Stocks vs. the real world

As the S&P 500 moves to new highs, evidence builds that the real economy is stalling.

By Anthony Mirhaydari Mar 28, 2013 1:58PM

Arrow Up copyright Photodisc, SuperStockFor the last two months, I've repeatedly pointed out that the market's Fed-fueled grind higher hasn't been supported by the economic data. It hasn't been supported by the deteriorating situation in the eurozone. And it hasn't been supported by market internals either: The percentage of stocks participating in the uptrend peaked in mid-January and has been sliding lower ever since.


And now, as the S&P 500 pushes above its 2007 closing high to much fanfare, the disparity between the low-volume melt up in stocks, and what's happening everywhere else, continues to grow. Here's why.


First, look at the recent economic data. On Thursday, as the S&P 500 pushed to new highs, all four major economic data points disappointed estimates. The economy grew a pitiful 0.4% in the second quarter, missing expectations of a 0.6% rise as consumers retrenched amid stalled job growth, higher taxes, and higher fuel prices. Initial weekly jobless claims climbed. And both the Chicago PMI and Kansas City Fed Manufacturing Index disappointed.



Look at the details. The Chicago PMI's production sub index posted its weakest result since September 2009. And the Kansas City Fed employment sub index has crashed to 2008 financial panic levels. Clearly, something isn't adding up here.


So which is right, the market or the economy?


Well, a look inside the market reveals not everything is as perfect as the bulls want you to believe.



Folks are quietly continuing the rotation out of cyclical, economically-sensitive stocks like Cliffs Natural Resources (CLF) -- which was hammered 14% Wednesday on iron oversupply fears -- and seeking safety in defensive, non-cyclical stocks in sectors like utilities, health care, and consumer staples.


Indeed, just look at the way big electric utility Duke Energy (DUK) is going vertical; while old favorites like Deere (DE) flounder.



Some are starting to take it one step further by moving out of stocks all together and into "risk-off" assets like Treasury bonds. Indeed, the iShares 20+ Year Treasury Bond (TLT) appears to be breaking up and out of its post-November downtrend channel. That's a big deal, and if it continues, will suck capital out of the equity market.


In response, I'm adding the Direxion 3x Treasury Bull (TMF) to my Edge Letter Sample Portfolio.


Be sure to 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. 

Mar 28, 2013 4:31PM
The economy is 'stallling'? Duh!!! The economy NEVER went anywhere and we are no better off or farther ahead than four years ago. It has all been smoke and mirrors to try to fox consumers into doing what they do best; buy sh**!!!
Mar 28, 2013 5:24PM
The old American dream was to work hard, follow the rules, and you'd be rewarded with an income that would allow you to take care of your family and have a nice home. Well that dream is gone for most; the new American dream is to win the lottery.
Mar 28, 2013 2:34PM
What is one of the most tried and tue advice about the stock market? Do not try to time the market.  If this guy thinks he can time the market he would be retired on  his own Pacific island by now.
Mar 28, 2013 2:35PM
This is the problem with people trying to time the market.  You have to guess right twice, when to get out and when to get in.  This is why the average investor underperforms the market.  If your investment methodology is based on guessing, you may want to re-think your strategy.
Mar 28, 2013 2:26PM
Anthony writes a convincing case but is always wrong. How much money have people lost over Anthony? I know I have.
Mar 28, 2013 4:11PM

You are going to die!  You are all going to die!.  Thank you, Anthony.  Yes, at some time, the market will take a downturn, will experience a correction, as it always does, is that a revelation of great magnitude?  Then, of course, Anthony will be proven correct, but I challenge him to give us a timeframe within one month of its occurrence so we can all "sell high" before pulling the plug too early.


Now, to put this into perspective, I predict (as did the Great Carnak), that tomorrow the sun will rise in the East and set in the West, and that some time this year there will be a tornado, a hurricane, an earthquake, a snow storm, and that a lot of people will get shot  Yes, our economy is not on rock solid footing, but I see more improvement, albeit slow, than I see monsters in the closet. But then, I'm not as visionary as Anthony.

Mar 28, 2013 4:34PM
If you have had the balls to stay in the market the last couple years, than this would be a good time to cash out, before the big boys do it for you.
Mar 28, 2013 5:40PM

I've been say that there is nothing to support the market, as high as it has been, for the last few years.


So what's doing this? The FED and the 1% as well as the ruling class in DC, work together to drive the market up, sucker in the common investor and then take their gains. The average investor takes the loss and the rich just laugh at them, after having stolen their money.


