Stocks gain on horrible economic news

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US stocks gain, economic data falls.


Over the past four days, US stocks gained the most (percentage wise) since 1933. On the surface this is significant, because 1933 marked a significant turning point for stocks even though the economic crisis had a ways to go yet.

But is that a valid linkage to make?

Now, the stock market is sometimes called “the great discounting machine” for its supposed ability to sniff out great changes in trend well before those changes are obvious elsewhere. In times past, stocks have made a habit of rising months in advance of job gains, economic activity, profit gains, and other such economic data.

However, I will note that the stock market has gotten a bit off the rails lately and it completely missed the warning signs of an impending credit crunch that were given off more than a year ago. The stock market carried on and made new highs even as the financial underpinnings of our entire system were collapsing into the bay. So in some circles (mine included), “the great discounting machine” has lost some of its utility and impartiality along the way.

Today the economic news was horrible.

October durable orders down 6.2%, transportation orders fall

WASHINGTON (MarketWatch) -- The faltering economy was reflected in government data Wednesday that showed dwindling demand for U.S.-made durable goods in October, along with weaker capital spending by nervous companies.

Orders for U.S.-made durable goods fell 6.2% in October, the largest decline in two years, the Commerce Department estimated, as orders for transportation goods fell 11.1%. Economists surveyed by MarketWatch had expected an overall decline of 2.5%. Excluding transportation, orders fell 4.4%.

Ouch. That’s really bad. Fortunately, I guess, the US does not manufacture a lot of stuff anymore, so the -6.2% drop does not have as large an impact on the overall economy as it would have in times past. Still, it is a very, very weak report. Normally, this should have resulted in a pretty good stock market and dollar decline. But this news was completely shrugged off, as was this next report.

New House Purchases, Consumer Spending Tumble

Nov. 26 (Bloomberg) -- Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001…A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up.

``It's about as bad as the 1970s and 1980s,'' said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York. ``We're looking at back-to-back very deep'' slump in the global economy this quarter and next.

The number of Americans filing first-time claims for unemployment benefits fell to 529,000 last week, while remaining close to the highest level since 1992, Labor Department figures showed. The four-week moving average for claims reached a 26-year high.

Purchases of new houses dropped 5.3 percent to an annual pace of 433,000, lower than forecast and the fewest since January 1991, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.

"We're going from bad to worse,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who accurately forecast the drop in consumer spending in today's report. "The recession is deepening.''

Normally with news that bad, you’d expect a rout of both the stock market and the dollar, but the opposite happened in each case.

What gives?

There are two possibilities. The first is that stocks and the dollar are signaling that US recovery is right around the corner and that the US will lead the world.

The second is that both markets are no longer sending useful price signals to investors.

These are wildly divergent positions and I’ll be exploring both for subscribers in an upcoming report.

I will leave you with this. After the initial stock market rout of 1929, which saw the market drop 48%, stocks rallied back 47% from there over the next six months before beginning the long slide to the bottom in 1932.

Sometimes stocks know what they are doing, and sometimes they don't.

So I guess the great discounting machine has been broken before. In that sense, we might decide to put more weight on other economic data than stock market performance, and that's why I keep linking in the basic data.

But make no mistake, sooner or later the trillions of dollars of new liquidity will "hit the streets," and we'll see a return of consistent stock price increases. Whether those will outpace the attendant inflation remains to be seen.

This is a companion discussion topic for the original entry at https://peakprosperity.com/stocks-gain-on-horrible-economic-news-2/

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Markets don’t go straight up or straight down. A lot of traders have been looking for a perceived bottom to take some profits from their shorts. They seem to have found it. A lot of investors have been praying for the drop to end so they can play "Warren Buffett" and buy the values. The market looks cheap to them.
The fact is that nothing has changed and this rally will most likely turn into yet another leg down. We probably have several weeks of counter-trend rally first. If you want to play it, keep one foot out the door. If you were looking for an opportunity to short this market, you’ll probably get a great one before too very long.
I wish everyone a Very Happy Thanksgiving.

