There is a growing probability that we are going to see a big market sell off soon.
The market is being held up by the Federal Reserve. That’s the only reason why this market is going as high as it is.
Did you see Microsoft and Google’s earnings last week? Not good. Not only that, but we had Detroit go bankrupt last week!
You might be thinking, “What about the Moody’s upgrade last week Lance?” Think about it. At a time when entire cities are going bankrupt, Moody’s upgrades the U.S. credit outlook. In a twisted sort of way, that’s actually funny. Remember that Moody’s is the same credit rating agency that rated mortgage backed securities AAA just before the biggest market meltdown in modern history.
The only reason that the stock market is going up is because of money printing and bond buying (including mortgage backed securities) from the Federal Reserve.
The stock market is not going up from earnings season. In fact, at the start of the year, the second quarter earnings season was forecast to have earnings growth of over 8.5%. Instead, we’re coming in below 3%. In fact, the street is calling this “The Season of Lowered Earnings Forecast”.
The stock market is not going up from a forecast improvement in the U.S. GDP. The GDP forecast for 2013 was cut by more than 1% last month! Rumor is the U.S. will be lucky to hit a 1% GDP growth for 2013.
The stock market is not going up from job growth. The headline number said that the U.S. economy added 190K+ jobs last month. The truth is, over 210K full-time jobs were lost in June. The reason the headline jobs number was up for June was because the government counts part-time jobs with the same importance as full-time jobs. If one full-time job is lost, and a part-time job is added, that’s being counted as a new job. But it’s not. Employers, to avoid ObamaCare, are cutting full-time employees to 30 hours and hiring a new part-time employee to work the other 10 hours. Should the 10 hour part-time job really be counted as a new job? I don’t think so.
The reason the market is going up is because the Federal Reserve is printing money and pumping it into the economy.
The Federal Reserve’s monetary base is growing at 30%, the M2 at 5%, and check out the M3 chart below.
By printing all this money, savers are being destroyed. People who are saving money are being punished. Rates are being kept so low by the Fed that savers are not making anything by saving and worse, the prices of everything are slowly going up so they actually have less money. The only way to get a half-way decent return on your money is to gamble it in the stock market. That’s why the stock market continues to go up folks.