The major theme investor’s must take note of this week is one of global recession. Japan’s GDP (Gross Domestic Product) contracted for a third straight quarter and market activity in the Euro-Zone plunged at its fastest rate since the ’08 crash. Germany, the EU’s largest market economy, fell at an annual pace of 2.3% while Europe’s second largest market, France, contracted by 1.1% annually.
This should be no surprise.
As mentioned in last week’s blog, some economic “experts” were speculating how the narrowing U.S. trade deficit would transform economic contraction into infinitesimal 4th quarter growth. I remain both cynical and skeptical, as the narrowing trade deficit was not created by more exports (an increase of American-made goods sold to foreign consumers) but instead by fewer imports (less American-demand for foreign goods.) In others words, the world’s largest consumer (America) purchased less goods from foreign manufacturers – and foreign economies shrunk because of it.
This stands to reason.
Elsewhere in the American Market many other negative investment themes continued to persist this week – Kraft Foods and brewing company Molson Coors reported sharply lower profits (-72% and -65% respectively) amid lower revenues, higher taxes, and shrinking margins. Mass layoffs continued to plague the employment market this week with Thomson Reuters and ING financial group reporting several thousand job cuts. Industrial production dropped fractionally, and retails sales fell in Real terms.
Yet this news went largely disregarded by the Wall Street establishment and mass media installations who were caught up in the tizzy of mega-mergers and acquisitions; whether it was Warren Buffet’s decision to purchase ketchup maker H.J. Heinz, or the consolidation of U.S. Airways and AMR (American Airlines), or Dell computer’s decision to go private via a management buyout lead by founder Michael Dell – the entire mass-media investment establishment looked more like star-struck teenagers than serious investors.
For this reason the Dow Jones Industrial Average didn’t budge again this week. The chart below is a new two-year look. Its scaling begins in January 2011, which was the first time the Dow crossed over “fair market value” since the ’08 financial crisis. Check it out.
Like the U.S. economy and other above-average Markets worldwide, the 15-51 strength Indicator continues to indicate recession by building lower-lows. The DJIA, both overvalued and flattening out, continues to mislead investors as to the general welfare of “the market.”
But note that this is not a design flaw, but instead proof that the Wall Street establishment is manipulating valuations of well-known stock market indices. Because the 15-51i is not yet broadly accepted and/or reported – it is less tainted, and thus portrays a truer picture of reality.
While the stock market is widely believed to be a leading indicator of economic activity, irresponsible monetary policy has skewed its performance terribly, and has promulgated the 15-51i into the leading spot of economic indication.
Markets are shrinking. Broader stock market averages will soon follow.
Prepare your portfolio now.
And let me know if you need help.