Is the most hated stock market bull ready to crumble?
By: Sol Palha
GoldSeek.com
Monday, 9 May 2016
A young man is a theory; an old man is a fact.
Edgar Watson Howe
The first answer that comes to one’s mind is yes, as this economic recovery has been nothing but an illusion. The unemployment rate might have dropped, but the way the BLS (Bureau of Labour Statistics) calculates this figure is questionable at best. They conveniently do not include individuals who have stopped looking for a job in their calculation. Mind you, many of these people stopped looking for a job; not because they no longer want to work, but after trying a countless number of times without success, they simply gave up and assumed they would never land a job. The majority of the new jobs created are low paying jobs and in many cases, they are only part time jobs. Many individuals are working two and sometimes three jobs just to be able to make ends meet; this is not a sign of an improving economy. Over 6.5 million Americans work part-time jobs, but all of them seek full-time jobs; before the so-called great recession, only 4.5 million Americans worked part-time and more importantly, we did not waste trillions of dollars trying to create an illusion that all was well. This money could have been put to better use, but it was not and the same will hold true going forward. Instead of trying to deal with the underlying issues, more money will be flushed down the toilet to maintain the illusion that things are not so bad.
The corporate world issues several signals that all is not well; more companies are cutting their dividends in a sign that all is not well on the economic frontier. However, an even clearly signal comes from the number of companies using stock buybacks to boost their EPS. None of the companies are going to state this in the open, but if you calculate many of the companies that have announced massive share buybacks in the past 2-3 years, you will notice that a large percentage of them would not make their earnings or appear to grow their earnings without these share buyback programs. This is why every year during this so-called fake economic recovery the dollar amount dedicated to share buybacks has risen and will continue to rise in the foreseeable future; it is the easiest way to boost earnings.
All these factors and more would lead you to believe that the market should have crashed long ago. However, it has continued to trend higher. The forces behind the market are divorced from reality. It’s hot money that is powering this market and will continue to power this market. This is why this is probably the most hated bull market in the history of all bull markets. The world is embracing negative rates and so that means that even more hot money will flow into this market. It will lower the cost of borrowing, and the corporate world will go on feeding frenzy once negative rates hit the US.
Thus even though logic dictates that this market is ready to crash and burn, it probably will not. We will witness extreme moves in volatility, and many will mistake strong corrections for crashes; Aug of 2015 and Jan 2016 are two such examples that had the bears and naysayers out in full force yelling that the world was about to end. We expect the markets to experience stronger and stronger corrections, the higher it trends, but this market will not crash until the masses are finally forced to embrace this bull market.
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