UPDATE: Stocks Near Record Highs as GDP Goes Negative

Editor's Note: We're back up and running with a new computer, after ten days of muddling through with three old Macs.

Wednesday was a pivotal day for US stocks as the government reluctantly reported that GDP shrank in the fourth quarter (remember, hurricane Sandy will be blamed for disappointing holiday retail sales) as defense spending fell by the largest amount in 40 years and inventory growth lagged.

The talking heads across the CNBC and Bloomberg networks blamed the "unexpected" decline of 0.1% mostly on the defense spending, a result of congress' inaction on the budget process and potential for sequester cuts to kick in shortly.

Federal Reserve officials, completing a two-day meeting, noted the economy had "paused" due to weather-related disruptions and other "transitory factors." Nothing like a Fed Open Market Committee that continues to furiously pump dollars into the coffers of the banks and keep interest rates artificially low calling climate change "disruptions" and employing the "transitory" verbiage to mask an incredibly weak nominal economy.

What is not so well hidden in the report is the lack of replenishment of inventories. Through the holiday season, retailers were adamant about reducing overhead, slashing prices and keeping costs to bare-bones levels, opting to wait until later to order new goods. The lack of confidence going forward exacerbates the slow "recovery" further, putting pressure on manufacturers (those few remaining on US shores) to cut prices and make concessions on delivery and payment dates and rates.

The setup is deflationary at worst, erratic at best, but continues to point up issues developing from the federal government's plan to kick the fiscal can down the road a bit further instead of tackling the nation's debt and deficit problems head-on.

As for stocks, they did an about-face after the Fed's afternoon announcement that they would change absolutely nothing, reiterating their intent to purchase $85 billion a month in MBS and Treasury issuance, the inflationary frontage against the winds of stagnation. The Fed also will keep rates artificially low, boosting home sales, but doing little for bank profits. Their attack on the monetary system continues to hamper business investment while inflating real estate through low interest rates. With no exit strategy in place, the only place the Federal Reserve and the government are kicking that can of deflation is directly into a brick wall of deflation and recession. The negative GDP print for the fourth quarter of 2012 is exactly what their policies will produce down the road, though the decline will be vastly greater.

It's important to note that with one quarter of negative GDP already on the books (though revisions will likely change that to a positive integer), another consecutive quarter in the red is the textbook definition of a recession. Regardless of whether the downturn is isolated in one or two areas, the overall picture remains clouded, manipulated and quietly desperate.

There's no good way out of a financial crisis, such as that which occurred in 2008, but the Keynesians in Washington have kept the plates spinning, frantically turning the sticks of quantitative easing and heavy-handed deficit spending. These policies have an end at some point, the question being whether the end will come by their own hands or be forced by the merciless invisible one of Mr. Market.

Optimists will point out - correctly so - that even though the economy is staggering along, it is still vibrant and productive. However, to think that corporate profits are a one-way street to the heavens is a folly on par with thinking the sub-prime housing bubble would never burst.

There's going to be a short-term pullback in both housing and stocks, both having been bid up too high, too fast, on artificial stimulus, a condition approaching that of 2005-07. While the near term cannot be characterized as horrifying, it is most certainly unstable and unsure, and profits will be taken at nose-bleed levels. The chances of a short duration correction are high, those of a cyclical turn to a bear market less likely, though the current bull is now entering its 48th month, worth noting that the turn in 2007, which led directly to a crash in the fall of 2008, was on the heels of a 53-week-long bull run.

Out in the fantasy land known as economic and stock market predictions, the sounds are of quiet groaning accompanied by squeamish forecasts of 2% growth in GDP for 2013 and an S&P ramping toward 1550. While the general public and regional economies twist in the wind under the thumb of higher taxes and tighter regulations, making business development a non-starter, Wall Street will continue to binge on the Fed's free money, the punch bowl that Chairman Bernanke will not take away, and the government debt will continue to be monetized by that same Fed.

Both of these conditions cannot continue indefinitely, but those in control continue to deny the possibility that anyone will feel any economic pain, no matter how slight.

Thus, it would not be at all surprising to see stocks continue to rise in the face of stagnant or deteriorating conditions in the real economy. Either the stock market wakes up to reality or the current bull trend will wind up being the longest in recorded history, all built on an inflationary bubble of the Fed's creation.

It is false to believe that these conditions can continue indefinitely. There is a price to be paid for every manipulation and falsehood presented to the markets and the fallacy of current policies suggests that the price will be enormous.

Money Daily Recovers from Computer Crash, Back to Normal on Thursday

Editor's Note: Money Daily is still recovering from its computer issue, but the new machine is in place and a complete report on what turned out to be an important day in the public markets will be posted tomorrow (Thursday) morning. We regret any inconvenience.

Dow 13,910.42, -44.00 (0.32%)
NASDAQ 3,142.31, -11.35 (0.36%)
S&P 500 1,501.96, -5.88 (0.39%)
NYSE Composite 8,904.32, -31.32 (0.35%)
NASDAQ Volume 2,031,129,750
NYSE Volume 4,042,243,000
Combined NYSE & NASDAQ Advance - Decline: 2182-4279
Combined NYSE & NASDAQ New highs - New lows: 494-27
WTI crude oil: 97.94, +0.37
Gold: 1,679.90, +19.10
Silver: 32.18, +0.993

Stocks Nearing All-Time Highs: Time to Jump In?

Yesterday, we posed the question whether this dull market could actually be a good thing, and answered with a qualified maybe.

It's maybe on a number of levels, ranging from time horizons to what kind of investor one is to what levels of risk one would be willing to accept to the high-end macro-view in a world with low bond yields, scary geopolitical events and the usual economic crises popping up every few years.

