At last night’s Golden State Warrior game, my buddy remarked that to him this stock market looks exactly like the elevator shaft market as in October 1987 the stock market dropped 25% in two days. The more I think about that image of an elevator shaft market, the more worried I become.
Here is what worries me the most. Over the past year, take home pay for everyone who pays taxes is up something over $100 billion per year, or about 2% to 3% to $6.3 trillion and that $100 + billion gain does not even keep up with the current 3%+ inflation rate.
On the other hand US stocks are up over $3 trillion or 20% since the early October market low. That $3 trillion is an amount equal to all of the take home pay for all taxpayers over the past six months. Let me repeat that staggering number. The value of all stocks grew, which means an extra, $3 trillion since early October and the take home pay for everyone who pays taxes was about the same $3 trillion! Shareholders are racing ahead and getting rich and everyone else is sucking wind.
Yes, since 2010 companies have gotten lean and efficient and have been able make lots of money restocking inventories and filling pipelines. But if wages and salaries are flat lining, where is the future growth going to come from? The Biderman Market Theory gives little value to earnings. But what is interesting to us is that so far this earnings reporting season more companies are reporting disappointing results and lower future guidance than anytime recently.
So if future company growth will be slower and individuals do not have extra money with which to buy stocks, why is the stock market soaring?
Since October the Federal Reserve has printed about $600 billion of new money to pay the US government’s deficit. That is the only source of new money for the US economy. Does the Fed printing big bucks justify a $3 trillion increase in the market value of all US stocks? Not to me.
And then there is Europe. As I have said many times, Europe is a slow motion train wreck. There is no way that Greece, Portugal, Italy et al can either pay their debts via spending cuts, or grow their economies fast enough to generate more tax income or both cut spending and spur growth. None of that is going to happen. Therefore this is another version of a naked emperor parading around and nobody wanting to believe or admit what is really in front of them.
What really scares me is the combination of fake money on top of a no growth global economy. The image of an elevator shaft taking stock prices sharply lower very quickly keeps staring me in the face. Does this scare you as well? It should.
Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
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Charles Biderman is the Chief Executive Officer of
Nobody wants to think about “bad stuff” and the “experts on TV” keep telling us that we need to be 100% in stocks now or risk missing the big move. Who would have ever thought that investing could become such a gambling proposition. For my part I have done what I beleive to be prudent for the people who rely on me for advice, but it appears that wasn’t the correct choice. I should have put it all on 21 Red and spun the wheel with their life savings. Silly me.
TGIF
sorry for the spelling error….”believe” is more like it:)
Thanks for your continuing contributions to investors and the general public. TrimTabs is a top notch organization offering those that listen to your commentary and the commentary of all the contributors at TrimTabs an opportunity to understand what is going on in the real world. For those that think American Idol and Dancing With The Stars is the real world, there is no hope. Now if you’ll excuse me, I need to begin considering possible short positions.