Is Reality Catching Up With The Markets?

From Zacks via Townhall

Growth – What Growth? – Ahead of Wall Street

Thursday, February 14, 2013

Hopes of economic rebound both in the U.S. as well abroad have pushed stocks to new highs, but ground realities haven’t caught on with the soaring sentiment yet. We now have data showing that GDP growth in the entire developed world – Europe, Japan, and the U.S – was in the negative territory in the final quarter of 2012. ….

Fourth quarter GDP reports from Europe this morning show that region’s collective economy contracted more than expected in the final quarter of 2012. This is the third straight quarter of negative GDP growth for the region and the fifth since the region has had any growth. Even Germany, the region’s core and engine, and France were not immune from the forces pulling the region down. The pain in Italy, Spain, and Portugal deepened from the preceding quarter.

The consensus expectation is that the region’s economy will start stabilizing in the second half of the year and produce a modest growth next year. There is some evidence to suggest that the German economy could get out of its slump in the current period, but conditions appear to be worsening for the rest of the region. The outlook for France is definitely not getting better and political instability in Spain and Italy threaten the reform gains of the recent past. The Spanish prime minister’s fast dwindling political capital limits his ability to implement the tough austerity measures demanded by Germany. And the growing popularity of Silvio Berlusconi in the coming Italian polls threaten the reform gains under the technocratic Mario Monti government. Bottom line, the region’s outlook is far from satisfactory. And that’s a major headwind not only for Germany, but also for China and the U.S.

The realities of the global economy may well catch up with the markets, but, I think they’ll be in a holding pattern until the next quarter news.  China is having their own reality check.


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22 Responses to Is Reality Catching Up With The Markets?

  1. DirkH says:

    “The realities of the global economy may well catch up with the markets, but, I think they’ll be in a holding pattern until the next quarter news.”

    S&P500 and DJI have stalled for 2 weeks now. Expect serious breakage RSN.

  2. DirkH says:

    Wal-Mart JUST tanked!
    “”In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company…. That points to our competitive landscape, which means everyone is suffering and probably worse than we are””

  3. Latitude says:

    The Economist Mag has been hammering this for months…..we’re in deep doodoo…worldwide

  4. tckev says:

    The smoke and mirror economic models that EU, US, and Japan has been using is slowly moving full cycle. Lack of confidence, decline, unemployment, stagnation and inflation…
    So who’s turn is it to ride in on the white charger and save everyone?

  5. DirkH says:

    And as if by magic the DJI closes 0.06% plus; S&P 500 -0.1% …. NO MOVEMENT. Are these markets fixed or what.

    They DID allow Wal-mart to close 2.15 % in the minus though to make it look like there was still a market…

  6. Bruce says:

    I’d be cautious gentlepeople. I had a conversation with a guy a couple weeks ago, an ordinary retired man who’d been a teacher. We got talking on investments and he described that around Christmas he’d switched his nest egg from interest bearing deposits to shares “because interest rates have gotten too low”. His words, as I recall them. Presumably his income was painfully falling. He was very happy because our market has risen strongly since then.

    I suspect there is a lot of this quietly going on with the fundies rotating out of their positions only for ordinary people jumping into the rising market and soaking up the slack.

    With Bernanke trying to concoct exactly this behaviour I suspect the market will rise longer than you might expect.

    Note that what is considered an acceptible forward P/E is being re-rated due to dividend paying behaviour. Here in Oz where dividends have tax advantages over capital gains our largest bank announced a lift in interim dividend of 20% (!) in their half yearly report last week. Taking full year that means the dividend rate is about 6% even now after the shareprice run up – before the tax incentives, which take it to 9% gross (this is only available to Oz taxpayers though). The bank is rated AA-. There’s only a literal handful of banks in the world rating higher.

    I doubt whether Bernanke’s steroid injections will turn a dead donkey market into a racehorse, but the interest to dividends switch he’s been wanting is happening right now. Remember the moron army who voted for Obama? Well the ones with money are your problem. When they turn from worried about their investment income to scared about the end of the world (again), THEN the crash’ll come. Meanwhile anyone shorting the market will do their dough, or had anyone noticed what happened to the gold price this week?

    • suyts says:

      Yes, interest rates are crap, so people move their money elsewhere. But, sooner or later, all of this will catch up. The Wal Mart quote Dirk provided is pretty disquieting.

    • Bruce says:

      Yeah I read that earlier myself at ZH. Those stealth payroll tax rises are having an impact, and Obamacare is probably hurting too in insurance costs.

      This is why I was surprised Boxer would submit a carbon tax for vote. The Dems would know that their base are alarmed.

      • suyts says:

        Neither Boxer nor Obama are very bright. Obama thinks his re-election was a mandate for more taxing and spending.

        • Gary Meyers in Ridgecrest, CA says:

          Well, lots of the people who voted him in pay no taxes! They have no skin in the game, so why not raise taxes on those rich racist republicans? They are the ones who stand to gain with all of the “free stuff”.

        • suyts says:

          It’s true that many wish for that ……

      • cdquarles says:

        Actually, it wasn’t stealth. It was a temporary tax holiday. The statutory rate was never reduced, only the withheld rate. The accounts were still being credited at the ‘old’ rate for SS purposes, even though the effect was to reduce the SS ‘Trust’ fund income (made up for by more Treasuries, this time not held by SS but by the Fed). Everyone knew that the holiday would end (the sunset had been postponed before, but everyone knew it would end, particularly if O won on ‘taxing the rich’).

        • cdquarles says:

          That reminds me, was the ’employer half’ reduced when the ’employee half’ withheld was? That is, show me where FICA was reduced from 13.5% to 9.5% by statute. I know that the self-employed got a ‘break’ from the full Social Security FICA because they paid in full, visibly, or was that changed from what I remember from my younger, business owner, days.

    • DirkH says:

      Bruce says:
      February 15, 2013 at 5:47 pm
      “I suspect there is a lot of this quietly going on with the fundies rotating out of their positions only for ordinary people jumping into the rising market and soaking up the slack.

      With Bernanke trying to concoct exactly this behaviour I suspect the market will rise longer than you might expect.”

      Greater fools and their money… Market currently running out of greater fools… Stalling… 0.1% up per day… So now one nervous drop, 2.3% down in a day or so can wipe out the gains of a month. Good luck with that.

      • Bruce says:

        Yeah, but POMO had a week off this week. Or a Friday off at least. When the market falls a bit the POMO button will get pressed hard again. He’s trying to get his soufflé to rise just right.

        Also someone foreign is maybe rotating to stocks from Treasuries, which cracked the terrible terrible 2% number. Or maybe just buying them instead of Treasuries. Probably our Chinese friends again, who have been trying to buy anything that isn’t nailed down from Oz to Africa.

        Stocks aren’t the only thing which can go pop. The bond bubble could float a deckchair to Mars at the moment.

        • DirkH says:

          Yeah ok, you might be able to find a greater fool in hapless Europeans or whatever. Our media is so bad it thinks Obama has a clue, that includes Handelsblatt and other major papers. But Handelsblatt is also warmist, so I think they’re the next ftd (financial times Deutschland, arch Euro-socialist warmists in Hamburg, collapsed a few weeks ago). So when you have a few hundred million Europeans that you can feed with make believe like that some of them might even buy US stocks now that the bull market has already run its course.

          After all Europeans also bought all the sub prime CDO’s.

  7. kim2ooo says:

    What does it mean?
    Will this be the light that causes people to take notice?

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