The second quarter of 2013 ended with a bit of trading turmoil. Stocks were down, up, and then down again. Gold was down, down, and then up. Market interest rates were down, up, and then even.
Through six months the Dow Average is up 14%; 15-51 strength lost 11%; gold, along with all the talk about it, dropped 27% while the 10 year T-Note has quietly gotten clobbered; the yield has risen 41% so far this year. See chart below.
That’s the first two quarters of activity this year; and now that we're at the midpoint of the year, right around the corner is another earnings season. This is of great interest.
Last time around there was general consensus among corporate executives that the second half of 2013 would be worse than the first. Now just one small step away from that second half, their projections should be more accurate this time around. This provides great insight into future stock market movements.
Years roll by in quarters, and since investors generally invest for an increased future value, the future is always at play in the stock pricing dynamic. Revisions are part of the game. For instance, the performance of a stock in any given year is determined, to some extent, by the activity and performance of the underlying company in that year. Once at the midpoint of the year, only six months are left to achieve the company’s annual objectives. As a result, estimates for the year are usually fine-tuned, enhanced, and/or adjusted around the midpoint of the year.
That time is now.
The process of revision happens at every level of reporting. In fact, just this week, and as the second quarter of market activity officially ended, its predecessor, the fiscal 1st quarter of 2013, stole the news. GDP was revised down to 1.8% from the previous estimate of 2.4%. This is a significant adjustment for a third revision, no doubt, but it doesn’t change the economic picture in any major way.
The problem with the economy from the very start and ever since has always been unemployment. Fractional adjustments to GDP are minor and of little consequence. The problem is that way too many people are still hurting badly and unable to find work. In a recent article entitled, Some Unemployed Keep Losing Ground, the Wall Street Journal reports that almost 12 million Americans remain unemployed – a stunning 4 million more people than when the recession officially began in late 2007. That, by itself, is enough to cause economic lethargy – let alone the trillions of dollars central government has wasted for this not to be the case at this stage of the game.
Government waste is a drain on economic wealth and prosperity.
Also in this week’s news, it was revealed that officials from all the largest banks in the U.S. presented restructuring plans to the Federal Reserve should another "crisis" occur. While indeed banker input is required to handle such a dilemma, this news sounds too much like the inmates running the asylum to me. I mean…
Why are banks planning for disaster instead of planning that disaster never again happens? – and wasn’t Dodd-Frank supposed to stop any such crisis from ever happening again? – and before that, wasn’t Sarbanes-Oxley supposed to avoid the very same disaster?
There’s so much regulation on top of regulation that it is paralyzing American businesses, and more importantly, its financial system. Bankers are planning for disasters instead of charting courses of economic growth and prosperity. And as an FYI, planning for failure is not sound management – it’s cover your ass politics.
To fully appreciate this and the poor state of governmental affairs one needs to look no further than the Vatican. Remember, newly elected Pope Francis came to office with a promise to clean up the scandal plagued theocracy and religious organization. His election was just a few months ago. And now, this short time later, three arrests have been made for money laundering connected to their sovereign bank.
The poor state of money and market governance extends to every political corner.
Let’s step back for a moment.
If banks are planning for another catastrophe then only one thing is certain: the possibility of another crash is likely. Banks by and large know all too well, as the Fed does, that options are extremely limited the next time shit hits the fan in the financial industry. Debt-to-GDP ratios are well over 100% all over the world, fiscal waste and corruption is prevalent everywhere. And with massive amounts of new currency already in the system, excessive additions to money and debt wouldn’t be tolerated during the next disaster without a severe rise in interest rates. This would cause calamity in world markets, most notably the Euro – and it scares the Dickens out of American bankers and world governors alike.
Money problems bring about societal problems, hence the increased number of revolutions occurring throughout the under-developed Nations of the world. Those places, where free and fair elections are in short supply, resort to violence to change policy because it seems like their only choice. Dictators simply don’t leave office easily. And so rebellions rise.
Indeed, all regions and countries have their own way of turning things around. The Vatican has their way, and the Middle East has theirs; Europe has hers, and America has ours. How rarely, though, are these rebellions ever caused by something other than fiscal mismanagement and government corruption.
The global condition for Markets remains under severe pressure. Economic activity remains stagnant or shrinking, debt is ballooning, and monetary value and interest rates are moving in opposite directions.
Perhaps that's why some are planning for the next disaster.