Sounds like a conspiracy doesn't it. It should. It is. We all know it happens, just try to prove it. I'm sure it will continue to around the time the next President takes office, at which time we'll have another crash. In the mean time, the money is being syphoned off every time there is disturbing news about anything going on in the world.

Mar 28, 2013 6:47PM
Reality is the fed strategy is to force you out of savings/bonds into the market to get less screwed by the real unemployment/inflation rate and real worls dollar depreciation, hidden under tons of government sponsored propaganda slavishly doled out by bought and paid more media lackies.  New Age economics.
Mar 28, 2013 10:54PM

In a capitalist society one prospers and achieves true wealth by working hard. Innovation comes in many forms but primarily sweat and brain power is the first that comes to mind. It was always the individual that could make the best widget most efficiently was in the end, the most successful. None of these basic tenets have changed. You cannot create wealth by printing money and lowering the interest rate on borrowed money. In essence you merely stimulate the frog but in the absence of electricity the frog is what is was at the outset........DEAD!!! Good night. 

Mar 28, 2013 6:15PM
The market is simply waiting for my puts to expire. Once there is no way I can make any money, this thing will melt down to the ground.
Mar 28, 2013 4:40PM
Thanks Anthony for always making me money. You con the maladjusted lemmings that follow you into shorting, and then I take their money when they have to cover. We are quite a team, you and I.
Mar 28, 2013 10:43PM

Who cares about the Wall Street real economy which is pump and dump based on the next great thing.  You should be investing in what does well while the Fed continues to print monopoly money and then get ready to shift into cash before the bond bubble explodes and interest rates go up to 5-6%.  Then it's out of cash and into CDs for 2015 and beyond. Screw the real economy.

Mar 29, 2013 11:19AM

Rick....Put your investments on cruise control.....Put limit orders and or maybe shorts in place??


And take a day and go fishing....It will all be there when you return.


Have a nice Holiday weekend to all...

Mar 29, 2013 11:05AM

  It is admirable to hear some well informed investors professing to have figured out a way to profit in this market. I for one however have had just about enough of trading, reading business articles, hunting through prospectuses and paying close attention to geo-political events. I don't have time to go fishing! I just want to invest for myself without paying someone 2% to do it for me. For me as I stated last evening this current wealth creation is about capital gains versus hard work and creativity.

You know Edison, Ford, Vanderbilt and so on. This will not end well! The debt needed to be addressed several years ago. Public employee pensions and their salaries must be contained. Look what happened to the GM bondholders. Did anyone ever believe that would happen here. And yet in today's world this is business as usual.  I could go on but people have a tendency to gloss over long winded essays in a forum such as this. This is analogous to an expensive machine that produces an inflated cotton candy from a small amount of sugar. The end product is neither healthy nor does it resemble the original ingredient.

Apr 3, 2013 11:42AM
No real surprise that a few minutes before 1100 hrs manipulators called for a selloff acceleration...We are down about 70 and of course they are talking triple digits before all is said and done...We will see, still a long way to go.
Apr 3, 2013 10:47AM
This wednesday morning we are looking like our economy, lousy....Data was weak and they jumped all over it so we are down over 40 points and counting.....Oh well, like we always say, if the market was correlated with the economy we would be in the toilet.....Still early, maybe this afternoon we can do something positive; key word being maybe...More later.
Mar 28, 2013 7:32PM
This dude is just guessing about the economy and market forces like most of us.  There is no available rationale to link the real economy with the stock market because markets are inside controlled by power brokers who operate in a power vacuum of huge cash reserves and powerful leveraged forces to set up the figures for themselves and maximize their gamestakes. It's purely manipulated and impossible to forecast except by a wild guess or an accidental leak of the scheme which is flexible and set up to respond instantaneously to an opportunity. either perceived or actual.  The game excludes 98% of the players
Apr 1, 2013 3:41AM
Umm, that's not a breakout in the TLT, that's a classic "shooting star" inverted hammer formation indicating a BEARISH REVERSAL!

TLT will going back down, NOT UP.  
Mar 29, 2013 11:12PM

That's another fallacy, about learning too much...

As a newbie, amatuer and a novice with a little more knowledge...

I found myself going into overload, trying to learn too much about investing; For 10 years I had an interest, for 5-7 years I started applying myself, a couple years of dabble trading,and for about 10-12 years now, maintaining, researching and doing all trading with our investments...

There are; And I have great resources to make use of, but trying to do too much can make it a job...

I prefer it to be a hobby, that I enjoy and get paid for..

And there is usually something new, to learn everyday....If you look.

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