Two weeks ago I said coming into the week the theme was "upon further review" and I'm still not sure about the economy and economic data. Sure, we skirted and averted a double dip recession last year because we have an economy that is already built to last. But, the stock market is soaring in a way that speaks to an economy that isn't crawling out of the abyss but winning Olympic medals. Last week the narrative shifted from the need for corroboration to a wink and nod that makes reality irrelevant. Ben Bernanke has made it clear he's going to keep his foot on the pedal even as gas and food prices soar.
Ben Bernanke needs the market to be parabolic, he needs home prices to reverse and needs money to seep out of banks and grease the wheels of commerce. It's a dangerous game that has never come out nicely once it's gotten to a certain point, and we are near or past that point already. Investors came to grips with the notion the fix is in and this ride goes on for a long time. As a result, bond yields exploded to the upside, rising 26 bps to 2.29% last week. The stock market was up again, and even the transportation sector outperformed after trailing all year long, adding extra doubt on the rally that still has attracted a horde of investors.
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Maybe that changes with the public relations campaign by the general media which is working overtime to make our economic circumstances look great or work its counterfactual magic and make our economic circumstance look better against a hypocritical situation. This week's Economist cover's call: "Crikey, Ginger! Can it be...The Recovery?!!" ("Crikey" is a British expression for surprise or anger"). The cover of Barron's is calling for a rebound in home prices. It truly is happy days being here again- at least for those in the economic brackets that read The Economist or Barron's. And to be sure the economy is improving, but is it rocking in such a way those stocks should be on autopilot.
I think it's a moot question—for now. Stocks are higher and win if economic data is better (bolsters fundamental argument) or if economic data stumbles (means more Fed action in the works). In fact, last week there was a big dip in consumer confidence and a surge in prices for producers. But the storyline for stocks was the stress test and how robust banks are—they led the way. Of course the passing grade and huge stock buyback announcements and dividend hikes mean more pressure on these banks to lend more. This is what Bernanke wanted to happen, and so the hoarding is over and the money will rain upon us.
Grab the cash and get in the game but understand it is a game. Until there is a cease fire in the war on business, a full recovery will not happen. There will be no cease fire. In fact, the administration is reloading. The biggest amount of casualties will be in small businesses. In the meantime, on Main Street the campaign to de-stigmatize dependency on government while publicly embarrassing people that work hard to achieve will only mean fewer start-ups, larger deficits and less innate talent evolving. I've seen this first hand in a microcosm, and now I'm watching it play out throughout all of society.
Very few people are looking to hoard vast amounts of money, but with taxes on investments ready to make a quantum leap, we will see less participation by those with means and less risk by those with limited resources. That means more dependence on government, which means larger government. I was out and about this weekend and can say rich people were spending gobs of money and not-so-rich people were collecting it. Its part of an economy built to last. Today, Apple will join those rich New Yorkers in spreading the wealth. In some ways it's a sign Apple management doesn't see Armageddon around the corner, and by the same token, it's also a sign that a system designed to encourage investment can create wonderful results.
Now that Apple is hoarding less money and banks will hoard less money and businesses also put cash to work, I can only hope this administration stops hoarding the notion of American Exceptionalism and reminds the country we don't need hope when we have the ability to make it happen; just looking for a green light to be the best. If only something like that happened, something like real tax reform that lowers taxes, something like less attacks on families making $250,000, something like allowing for more oil drilling and something like praising hard work instead of encouraging sloth.
If some of those things happen, I will shout "crikey" and not mean it as an expression of anger. But, for now Ginger, don't hold your breath.
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