This past Friday's market surge enabled stock prices to rise 4% for the month of June. June's gain made up half the losses since the market topped out the end of April. Back in March and April, a common theme in my videos was that the stock market had peaked in April 2010, and also in April 2011 and was likely to do so in 2012. Which is what happened. In those videos I also said that the stock market was likely to trend lower as it did in both 2010 and 2011 until the Federal Reserve announced the next round of money printing. And I still think we are headed lower until the next round of easing is announced.
So an important question now is whether the recent euro summit nonsense is a game changer or more "baffle them with bullshit?" I think it is all bullshit. I cannot see anything new that came out of last week's so-called summit. All I heard was that the European Central Bank possibly will print more money to save some Spanish and Italian banks. Where have I heard that before? Printing money to save banks. Wow. How original. Money printing seems to be the only solution central banks have and in reality, without fundamental changes in how Europe is run, the best money printing can do is keep the dying alive a bit longer.
One of the benefits of doing three or four videos a week is that my record is readily accessible. At the end of January I started saying that the U.S. economy was much weaker then conventional wisdom believed. Also on videos back in April I was sort of pounding the table that the U.S. stock market was likely to drop from the start of May through to the next Fed easing. I also said that real time data indicated that the BLS reports of a supposed surge in new jobs from January through March was a bad joke. The truth was and remains that wages and salaries have been barely growing since last December.
What real-time data is telling us now is that even with plunging oil prices, wages and salaries are barely growing. That means that this Friday the BLS (in a sane world) should be reporting little job growth for June; if the report were based on real-time data. As I have said many times, instead of real time data, the BLS still uses surveys and historic data for its initial monthly job guess. Which means whatever the BLS reports this Friday will be as accurate as the data provided by a stopped clock.
The Biderman Market Theory says all there is in the stock market are shares of stock; and money flows in and out of the checking accounts of institutions that own 80% of all shares. What had been running up stock prices from last summer through April was that companies were heavily buying back many more shares then they were selling. The scale of buybacks was much bigger than the constant redemptions out of U.S. equity mutual funds, pension funds and hedge funds.
When corporate buying peaked in April and slumped in May, stocks sold off. In June, corporate buying picked up a bit and company selling of new shares slumped, particularly after the Facebook (FB) IPO debacle. By the way, for those of you seemingly obsessed with the issue, my small Facebook position is currently up 5%.
Earning comparisons will be negative in a no growth U.S. as part of a slowing global economy. Will corporate buying continue if cash flow drops? I do not think so. I think what last weeks rally will prove fleeting and temporary.