Great Depression Online Archive Issue:

The Stock Market was Duped

Great Depression Online
Long Beach, CA
March 09, 2010

Inside This Issue You Will Discover…

*** Getting Back to Square One
*** No V-Shaped Recovery
*** The Stock Market was Duped
*** And More

Getting Back to Square One

Stocks were up last week while last month’s unemployment rate was flat.  What does this mean?  Let’s explore…

First, the latest unemployment report…

“The unemployment rate in the U.S. held at 9.7 percent in February,” reported Bloomberg. 

Not up, not down.  Yet some took this as reason to celebrate…

“Today is a big day in America.  Only 36,000 people lost their jobs today, which is really good,” said Senate Majority Leader Harry Reid last Friday on the Senate floor.

~~~~~~Energy Opportunities~~~~~~

The U.S. Department of Energy finally agrees: We’re running out of oil – FAST!  …and it’s creating a world of opportunities for investors.  The DOE now admits that, for the first time ever, we have just crossed a critical oil threshold: worldwide, we now consume more oil than we can produce.  The DOE numbers show that we’ll run short of oil sooner than anyone thought.  And they leave no doubt that the era of cheap oil is drawing to a close.

What You Can Do About It   

~~~~~~~~~~~~~~~~~~~~~~~~~

Sure 36,000 jobs amount to just 0.4 percent of the 8.4 million jobs that have vanished from the U.S. economy since December 2007, but the numbers are still moving in the wrong direction.  We consider this to not be very good at all.  In fact, even if the economy begins creating 100,000 jobs per month, it will take 7 years to get back to square one before the recession.

Where will 8.4 million jobs come from?

Who knows?  But we’re confident they won’t come from government stimulus, rebate programs, or other public make work schemes.  Moreover, the underemployment rate, which includes people who want to work but have given up looking, rose to 16.8 percent from 16.5 percent.

Wall Street seemed to be listening to Senator Reid…

No V-Shaped Recovery

Following last Friday’s Labor Department report market’s soared.  The S&P500 jumped 1.4 percent…closing the day at 1138.  Looking back at recent market movements we noticed something significant developing.

On January 19th, the S&P500 reached an interim high of 1150…before dropping back to 1044 on February 5th.  Since then it has rallied back to spitting distance of 1150. 

Are we witnessing the establishment of a new market base that the next big bull run will springboard off of?  Or is it a topping pattern that will be followed by a big drop?

Only time will tell…but here are some reasons why it’s likely the latter…

Credit’s still tight, incomes have declined, and asset prices have collapsed.  Even with massive monetary and fiscal stimulus from the Fed and the Treasury, high unemployment, tight credit, and stagnant wage growth will limit the much hoped for V-shaped recovery. 

Yet the stock market’s 12-month rally has been predicated upon this very assumption…an assumption that’s proving to be false.

The Stock Market was Duped

The stock market’s a forward looking animal, they say.  A year ago it looked off into the distance and saw ultra-low interest rates and government stimulus rescuing the economy and saving it from sliding into the abyss.  The stock market also gazed out upon the economic frontier and saw the real economy finding its footing…and corporate earnings growth driven by increased revenue not just cost cutting measures.

All previous recoveries since World War II have been led by housing and consumer spending, and supported by expanding credit.  Currently, bank loans and consumer credit are down.  Thus the housing market and consumer spending will not lead the recovery.

So what does the stock market see now?

Here at the GDO we’ve watched investment markets long enough to know they don’t do what’s expected, what’s logical, or what’s sensible.  Moreover, they often do the opposite.  Still, we cannot resist venturing a guess.

We suspect the stock market’s view of the future is a bit murky at the moment.  But we believe several facts will soon become painfully clear…

The stimulus has exhausted itself and the stock market was duped.  The recovery’s a fraud.  Soon greed will give way to fear and the next leg down of the bear market will be upon us.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Every year the Department of Energy published its International Energy Outlook for the purpose of forecasting energy supplies 20 years into the future.  In the 2009 edition, the numbers paint a bleak picture for the future of cheap energy.

According to the U.S. Department of Energy’s own estimates, 2009 is the last year the world will ever produce more oil that it consumes.

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