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And the US Gov’t is fighting this battle very similiarly like they are fighting the war on terror…aimlessly and against an undefined enemy lacking a tangible grasp ( although the financial situation should be somewhat tangible to honest and humble thinking men )

Nonetheless, they’re firing bullets aimlessly hoping to hit this "undefined" target…meanwhile the casualties rise and costs skyrocket…

A similiar irony from my perspective…

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"But make no mistake, sooner or later the trillions of dollars of new liquidity will "hit the streets" and we’ll see a return of consistent stock price increases. Whether those will outpace the attendant inflation remains to be seen"

Are you suggesting that stocks might be a good place to park your money in an inflationary event? Moreso than precious metals?

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I think that what you are seeing is investor confidence in $4.7 Trillion in backstops, bailouts, liquidity (whatever term you want to use) being used to prop up a very shaky financial system. Short term longs are winning the day (if you call regaining 16% of a 40% drop winning) in a snapback rally in an oversold market.
Next week will be very interesting as we will see whether Americans understand that borrowing to consume is not real smart (which is why our gov’t is enamoured with it). Watch the retail numbers for Black Friday for clues as to whether the liquidity injections are enough to keep the charade going.
I am long skf (again)…

Gak

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There could be some betting that Obama will turn the economy around. A bad bet of course.

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There could be some betting that Obama will turn the economy around. A bad bet of course.

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[quote=hewittr]There could be some betting that Obama will turn the economy around. A bad bet of course.
[/quote]

Well, we’re in agreement on this one, hewittr.

By the way, what’s with your double posts as of late? I believe you even had a triple in there the other day.

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Chris opined:

"There are two possibilities. The first is that stocks and the dollar are signaling that US recovery is right around the corner and that the US will lead the world."

With great interest, mild confusion and utter sincerity I ask the question: How on Earth could a US recovery be right around the corner? (Now I realize Chris is not predicting this nor even saying that the chance is 50/50.) Aside from today’s paradoxical "rally," what data are out there that suggest anything but further unraveling ahead?

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What if the market must also go through the Six Stages of Awareness, just like most people do when they find out about PO, climate change or the true depth of the economic crisis?

I’m not serious, really, but it’s interesting to think of it that way. The market seems to be responding just as many individuals respond. First comes denial. This is what was going on when the market reached new highs in spite of deteriorating fundamentals. Second comes anger. We saw some of that when the first bailout was initially proposed, as some citizens and Congress folks spoke out against the excesses of the banking and financial industry. But the market quickly moved through that phase to the next, bargaining (or wishful thinking, as I like to call it). Perhaps this is where we are now, with investors large and small buying up equities with their fingers crossed and heels clicking together three times.

What’s next? Depression. We’ll get there soon enough, when the next phase of the market collapse begins and the Dow drops under 7,000.

Finally, we reach acceptance. That’s when even the clueless mainstream media and average Joe/Jane on the street clearly understands that the way of life we’ve taken for granted for so long has come to an end. I think we’ve got a ways to go before we reach this stage on a collective level, and perhaps some never will.

 

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Chris M said- The second is that both markets are no longer sending useful price signals to investors.

I believe this is what is happening because the current and coming cabinet will do everything they can to keep consumer spending up, while Trillions go unchecked out the back door to shore up the banks. This is causing conditions that make the market signals distorted and usually insulting to be honest. To see some of these stocks rallying makes me wonder about 2 things-

 

  1. Are the masses taking what little they have left and dumping it into the market hoping for a lotto ticket?

  2. Where are the shorters? You would think they would be all over some of these distressed companies after quarterly reports

Regardless of my view, Chris is right. If this kind of news came out and hit with so many cannon’s at the same time 4 years ago, I think the signals would be a little more honest then today. I still struggle with the data being an investor, and a lot may also be historic conditions we have not seen yet as a singular event or multiple events combined.

