Let me save you all the grief of trying to analyze the drop in Black Friday sales. The consumer has less discretionary income, and some have learned that debt is bad (for people and govt’s). Wow, that was hard!?!
The big misconception (actually deception) by those in the media is that all the money being pumped into the economy by the Fed will make its way into retail sales. First of all, the printed money is NOT being pumped into the economy. It’s pumped into banks (the printed money from the Fed is used to buy bonds from the banks to keep rates suppressed, while creating free interest income for the banks). The banks then use that printed money for speculation, which can generate significantly more risk-less returns than loaning to Main Street, where the risks are higher due to the fragile economy that banks created.
Secondly, the upper 1% that does benefit directly from having first access to the cash, and indirectly from the Fed-induced bubble in assets, will spend less than the 99% (if they had the money). For example, if a bankster pulls down a $1 million bonus from speculating on subprime debt in the European periphery, he or she will not spend as much as 1000 people getting an extra $1,000, and it will also not be spread as widely.
The 1% that understands what’s happening underneath the surface of the economy are converting their cash into safe-haven assets that can’t be confiscated by the govt (i.e. diamonds, art, gold/silver, land, stocks, etc.), which sit idle, unproductive, until they can be sold to a bag holder or they are converted into the next prevailing currency after the sh*t hits the fan to pick up assets at pesos on the dollar.
The sociopaths that make policy, and the shrills that protect the policy makers are digging themselves an ever bigger hole trying to protect what they think is their own self-interest. After all, bureaucracy was created to protect the people in charge from being blamed, right!
If the DOW and S&P 500 continue to move higher without the participation of retail stocks, which is currently the case, then this divergence will produce a healthy pullback or crash (too early to tell which it will be). The other tell will be a change in the relative strength of small cap stocks (i.e. IWM), which have been leading the DOW since the 2009 low and the separation has only gotten wider over the last 6 months, reaching unhealthy conditions. Finally, the DOW has not made new highs when priced in Euros. Like gold or any asset class that’s in a bullish trend, if stocks can’t make new highs when measured in all the major currencies, then the trend is weakening.
There’s little question that we must crash and burn before any meaningful reform takes place – the only question is when. Since the retail investor has not been sucked back into the market since the 2008 crash (volume is still 50% lower than in 2007), there must be another card to be played to get the market fully concentrated on the wrong side of the trade, before the plug is pulled.
Since the market is overbought and the talking heads are talking up the high probability of a crash, there’s a good chance the market will give the appearance of crashing so the shorts can be sucked in and then be allowed to pile on with the “massive profits” to be made on the short side as markets “inevitably” collapse. This will set up another great opportunity to catch the shorts massively off-sides, and produce a correspondingly massive short-covering rally that would propel the market to new highs. This alone would not suck in the retail investor, but throw in some manufactured positive event, like the Democrats winning the House or the Republicans winning the Senate in 2014; and MOPE could be made to work again.
If events play out as outlined, and the euro and yen tank on economic turmoil in Europe and Japan (forcing a flight to “safety” into dollar-based assets), the rise in stocks and real estate would be strong enough to make people believe that “happy days are here again”, just like at the conclusion of the roaring 20’s. Unfortunately, the man on the street will be left holding the bag again, only to realize too late that he was only “Chasing Rainbows”.
If events do not play out as outlined above, then the crash and burn moment will be upon us sooner rather than later. There are many Black Swan events that could prick the asset bubbles, but the most ominous is the potential for war in the Middle East and in Ukraine. The country with interest in both of these conflicted regions is Russia. In the Middle East, Russia is aligned with Syria and Iran to continue their dominance in providing energy (mainly natural gas) to Europe. The Israeli’s and Saudi’s, backed by the US and insurgents/terrorist are on the other side. In the Ukraine, where hundreds of thousands of protesters have taken to the streets of Kiev, Russia does not want to lose control to the EU-sympathizers in the west, and it certainly would not mind flexing its muscle to gain control of its old motherland, especially while the US and Europe are stuck in economic quicksand. 2014 should be a pivotal year that warrants close attention.