Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is the Soaring Stock Market Hiding a Darker Truth?

Stock-Markets / Stock Markets 2012 Sep 26, 2012 - 06:17 AM GMT

By: Money_Morning

Stock-Markets Best Financial Markets Analysis ArticleWilliam Patalon writes: In my role as executive editor, I subscribe to dozens of newsletters, wire services, trade journals and news-bulletins. They roll into my e-mail box each day like an eight-hour-long avalanche.

Usually, I just open the ones that happen to catch my eye. One was this recent headline from a MarketWatch.com bulletin that said, "Dow closes at highest level since December 2007."


My first thought was that the bulletin should have said: "Dow closes at highest level since December 2007 - despite faltering economy, stubborn unemployment, accelerating inflation and the highest level of uncertainty we've seen in decades."

I guess they couldn't fit all that into the subject line box.

My second thought was that Martin Hutchinson was right - again.

You see, for the last couple of years the administration in Washington and the so-called experts on Wall Street have repeatedly told us that inflation isn't a problem. They continue to insist that the bailout plans and easy-credit policies that were used to end the financial crisis have yet to ignite the rise in prices that you and I refer to as "inflation."

However, in the Aug. 21 Private Briefing, Martin completely dismissed this Pollyanna point of view. There is inflation, he said. In fact, it's staring us right in the face - as a soaring stock market.

According to Martin, the "Real Dow" should be much lower.

Another Stock Market Bubble

With so much economic uncertainty - read that to mean, so much "risk" - there's no way stocks should be zooming like this, Martin said. The fact that they are is proof of a cheap-money-fueled "asset bubble" - a form of inflation, he explained.

The Permanent Wealth Investor editor also predicted that U.S. stock prices would continue their advance - especially if the U.S. Federal Reserve appeared willing to add additional stimulus.

And as the MarketWatch.com bulletin illustrated, that's precisely what happened.

Here's the thing: Now that "QE Forever" has arrived, this inflationary surge is about to get much, much worse.

Gold and energy prices have already muscled their way higher. Inflation at the consumer level won't be far behind.

"If the governments and central bankers continue to flood the world with cheap money, it has to translate into some kind of inflation," Martin explained. "We started with asset inflation. But my sense is that the transition from asset inflation to consumer inflation will happen very quickly."

This isn't just a U.S. phenomenon, either. The flow of cheap money is being felt worldwide.

European stocks have followed suit, recently hitting a 14-month high after a ruling by Germany's top constitutional court paved the way for ratification of a Eurozone bailout fund - a $640 billion contribution to the world's cheap-money club.

One upshot of all the stimulus, bailout money and below-zero interest rates is that inflation is starting to creep out in other places - as Martin also predicted.

For instance, China recently announced that inflation accelerated more than expected in August - even as industrial production slowed.

And that's not how inflation is supposed to work.

Traditionally speaking, inflation is supposed to be an outgrowth of a growing economy - either one where growth is accelerating much faster than expected, or one that's been growing strongly for an extended period of time. Either kind of growth leads to "bottlenecks" in the system, and boosts competition for limited resources - be it raw materials, labor or capital (money).

When demand for an item goes up, so does its price - which is inflation.

But now we're seeing inflation take hold as the economy worsens - which is the scenario Martin predicted.

Where Are the Jobs?

To see what he's talking about, just look at unemployment.

The American economy added 96,000 jobs in August - better than a year ago but an anemic number for a "recovery."

Washington points out that the U.S. unemployment rate has fallen dramatically from its recessionary peak up near 10%. But it seems to be stuck at a still-nagging 8%.

Indeed, of the 8.3 million jobs this country lost during the recession, only 43% have been recovered during the last 34 months.

Not only is the U.S. economy not getting healthier; despite a soaring stock market, it seems to be getting worse.

In a consumer-based economy like this one - which historically has derived 70% of its fuel from consumer spending - jobs are the oomph that make things go. Jobs create income. Income leads to spending. Spending fuels production. Production creates growth. Growth creates new jobs. And the circle starts again.

We've been telling readers for years - both in Money Morning and in Private Briefing - that the government unemployment statistics were bogus. And a new survey even calls into question what qualifies as a "job" and how the government defines "employment."

In a sobering new study, research consultant Gallup (of Gallup Poll fame) says Washington is dramatically overestimating the number of working Americans. You see, the Labor Department counts both full-timers and part-timers - including those who work at least one hour a week - as having "a job."

By that measure, the babysitter who watches your kids, or the college graduate who earns money walking the neighborhood dogs while he looks for an entry-level electrical engineering job, are labeled as "employed."

But Gallup says the quality of the job - and the security it provides - matters a lot, which is why it counts full-timers and not part-timers when it calculates its own employment rate.

Counting both full-time workers and their part-time counterparts, the government tells us the employment-to-population ratio here in America is an estimated 58% - the same as it's been for at least a year (since July 2011).

But Gallup's survey estimates that ratio is about 43% right now. About 41% of Americans were employed in 2011, and 43% in 2010.

Of course, "QE Forever" is supposed to "fix" all of this, but don't hold your breath. Six out of 10 market participants recently polled by CNBC say the central-bank initiative won't lower unemployment.

Martin agrees.

"Now you've got the problem of the U.S. economy being "de-capitalized' because you've got $1.5 trillion a year either flowing into the federal deficit or flowing out of the country [to pay our foreign debt holders], which means less capital for use in creating new jobs," he said. "That's not good news for U.S. workers."

This is an admittedly dour view. But you don't have to be one of the victims.

Because you understand how things are going to play out, you can take steps to protect yourself and your family - and even to profit (since there's a profitable side to every situation).

Hard assets and natural-resource investments are a must. Gold and silver investments are foundational holdings. Energy is key, especially since even "false-alarm" scares can ignite profitable spikes.

And look at income-generating strategies, starting with dividend stocks.

So with all of this inflation, what's the stock market really worth? You can see what Martin thinks by clicking here.

His answer will probably shock you.

    Source :http://moneymorning.com/2012/09/26/is-the-soaring-stock-market-hiding-a-darker-truth/

    Money Morning/The Money Map Report

    ©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

    Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

    Money Morning Archive

© 2005-2022 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