Today's action was anything but dull, especially for the bulls, who are enjoying one of the greatest months of January in market history.

Stocks have been up roughly 75% of the time, and, with only two trading days left, the smiles are wide from Wall Street nearly to Main Street.

The Dow is rapidly approaching 14,000, closing in on all-time highs, so just about anyone - from the casual investor in mutual funds to the heaviest of heavy hitters in the hedge fund world - who has taken the wild ride from the depths of 2008-09 to the present is flush with profits.

Those who have derided the sub-prime crisis and all subsequent crises as near end-of-the-world experiences (a view widely held on this blog), have been left with little to show other than a pocketful of gold or silver, maybe some real estate and other hard goods.

Not that there's nothing wrong with hard assets, but then stock are putting in 16% gains, like last year, one has to wonder just how long the Fed and the government can keep kicking the can down the road before everything blows up.

The best answer is that they can kick it as far as public perception will allow it. Owing a great deal to normalcy bias - in which one is comfortable with the status quo - the politicians and bankers have a huge advantage. The general public largely wants things to remain somewhat the same and they have and will put up with overly-generous swaths of greed, corruption and avarice, so the rich get richer while the politicians pay no price for their follies.

The point is that over the past four years, stocks have done quite well, and, if you've missed the move, well, hope is that you've done well elsewhere.

As long as the Fed is fixing policy at ridiculous levels, it might be prudent to wade into the waters of Wall Street, buy selectively, and hang on for the ride.

This is, however, the top of the run, though there's no guarantee that it couldn't run even higher, and, in fact, it probably will. That thinking runs contrary to the first tenet of wise investing: buy low, sell high.

The market is highly manipulated and leveraged, the politicians are tools of the bankers, but, they like stocks the most, so, it's a difficult call if going against the tide.

Bottom line is to stick with whatever strategy is working. If you're into gold or land or art or private placements, and it's working, stay there. But, if you have some play money, the returns on stocks over just about any six-month to one-year period in the past four have be easy money.


Dow 13,954.42 Up 72.49 (0.52%)
NASDAQ 3,153.66 Down 0.64 (0.02%)
S&P 500 1,507.84 Up 7.66 (0.51%)
NYSE Composite 8,935.64 Up 55.62 (0.63%)
NASDAQ Volume 2,052,649,125
NYSE Volume 4,198,815,500
Combined NYSE & NASDAQ Advance - Decline: 3759-2669
Combined NYSE & NASDAQ New highs - New lows: 459-17
WTI crude oil: 97.57, +1.13
Gold: 1,660.80, +7.90
Silver: 31.18, +0.404

Is This Dull Market Healthy?

Probably not, but maybe.

Money Daily is still experiencing computer issues, but a new computer is due to arrive by January 31.

Our apologies.

Dow 13,881.93, -14.05 (0.10%)
NASDAQ 3,154.30, +4.59(0.15%)
S&P 500 1,500.18, -2.78 (0.18%)
NYSE Composite 8,880.01, -24.51 (0.28%)
NASDAQ Volume 1,868,661,625
NYSE Volume 3,562,544,250
Combined NYSE & NASDAQ Advance - Decline: 3084-3392
Combined NYSE & NASDAQ New highs - New lows: 535-28
WTI crude oil: 96.44, +0.56
Gold: 1,652.90, -3.70
Silver: 30.78, -0.426

Stocks at Multi-Year Highs: Tide Detergent as Currency

The S&P closed today at it's highest level since the fall of 2007, a more than five-year-high, breaching the psychological 1500 level at the close of trading. That left the S&P with an eight-day winning streak, the longest since 2004, prompting claims by pundits and analysts that the market was just beginning a new supercycle bull market.

All snickering aside, a massive bull run on top of what has been one of the longest straight-up bull markets without a significant, sustained correction (46 months and counting), is a call that only the masters of the money universe on Wall Street could make with a straight face.

Whatever side of the trade you're on - and if you're short, you're dead - there's little doubt that four years of ZIRP and constant money printing by the Federal Reserve has finally yielded the desired results" a runaway risk asset market in stocks forcing forgetfulness about risk and the all-time high in consumer credit. The new bubble has been blown and American consumers are seemingly content to blow it until it bursts.

Coupled with the nascent recovery in housing, stocks as an asset class have proven the darlings of hedge funds, pension funds and evryone except the individual investor, whose memory still appears to be focused on the crash of 2008 and continuing uncertainty in the general economy.

Like it or not, however, Wall Street is enjoying one of the best runs of increases ever - not just this January, but throughout the four-plus years since the painful crash.

It's enough to prompt the fearful to get back in the game, though, with indices approaching all-time highs, it just doesn't seem a prudent entry point.

And, just in case you're not up on ghetto culture, laundry detergent - specifically Tide, made by Proctor & Gamble - has become the new currency of choice, a 150-ounce bottle redeemable on the street for $5 cash or $10 worth of weed or crack cocaine.

In the right circles, America's most popular detergent goes by the moniker, "liquid gold," and a crime spree of national magnitude has retailers locking down bottles of the stuff and putting additional security guards on patrol in the aisles.

Dow 13,895.98, +70.65(0.51%)
NASDAQ 3,149.71, +19.33(0.62%)
S&P 500 1,502.96, +8.14(0.54%)
NYSE Composite 8,904.53, +47.95(0.54%)
NASDAQ Volume 1,932,190,500
NYSE Volume 3,653,707,000
Combined NYSE & NASDAQ Advance - Decline: 3788-2649
Combined NYSE & NASDAQ New highs - New lows: 540-21
WTI crude oil: 95.88, -0.07
Gold: 1,656.60, -13.30
Silver: 31.21, -0.516