There are too many people saying that US stocks are in a very precarious position for that to be the case. I believe that we are in a blow-off in stock prices, but not yet at the critical phase. We’ll be there when almost everyone is a believer in the perpetual stock bull market and when many people are intoning the mantra, “This time it’s different.”
In today’s Daily Telegraph, Philip Aldrick warns, “Bubblenomics is back. Markets have become completely detached from economic reality – and it’s going to get ugly.” May 21, 2013. While I would agree that the markets are much higher in prices than are warranted by the realities of the economy; at stock market peaks that dichotomy is not recognized.
Take Greece for example; It’s an economic basket case. Industrial orders year over year were down 12.7% in March and industrial sales were down 11.5%. Since the start of the crisis the Greek economy has fallen by 25% and continues to fall; unemployment is at 27%, while youth unemployment is a staggering 64%. “Hundreds of thousands of employees have not been paid for months, according to Nick Malkoutzis, deputy editor of the English-language edition of the Kathimerini newspaper in Athens. He wrote that Greece may be at the point where ‘no amount of good will, positive press and market confidence make up for the fact that the real economy is spluttering toward a standstill after 19 consecutive quarters of contraction.'” Eric Reguly, The Globe and Mail, Tuesday May 21, 2013.
In spite of the hopelessness that pervades the Greek economy, the stock market is up 25% since the beginning of the year and over 100% over the past year. Now that’s a real detachment from reality.
As for the US, the economic recovery, if indeed there has been one, is anaemic at best.
One figure that, in my opinion, gives the most truthful assessment of the health of the US economy is the Civilian Participation Rate, which measures the percentage of working age persons employed plus the unemployed who are looking for work. The following chart shows the number and it doesn’t look good. The percentage labour participation level has been declining since 2000 and is now at early 1980 levels.
There are several additional economic statistics that point to a US economy which is at best only marginally improving. However I always take the official numbers with a grain of salt. They are always portrayed in the best light. I follow John Williams’ ‘Shadow Statistics’ to get the truth in the numbers. Below is his take on the un employment numbers in the US.
The blue numbers includes workers, not counted in the official U6 numbers, who after a year of unemployment have given up looking for work and according to Mr. Williams that is the true number of unemployed persons in the US. Allow me to quote Mr. Williams in his report on April Unemployment numbers, which he published on May 3, 2013-
“Labor Market Conditions Still Reflect a Troubled Economy and No Economic Recovery.”
“The outlook for current economic conditions has not changed at all. While happy headline news for April jobs and unemployment report may have some on Wall Street hyperventilating, stories based on the Bureau of Labor Statistics (BLS) press release- that the economy is strong or not faltering- are little more than hype. Both employment and unemployment are coincident indicators of broad economic activity and the signals are not good for near-term business conditions. There has been no recovery, and there can be no recovery, without a recovery first in consumer income and liquidity.”
So there we are, a listless US economy bolstering an ebullient US stock market. Something’s out of whack. But in my opinion stock prices have further to run to the upside. There isn’t sufficient overall bullishness, marked by a frenzy of buying, at this point, to signal a record peak in stock prices.