«The story this year—like last year—is the belief in a second-half recovery. If there is a recovery out there, it isn't showing up in earnings, nor is it audible at company press conferences. The hype coming from Wall Street and the financial media, and what companies are actually reporting is wide enough to fly a 747 through it. In addition, there is no mention of just how expensive stocks have become in relation to earnings....»
«What is even more remarkable is the ability of the markets to rally suddenly in the futures pit after bad news is reported. It doesn't matter what the news is; when the market starts going down upon the release of bad news, the market always rallies beginning first in the futures pits. Yesterday the markets started to weaken again when reporters said that a large unknown buyer started buying heavily in the futures pits. Markets always rally consistently after a few down days, almost as if some invisible hand has put a floor underneath the markets. Weakening economic reports, disappointing earnings, layoffs, rising energy prices, mushrooming consumer debt levels, skyrocketing budget deficits, record trade deficits and a falling dollar are accompanied by rallies in the stock and bond markets. The worse the economic news becomes, the better the markets perform. The US has the lowest savings rate, the highest trade deficit and some of the highest debt levels of any of the G8 countries. Yet it enjoys the lowest interest rate out of any of the major G8 countries with the exception of Japan.
What has become predictable is that if the markets sell off sharply, in one or two days a major rally will follow beginning with a large buyer showing up in the futures pit buying futures at any price. If a bad economic report comes out—such as a jump in the unemployment rate—the markets are sure to rally. If a major accounting scandal surfaces—such as today's announcement by the SEC of a formal criminal probe into the accounting practices of Freddie Mac—the markets will rally. If a company warns that sales or earnings will be less than expected, the markets will rally if not that day, then assuredly the next day. If there is a terrorist attack or a geopolitical event, the markets rally. The invisible hand makes sure that no matter the economic, earnings or political news, there is always an unknown buyer willing to step up to the plate and buy S&P futures at prop-up prices. Adam Smith always talked about the virtues of the invisible hand at work in the market place. We are truly blessed to have an invisible hand at work in our financial markets.»
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