Most men lead lives of quiet desperation and go to the grave with the song still in them.
—Henry David Thoreau
It's not only most men (and women), but nowadays, even governments and powerful organizations seem to be moving day to day in a quiet desperation. This is what's frustrating the stock market. It doesn't matter if you're a fan of stimulus or cheap money. It's what the market is hooked on for now and it's expecting big doses to get things in gear. Call it the placebo effect, but in short time periods of six months (give or take), the stuff not only calms markets, but sends them higher. Moves by the European Central Bank, Bank of England and People's Bank of China were the kind of medicine investors long for but the amounts didn't match that quiet desperation of the current economic reality.
I think the market is saying - cut to the chase, ECB go to zero and Fed to pull a giant rabbit out of the hat. China was rightfully worried about sky-high inflation but leaders there have also succumbed to the notion of appeasement through easy money policies, even as brand new shiny cities stand virtually empty. Make no mistake, all the powers that be are afraid … but they play this game where their backs must be pushed against a wall before acting desperate and then their action is to assuage anxiety and spark short term relief rather than painful decisions that hurt like hell at first but create the kind of backdrop that allows real potential and growth to flourish.
Instead of putting the economy and market in position to sing its song, these folks give us a string of placebos that feel good, but in the end send us to an early grave. This country still has a song to sing; somehow we have to get the fat lady off the stage and put pride and potential in the spot-light.
Good News or Bad News?
So, when will it all turn around and the market react to legitimate good news the way it currently reacts to flaccid economic data? It's hard to tell coming into this session that has seen the market rally on better housing data but also sub-par everything else data. We could begin to reenact the post crash period when we celebrated mediocrity and even the smallest improvement or rarest silver lining. Or considering the obstacles of White House policies, maybe all we can hope for is bad news gets the Fed to pump up assets even as it sacrifices the dollar and the future.
Although Mario Monti returned to Italy a hero for making Merkel "blink", his nation is still in serious trouble. The bright spot was the gift of Chrysler to Fiat whose own plants are barely operating at 50% capacity. I still do not understand that deal, how Americans benefited, how investors benefited or why it was better than a regular bankruptcy. Be that as it may, many would say the deal amounts to theft. Whatever, it was a miracle for Fiat and its charismatic leader.
Yesterday, there was news of perhaps another miracle.
Earlier this year, I had an epiphany and decided Vermeer wasn't my favorite artist because of a closer look at the work of Caravaggio. Now there is news that a massive find of Caravaggio paintings has been discovered and verified in Italy. Apparently holed up in a castle in Milan, the 100 painting stash could be worth at least €700.0 million. That's a nice shot in the arm. Sure, that number isn't nearly enough to save Italy, but it goes to show its wealth lies in its creative past while its staggering debt reflects a current malaise that seems inescapable.
Tension in Europe
Yields on Spanish 10-year bonds spiked above 7% this morning and Italian yields are also moving much higher. The market is once again pushing the powers that be for more forceful action. The market is looking for a more animated ECB and the next round of money solutions from those emergency funds. Meanwhile in Germany the two year note yield was below 0% and Angela Merkel's poll number skied to highest levels since 2009. Investors are circling the wagons and trying to keep the pressure going.
The unemployment rate in June was 8.2%, flat with the 8.2% reported in May and in line with the Street's estimate of 8.2%. In addition, non-farm payroll employment increased by 80K, lower than the Street's estimate calling for a 105K increase. At this point in time, it looks as if the unemployment rate is at best stuck, and nonfarm additions are just about dwindling. More people will likely continue to seek jobs, but the economy is still not ready to produce enough employment to satisfy demand for work. Perhaps the most shocking aspect of the report was that the change in nonfarm payroll jobs was so much worse than expected, as it showed an increase of just 80,000 jobs while the Street's consensus called for a gain of 105,000. This nonfarm payroll figure also came in well below ADP's nonfarm jobs number posted yesterday that showed an increase of 179,000 jobs.