The bull market's last stand

Global growth is stalling and many of the rich nations are falling into new recessions. The US job market hit a wall last month and fewer and fewer stocks are participating in the uptrend and fewer and fewer shares are changing hands. All that is left now is the cheap money from central banks.

By Anthony Mirhaydari
4/10/2013 6:15 PM ET
MSN Money

People are feeling pretty good about the economy. All eyes are on the stock market's recent rise. The fiscal cliff and budget sequester scuffles are behind us. Cyprus didn't seem to matter. And the Japanese are attacking their long deflationary malaise by promising to double the nation's money supply over the next two years.

The global economy is a complicated thing. But if the markets are up, everything must be great. And thus, the newspapers are filling up with stories of once-apprehensive regular investors who are throwing their life savings back into the fray.

Those investors are making a mistake.

One by one, the pillars supporting this move have been knocked away. Global growth is stalling. Many of the rich nations are falling into new recessions. The U.S. job market hit a wall last month. Market breadth is narrowing, which means that fewer and fewer stocks are participating in the uptrend and that fewer and fewer shares are changing hands. The recent outperformers have been defensive names not dependent on a strong economy -- U.S.-focused stocks like drugstore CVS Caremark (CVS +1.76%, news) and electric utility PG&E (PCG -0.11%, news) -- while global names like Caterpillar (CAT -0.84%, news) suffer.

All that's left now is the cheap money from central banks and the illusion of invulnerable corporate earnings growth. And both of those pillars look vulnerable. Here's why, and what it means for those just trying to protect their wealth.

The mother's milk turns sour

First, let's talk earnings. When Federal Reserve Chairman Ben Bernanke was asked, awkwardly, at his March post-meeting news conference whether the stock market was in a bubble, he replied cryptically that he didn't see anything "that's out of line with historical patterns," given that corporate profits are at record highs.

But they're not going to stay there.

The incredible rise in the corporate sector's share of total income was partially driven by exposure to the strong post-recession rebound in overseas economies like China. But more importantly, it was driven primarily by a squeeze applied to workers via layoffs, wage freezes and longer, harder hours. Labor's share of national income collapsed (as shown in the chart below), while the share accrued to capital rose.

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