When bad news is good news

Fears over the end of cheap money stimulus fade as job growth weakens.

By Anthony Mirhaydari Jul 1, 2013 2:12PM

Businessman reading newspaper copyright A. Chederros, ONOKY, Getty ImagesSince the middle of May, stocks have been rolling lower on concerns the Federal Reserve will pull back on its monetary stimulus. Of course, raising short-term interest rates from 0%, where they've been since 2008, remains off the table. We're talking about the $85 billion a month long-term bond purchase program, which it was hinted could be scaled back by $10 or $20 billion in the months to come depending on the job market.


Wall Street panicked at the idea of even the tiniest step back from the Fed. Thus, the volatility in commodities, precious metals, mortgage REITs, and corporate bonds.


But over the last few days, some stability has returned as the flow of economic data suggests that job market gains are stalling -- and thus -- the Fed's much maligned "taper" could be pushed back.


Just look at today's first-of-the-month update on global manufacturing activity. It was largely a disappointment (China weak and Europe still weak). But the big news was that U.S. manufacturing employment growth, on a month-over-month basis, actually contracted for the first time since October 2009 as the recession was just ending, as shown in the chart from Haver Analytics below.




Expectations are also being lowered heading into Friday's all important payroll report. Goldman Sachs over the weekend cut their forecast for non-farm payrolls to +150,000 compared to Wall Street's +165,000 estimate and last month's +175,000 result.


While all of this seems counterintuitive, the emotional tailwind provided by the end of taper fears outweighs any incremental benefit to the real economy from say a +200,000 payroll print. Cheap money is all that matters. Corporate earnings and economic fundamentals are a secondary concern for the market at this point.


At least a short-term rebound is warranted here given depressed sentiment measures and the fact various technical indicators for the Dow Jones Industrial Average, such as the percentage price oscillator and the Coppock Curve, are rolling higher out of oversold territory.



Rebound isn't mature enough to identify specific sectors demonstrating relative strength just yet. But I'm seeing enough new breakouts to add some new long exposure to my Edge Letter Sample Portfolio. Highlights include Lifevantage (LFVN), a  maker of dietary supplements and anti-aging beauty products; Flagstar Bank (FBC), based in Michigan; and Genco Shipping and Trading (GNK), a drybulk carrier.


Disclosure: Anthony has recommended LFVN, FBC, and GNK to his clients.

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

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Jul 1, 2013 3:52PM
4 full years after we officially bottomed out, and we're still pumping $85 billion/month into the economy.  Does that sound like a recovery?

Really indicative and sad that panic set in immediately with talk of cutting QE by just 15%.  With that reaction, the $85 billion/month will be around for awhile.  This process of ending QE is going to take years and trillions of more conjured, er, printed, er, "digitized" dollars.  We may or may not get down to the $75 billion/month level by the end of this year (probably not likely), and we'll still likely be at least at $50 billion/month through all of next year.  At that point, a full 18 months from now, the phase out of QE won't even be halfway complete.

Before this is all over with, we could easily see an additional $5 trillion injected into an economy that consistently plods along with sub 2% GDP growth.

My only wish is that when all of this is over with, all you Keynesians will crawl back into your little holes in embarrassment, never to be heard from again.  Then the rest of us can get to work building a real, sustainable economic recovery based on proven free market principles that actually work.

Jul 1, 2013 3:12PM

All of the world's economies are on life support (QE) from the Central Banks. Sooner or later all that fiat paper money will catch up to gold and other real assets when investors take their profits in bond and equity paper. The FED cannot stop QE3 until it's too late for inflation. Then all hell will break loose.

Jul 1, 2013 4:20PM
Thumbs up if you`re smarter than Bernanke.
Jul 1, 2013 3:53PM
You can't print a recovery. What you do by printing is- validate that professions of paper, like: Law, Accounting, Finance, Politics and Administration are genuinely toxic. There are NO examples in the History of Man where this course ends well. History does however, give pretty good details on what Man does once it can no longer stand financial corruption. This one is worldwide and every average person on Earth can tell scum apart from victim. Wealth cannot, it is blinded by greed. The rates just went up on Student Loans without a pick-up in hiring. Rentals AND home purchases are both down. Pretty sure you can forecast where this is going without much effort. Hey Ben... you know where you can stuff that "data". The cement shoes industry and Midnight bay cruises (one way) are about to sky rocket.
Jul 1, 2013 3:02PM
To the (TBTF) Criminal Banking Cartel    DIE BANK OF AMERICA  DIE !

Well the western economy is headed very fast towards total collapse now. It will happen before or on Sept 13 , 2015


Helicopter Ben Bernanke is going to have to up the ante in QE4 to about $160 billion a money as he has to cover this year's 10,000,000 baby boomers now taking an average of $40,000 a year out of the markets as next year there will be another 10,000,000 baby boomers retiring and taking an average of $40,000 a year out on top of the 10,000,000 this year.


And the US deficit will be about the same and more people will not roll over their US T-bills so Ben will have to pick up the slack like he has these past few years.


Yep the collapse is coming soon and all of your lives will forever be changed.


Jul 1, 2013 5:35PM
Keep doing what you have been doing because it has worked so well. 

Wait til Obamacare hits full strength on 01-01-14. It will not be long after til the cries will be at their loudest, "We had no idea this was coming!"

I expect the market to drop rapidly approaching that date though.

2014 will be a bad year for traders. As the great Reverend Wright said, "The chickens are coming home to roost."

Jul 1, 2013 5:02PM
"Cheap money is all that matters." ??  "Quantitative Easing' is the most expensive money I've seen in my lifetime - disregarding and aside from the 21.3% interest rates during the jimma carter presidency.   
Jul 1, 2013 10:16PM
Bad news is good news ! Fairy tales for 12 year olds ! 80 Billion pulled from bond funds ! Wonder why ? Stock Market is about to collapse ! TAKE YOUR MONEY AND RUN !
Jul 1, 2013 7:23PM

"Four full years after we officially bottomed out, and we're still pumping $85 billion a month into the economy. Does that sound like a recovery?"


No. In fact, we saw the full effect of that corruption in today's Dow. Wall Street has the absolute power to push billions into dead business platform stocks from Opening Bell to the threshold of close, before yanking it back. There are what... a few dozen big houses in the markets today and literally no one else? So Bank A and Fund Group B put $200 billion out and if no one bites, like Bank C and Fund Group D... they haul it back in. Notably, NOTHING ELSE is going on in America because Bernanke's QE KILLED IT. Anybody hear from Obama today? How about the worst Congress in the history of our nation? Anybody starting to think we'd be a whole lot better off if God took out everything from NYC to DC? we'd have a gap, no crap, and more than 250 million people no longer sitting there doing nothing and an entire economy to rebuild and move ahead.

Jul 1, 2013 11:07PM
Crazy is a convoluted racist pig...Oh no, say it isn't so..har,har.
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