Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21
Scan Computers - How to Test New Systems CPU, GPU and Hard Drive Stability With Free Software - 4th Jun 21
Hedge Funds Getting Bullish on Gold - 4th Jun 21
THERE ARE NO SOLUTIONS When the Media is the VIRUS - 4th Jun 21
Investors Who Blindly Trust the ‘Experts’ Will Get Left Behind - 4th Jun 21
US Stock Market Indexes Consolidate Into Flagging Pattern – Watch For Aggressive Trending Soon - 4th Jun 21
Microsoft (MSFT) Stock Trend Analysis - 3rd Jun 21
No More Market Bloodbath – Beyond Cryptos - 3rd Jun 21
Bank run, or run from the banks? - 3rd Jun 21
This Chart Shows When Gold Stocks Will Explode - 3rd Jun 21
The Meaning Behind Gold’s Triple Top - 2nd Jun 21
Stock Market Breakout Or Breakdown – What Does The Next Big Trend Look Like? - 2nd Jun 21
Biden’s Alternate Inflation Universe - 2nd Jun 21
What You Should Know Before Buying Car Insurance - 2nd Jun 21
Amazon (AMZN) Stock Summer Prime Day Discount Sale - 1st Jun 21
Gold Investor's Survival Guide - 1st Jun 21
Silver and Copper to Benefit from Global Electrification Push - 1st Jun 21
Will Gold Shine Under Bidenomics? - 1st Jun 21
Stock Market Buy the Dip, Again?! - 1st Jun 21
Stock Market Consolidation Ahead - 1st Jun 21
Stock Market Summer Correction Review, Crypto CRASH, Bitcoin Bear Market Initial Targets - 31st May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Rally, Doing the Maths

Stock-Markets / Stock Market Valuations Oct 16, 2009 - 03:37 AM GMT

By: StocksBuddy

Stock-Markets

Best Financial Markets Analysis ArticleThe early part of the rally in the US began with a "Hope" that things will get better as days progress. In the subsequent days/months, almost all of the media, news channels and websites were inundated with news such as "Better than expected" which drove and is still driving the market higher. What is this "better than expected" and the math beyond this is what we intend to analyze here. You will be really surprised to see "The Math".


Stocks jump after better news on unemployment

Stocks soared to new highs for the year Friday after investors got reassuring news from the employment front. The Dow Jones industrial average rose 113.81, or 1.2%, to 9,370.07 after the government said unemployment fell for the first time in 15 months in July. Employers cut 247,000 cuts, much fewer than expected. The Labor Department also said the unemployment rate dropped to 9.4% from 9.5% in June. Economists forecast the rate would rise to 9.6%.

This is like a "Rewind-Play" of the same statement, "Employers cut FEWER jobs than previous month", so stocks will rally as it suggests recession is ending. This is the MOST ridiculous statement to come out from the media. Why? Let us explain with an example. Let us say Intel has 100000 employees.

Owing to the downturn it starts cost-cutting measures when it first realized that economy was going down the drain. Let us say it was December of 2008, Please check the table below. Dec 08 - 5000 Jan 09 - 5000 Feb 09 - 4500 Mar 09 - 4450 Apr 09 - 3500 May 09 - 3300 June 09 - 3100 July 09 - 3000 Aug 09 - 1000 Say the same continued further.

However, if you carefully look at the pattern you will see something that is "Just pure commonsense". And what is that? Initial panic triggered the highest layoffs. Then the intensity of layoffs reduced considerably. By about August, there wasn't anymore layoffs possible because that would result in Intel completely closing the shop. Because those are the bare minimum folks that are needed to keep the current projects and work going.

Does that mean things are getting better. At least the whole market, news channels believe so and forced everyone to believe. But even a layman looking at the above can easily figure out that this is all hype and no meat. Just because the number of layoffs reduced doesn't mean things are getting better. Actually, it is even worse.

If Intel is STILL laying off even a 1000 employees after 7 months of consistent layoffs it clearly suggests that Intel is unable to sell their products and make any money. To keep the shareholders happy, they are cutting costs further so that they can show profits. In essence, the 5000 that were laid off in December don't show this pathetic face of Intel when compared to the 1000 that were laid off after 7 months of consecutive layoffs. This company is unable to even pay for it's employees all these months. In short, this is the story of Corporate America right now. If you are STILL seeing layoffs, regardless of the number, that means things are actually getting worse than getting any better.

The same is the case with GDP. GDP Numbers for the last few quarters

Gross domestic product -0.7 1.5 -2.7 -5.4 -6.4 -0.7

The above are the GDP numbers ending in Q2 of 2009.

Personal consumption expenditures -0.6 0.1 -3.5 -3.1 0.6 -0.9 Exports -0.1 12.1 -3.6 -19.5 -29.9 -4.1

If you look at the numbers above you will realize that almost ALL of the GDP growth that is shown came from EXPORTS. Voila. What does this suggest. CLEAR DEFLATION. Why? Nothing is moving within the US. So how to fix it? Devalue the currency so exports can increase and that reflects in GDP growth and shows a much better view of the US economy which in fact is NOT growing or improving. Bottom line is that the picture that is being shown to us via News Channels and media is just purely incorrect.

Yes, GDP is NOT shrinking as much and is potentially growing but that is NOT because US economy started growing but purely because of exports. Once $$$ starts strengthening, you will see massive downside of GDP if just not the revisions.

Conclusion: The "Better than expected" mantra that has propelled the Stock Market seems to be working ONLY on ONE aspect, Sentiment. Investor and Public sentiment has just reversed the course from being 90%+ negative to 90%+ positive. May be this whole 8 month exercise was just to do that. But again, what happens when reality strikes? We will be looking at 4th quarter of 2008 all over again.

Source : http://www.stocksbuddy.com/blogs/?p=9717

http://www.StocksBuddy.com

India's No.1 Trading Community From the desk of StocksBuddy.com Analysts comes the above article. SB Analyst team comprises of experts from varied fields such as Technical Analysis, Fundamental Analysis, Macro-Micro Economics, World Affairs, Currency and much more. Apart from user contributions, our analysts post analysis on StocksBuddy.com on a regular basis. For more details, please visit us @ http://www.stocksbuddy.com/blogs

© 2009 Copyright StocksBuddy - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in