Thursday, April 30, 2009

News Flow Remains Poor, so Why Shouldn't Stocks Soar?

Chrysler is going under, almost 30 years after the Feds bailed the company out with a now modest loan guarantee.  Its impending bankruptcy is a testament to two major factors:
dysfunctional management-labor relations that pervaded the Big Three; and the over-financialization of auto purchasing, wherein auto companies became finance companies with unprofitable manufacturing facades.

In other negative news, the Commerce Department reported today that private wage and salary disbursements dropped $33 B in March on top of $29 B in February; these are seasonally adjusted annual rates.  This $62 B (annualized) two-month drop in wages and salary is a 1% drop.

There is massive human and physical overcapacity in the United States and in many other places.

With secure income on financial assets hard to find, riskier assets such as stocks and high-yield bonds have attracted positive cash flows.  

In the meantime, the $5.2 million salary hedge fund genius ($26 million annualized salary given his reported 1 day of "work" per week) Larry Summers continues to advise President Obama that a further massive wealth transfer from taxpayers to large financial institutions is necessary via PPIP, the $750 billion "placeholder" in the first Obama budget, direct Fed purchase of Treasury debt, etc.

The Federal Open Market Committee reported yesterday a downbeat assessment of the economy.  

We know in retrospect that the jobless recovery from the mild 2001 U. S. recession was spurred by a lunatic housing and commercial real estate boom.  That boom that at some point entered bubble territory was a continuation of a bull market in real estate that began in the mid-1990s and that initially was simply a recovery from the bear market in real estate that tied into the S&L mess.  Similarly, the tech bubble in the late 1990s was an excess that grew out of a real boom and real innovation.

Where is the ongoing positive industry trend, even one without innovation, which will underpin and provide a theme for and employment/investment options, a true economic growth cycle?

The answer is obviously none, which is why Econblog Review is skeptical of the prospects for a strong economic recovery.  Printing money only goes so far and then fails.

Currently, the major leadership in the stock market is the financial sector due to your money going straight to the banksters' pockets.  The canary in this coal mine, beyond all the obvious matters, may be Northern Trust (NTRS).  NTRS is perhaps the best-regarded TARP recipient, yet it needed to raise equity at a significant discount to its stock trading range.  Its stock chart had begun looking very promising, and in a typical bull market, you want to buy the leader of the damaged sector that would be poised for a bull market recovery.

If NTRS needed to sell below-market price equity rather than debt, bad news on JPM could follow.  This has been a scripted recovery in the financials created solely by the continuing alliance between Big Finance and Big Government, an unholy alliance which continues to drain America of its money and its spirit.

Copyright (C) Long Lake LLC 2009 

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