Earnings season is upon us and stocks haven’t moved. Even so, the average is still inflated, strength is around fair value, and gold remains dormant.
The Federal Reserve made news this week, again, about clarifying its public message regarding the termination of QE. More and more this Federal Reserve looks scared and uneasy about the Market condition it has created. Yields remain elevated and poised to move higher because of it. Below is a year-to-date-chart.
Scuttlebutt surfaced this week about who will replace Ben Bernanke as chairman of the Federal Reserve when his term ends in January 2014. It appears that President Obama’s decision has been narrowed down to two monetary doves: former Obama administration executive Lawrence Summers and Federal Reserve Governor Janet Yellen. Neither are good strong dollar choices, as neither advocates fiscal responsibility and monetary restraint.
These conditions benefit the future value of gold.
When central government gets too big it fails too many parts of the market economy, and ultimately, their widespread mismanagement causes some kind of collapse – be it economic or political, or both. This can be seen in almost every facet of the global marketplace.
The Affordable Car Act (ACA) – a.k.a. ObamaCare – has proven to be the disaster we all expected it to be. Many of the main pay provisions (mandates, fees, and penalties) have been delayed for one year and are now planned to go into effect on January 1, 2015. If the ACA is so good then why the persistent implementation delay? It’s a cowardice act to say the least, as it’s easy to give away things when the next administration will be the one responsible to pay for them.
Poor politics continues to corrupt future Markets.
The government’s new healthcare program, while not much in effect, continues to affect the current labor market. Reported employment gains, while not good by any measure, are being skewed by the large number of people taking part-time jobs because they can’t find full-time work. The growth in half-jobs is a direct effect of the healthcare law, as companies are sidestepping coverage mandates by minimizing hours to employees (see: WSJ on-line article, July 14, 2013: Restaurant Shift: Sorry, Just Part-Time).
This is not a sign of growth, strength, or prosperity. Instead it’s a sign of austerity and diminishing returns.
Government regulation is shrinking the market, and while this is mostly bad, it’s not all bad. Amid more accusations of market manipulation and corruption in commodities like energy and gold, JP Morgan is the latest big bank to pursue removing itself from the commodity market. Under pressure from Federal regulators, Goldman Sachs and Morgan Stanley are also looking for buyers for their commodity businesses. Good. Any limitation in their market scope can be nothing but welcomed in the "too big to fail" condition.
But for all the regulation (i.e. Dodd-Frank) and all the monetary tricks (i.e. QE) implemented by federal governors looking to "protect" us, We the People get more corruption, waste, and Market distortion than anything else.
While little market benefit is being realized, rays of sunlight continue to sprinkle in. Besides robust earnings by most large U.S. banks, Well Fargo recently replaced the Industrial & Commercial Bank of China as the world’s top bank. Though any American market leadership is good news, it quickly gets dampened when news breaks that Congress remains baffled about their ownership and divesture of Fannie Mae and Freddie Mac. Like with so many other issues, central government appears not to know what to do and how to maneuver through the forest of regulations that they created (see: WSJ on-line, July 23, 2013, Fannie-Freddie Fight Goes Beyond Politics).
A confused central government is not good for economic vitality.
Indeed, there have been some positive reports in this earnings cycle: besides the banks, Boeing put forth a very strong quarter in the face of multiple Dreamliner disappointments, and Ford posted solid numbers. Scattered in, again, are some disappointments: AT&T profits fell 2% and Apple largely disappointed amid stiffening global competition that is eroding their once dominant innovative edge. Apple needs something new to take the market by storm or it is bound to become the next Microsoft.
The overseas story hasn’t changed much either. The Euro Zone held off a recent bailout payment to Greece until the country showed more fiscal restraint – there’s still a lot of trouble over there. China, in a signal that its fiscal position isn’t as strong as the world thinks, has recently issued an emergency audit of its government debt load. Add to this serious and escalating pollution problem that is affecting their ability to feed their 1.4 billion citizens, China is proving not to be the panacea propaganda has lead some to believe it is.
The civil war in Syria continues to threaten Middle East stability and clashes in Egypt are adding more fuel to the regional fire. While Iran’s new moderate leader is looking to throttle back hostile rhetoric towards the West and their destructive nuclear ambition, one must question: Is it too little too late in a vast sea of despotism, hatred, and violent objective – or can Iran lead the cause in dousing the flame of international jihad? I hope for the latter.
Mixed messages are certainly plentiful in this market – and that causes uncertainty. That said, valuation becomes a key investment question: What is the status of markets, stocks, and gold?
Markets remain extremely manipulated; stocks are over-valued, and gold is fair.