 

 

 

 

 

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Switters offers the "six stages of awareness";

Chris offers "two possibilities";

Maincooncat observes "today’s paradoxical "rally";

Gak offers respect to "liquidity," but puts the money where the heart is (buying the SKF);

Metalmongrol acknowledges Gak’s observation, but subtely cheers for the "precious metals";

and wdstk is thinking about left-over turkey…

 

What is one to make of such an intelligent group of observers and their conflicting outlooks? Such a spectrum of thoughts sends me on a reminiscal journey of my days as a student of physics; a worshipper of Einstein, who, among a million other things, said:

"Two things are infinite: the universe and human stupidity; and I’m not sure about the the universe.

We can’t solve problems by using the same kind of thinking we used when we created them.

All of us who are concerned for peace and triumph of reason and justice must be keenly aware how small an influence reason and honest good will exert…

Any man who can drive safely while kissing a pretty girl is simply not giving the kiss the attention it deserves.

Great spirits have often encountered violent opposition from weak minds."

My point in quoting Einstein: Even the greatest of minds ever to exist is schizophrenic.

Hundreds of lives were forever changed this afternoon (pacific time) by a group of our fellow humans who were rendered to a life devoid of possibility, who will always be known as criminals, but who were born just as you and I–with infinite possibility. I, for one, don’t give the government of our country a pass; I don’t believe that our actions as citizens who elect politicians who allow policies of unwarranted international intervention and exploitiation are without guilt; I believe that a nation that continues to disregard Noam Chomsky and his informed–not precient–warning of trespass (even after 911) is not worthy of surviving; most of all, I believe that Chris Martenson has a message that is profound, yet hollow without the addendum of a call for social responsibility on a worldwide scale…

Perhaps it is too late. However, having spent a decade living overseas, I find that people can and do differentiate between a (corrupt) government and the People: most cultures have a similar story that is no more than a genreation or two removed–and not forgotten…

Those people in India this afternoon (Pakistanis?) were responding–at least in part–to the net actions allowed by a government We the People elected…

We need to do better. We need to take some responsibility for the heathens we have called our politicians. The world will forgive We the People, but not if we don’t speak up…

This current sacking of the world’s middle-class (40% of Britons, including my best friend, blame us) has set the US back a generation. This will not be easily forgotten. It’s time to get to work, to find those culpable, and to put them on stage in a court of law for what they have done to We the People of the Pale Blue Dot…

We shall overcome–if we get off our asses and say something!

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I sometimes wonder if the entire network of humans (expressed in the internet, stock market etc) is developping a sort of "consciousness" on it’s own (like the borg :-), like a new "organism", and thus responding similar to an individual (although not a very smart one yet :-).

Just like our brain composed of billions of individual cells, so is the human species composed of billions of humans.

In a way, things like the stock market or the "most popular links" (such as in diggs) can give us an idea of the current "thoughts" and "opinions" of this organism (the stock market displaying emotions like fear, surprise, happiness).

Our individual actions influence this organism, but it takes a lot of similar such actions to actually make it to the "consciousness" of the collective. So for instance PO is still not part of the collective consciousness, whereas global warming probably is. I wonder what will happen once PO reaches this consciousness, how this collective organism will "respond" (in terms of emotions as expressed in the stock market, for instance).

 

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Hi Switters,

There maybe some hope as far as the main stream media - stories are starting to percolate into it and be reported that actually make sense (from a reader of this site perspective). When this changes from an occasional "Wow, I can’t believe that story as on ABC, CNBC, FOX, etc.) to the main message coming from the main stream media, it will be interesting, to say the least, to see how the "regular person" responds.

