator suggesting consumer spending is plummeting. The Thomson Reuter\/University of Michigan\u2019s preliminary consumer sentiment index for October declined to 75.2 from 77.5 in September\u2014the lowest figure since January of this year. (Source: Reuters, October 11, 2013<\/a>.)<\/p>\n

And companies that are dependent on consumer spending are seeing a downtick in sales. Take The Gap, Inc. (NYSE\/GAP), for example. The company reported a decline of three percent in same store sales for the month of September. In the same period a year ago, the company\u2019s same store sales were up three percent! (Source: The Gap, Inc., October 10, 2013.)<\/p>\n

I\u2019m not shocked at all when I see statistics that show consumer spending is getting weaker and weaker. In fact, I have been writing about this issue for a while. Consumer spending in the U.S. economy is in jeopardy\u2014all the indicators are suggesting we have more chances of seeing it decline than seeing a robust move to the upside.<\/p>\n

And that brings me to the essence of today\u2019s message: Retailers in the U.S. economy are not going to have a robust holiday season. Even if we are able to see some increases in consumer spending, it will be because of deep discounts being pushed by retailers\u2014the same scenario we saw played out during the back-to-school shopping season.<\/p>\n

What\u2019s next?<\/p>\n

Our economy is based on consumer spending, accounting for about two-thirds of U.S. gross domestic product (GDP). Those who are hoping for a turnaround in the U.S. economy have to really think again.<\/p>\n

What He Said:<\/p>\n

\u201cYou\u2019ve been reading my articles over the past few months and have seen how negative I\u2019ve become on the U.S. economy. Particularly, I believe it\u2019s the ramifications of the faltering housing sector which is being underestimated by economists. A recession doesn\u2019t take much to happen. It\u2019s disappointing more hasn\u2019t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn\u2019t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.\u201d Michael Lombardi in Profit Confidential, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Michael Lombardi, MBA for Profit Confidential The stock market\u2026a place where rationality has been thrown out the door in favor of trading for immediate profits\u2026profits based on what the government and Federal Reserve are planning to do next. It\u2019s no longer a place for average investors to make money, as the fundamentals that drive … <\/p>\n

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