  • Septimus
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Right now, things are moving sideways with great volatility. Current fundamental news doesn’t seem to have the impact it once did. Today the news screamed, "wow, we’re in a bad recession" but the market went up. How can that be?
Well, I would interpret that as, "bad recession" is already baked into current prices. So news that says "bad recession" isn’t really news at all, it’s just confirmation that things are pretty much how we expect them to be. "More of the same" doesn’t move the market, only surprises do that.
The market is also saying, you’d better enjoy $50 oil while it lasts, because it won’t last long. The oil market seems to believe in peak oil at this point.
It also thinks we might not be done with deleveraging, and it oscillates between predicting recession and depression. Plus, it also indicates a continued lingering faith in the Fed and the Government’s ability to manage the crisis, evidenced by the pop we got from Geithner’s appointment as well as the latest 800 billion to buy up mortgages providing lower mortgage rates. That little item resulted in a 30% rally in homebuilder stocks. Anyone here think we need to build more homes? Faith in the Fed + short covering is my only explanation of why that happened.
Here’s a prediction: if holiday sales on Friday are less than horrible, we could have a nice end of year rally, perhaps even lasting through January.
Perhaps that’s why the market popped this week: short covering going into Thanksgiving and Black Friday.

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Chenopodium,

You said: ‘I sometimes wonder if the entire network of humans (expressed in the internet, stock market etc) is developping a sort of "consciousness" on it’s own (like the borg :-), like a new "organism…’

Have you ever read any Edward O. Wilson? If not, you might find Robert Wright’s Three Scientists and Their Gods a pretty interesting read. Wilson poses a theory similar to yours ([a single] "organism) about the planet (going beyond the obvious connections), and Wright makes it pretty interesting reading.

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I just realized that I used the "five stages" of Kubler-Ross, instead of the "six stages" that Chris adapted from her model.

In Chris’s model, after bargaining comes fear. This occurs when folks really start to wake up to the fact that we’re headed for serious turmoil. This will likely sink in on a broad scale as the economic crisis deepens and understanding about peak oil and its implications permeates the mainstream.

It’s important to remember that although these stages are presented in a linear fashion, in reality they are often cyclical. The market has been bouncing back and forth between denial (stage one) and fear (stage four) for a couple of months now. I’d expect that to continue even after we go into depression and acceptance.

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I agree with your statement on Black Friday.

If consumer spending for this and the holiday season is low or sets new records for slow sales, the market will react harshly to this. If we have good sales through this or the holiday season, we are back to a resemblance of some sort of stability.

I still believe these factors are putting incredible pressure on the market in whole, and it’s not going to take much to break it.

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The fundamental problem with a economic situation like we are seeing, historic in its proportions, makes data analysis very difficult if not impossible.

The structure of the market makes money on success or failure, and we will always have individuals or organizations making money somehow as long as the system exists in it’s present form.
Any stages of anything are meant for the general educated or informed masses. The sharks are still in the water, and they will eat regardless of any economic situation regardless of good or bad news. They have one stage, greed. They will just continue eating and swim to the next opportunity.

 

 

 

 

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Nonzeroone,
Sorry for any confusion. I was simply commenting on my latest position in respect to SKF. I exited the market 10/07 and have been slowly getting back into certain spots at certain times and then exiting. I got back into precious metals (both physical and GLD, GDX and SLV) after the first wave of deleveraging by the Hedge Funds (HF). I think that we might see another one, but I don’t know. The HF had to liquidate by Nov 15th, and prob 75% are seeing their last Thanksgiving this year. Will there be more forced selling as they continue deleveraging? I just don’t know, and that activity (or non activity as the case may be) will drive quite a bit of market activity.
This a classic bear market rally, fueled by MORE tremendous gov’t debt and fed injected liquidity. I am choosing not to play it since it can change at any time ,and change swiftly. I thought that we would see 7200 on the Dow, but now I am not so sure. I think we may break through the "bottom" and get into the 5200 on the Dow before we start a real climb back up. But as Chris says, "the next 20 years will be nothing like the last 20", so expect that climb to be more sideways than V shaped.
Longer term, the effects of pumping 4+ Trillions of dollars into the economy will ultimately be inflationary,but as Mish says we are in the midst of an incredible deflationary time, the like of which will prob equal (if not surpass the 30’s). Once that works its way through the system, we might skip inflation and just head into hyper inflation. When? No idea. Watch the Housing starts in CA, FL and AZ. Those will be the leading indicators IMO.
Happy Thanksgiving for those in the states!

Gak