Bulls, Bears Split Forecast
Are you a bull or a bear? Things are so convoluted in the economic world these
days you can ask any handful of economists and come up with a virtual split.
Those who see nothing but roses as they attempt to sell a particular stock (bulls)
have been in the majority. Bears seem to find poor outlooks everywhere. But it is
curious the two sides use almost the same items, seen in reverse mirrors, to arrive at their particular position.
Put Dan Greenhaus, chief strategist of BTIG brokerage, on the bull side. "We have been bullish on the market in
recent years and believe the bias for stocks remains to the upside. But investors should be concerned because one
thing is clear, whenever the Fed raises [interest] rates at times when equities are richly valued, it has been
problematic for investors."
Then the bear, Peter Cecchini of Cantor Fitzgerald, who wrote on March 10, "The prospectus for stocks is so bad it
is almost impossible to be bullish here. Earnings are throwing up a bright red caution flag. We like downside trades
standing on their own merit." Cecchini listed five reasons to emphasize his bear stance.
But whichever side you prefer, the facts are beginning to put more pizzazz in the bear position.
First, stocks as a whole are near record highs. Unless there is something going on to generate brighter outlooks--like
the possibility of hyper inflation driving the market out of sight--then the light is not going to help the bulls. Second,
despite the stock markets' surge, company earnings continue to disappear. Of the S&P 500 companies that have
provided first quarter profit forecasts, 81 estimated earnings will decline.
Adding fuel to the bear side of things, in the first two months of the year the markets went almost straight up. Only
the potential fear the Fed would actually raise interest rates seemingly had any impact on the bull run. Every other
scrap of real news was shrugged off like a pesky gnat. But the bad news keeps piling up and the bull showed only
occasional hiccups in its run.
But now, for the first time in three years, the retail sales slump is growing more than can be accounted for by the
bulls. Bad weather aside, a three month-decline in retail sales is not just a warning sign, it portends the end of the
road, particularly when it is clear the big spenders, buying top-end stuff is soaring. That means the 99% are
slumping more than can be adjusted for by normal equations.
This hasn't happened in America for a long, long time. But the phenomena isn't limiting itself to America, the rest of
the world is falling faster than America, this is why the dollar continues to surge against other currencies.
In past markets, a surging dollar would have been welcome for a while, but then reality would have taken over and
the question of why it was showing such strength would have been asked. This time it has been more of "Damn the
torpedoes, full speed ahead!"
The bulls point to the solid jobs report as a reason for optimism. The gross numbers were superb. But then you put
different bits of data together and you wonder what kind of doctoring took place at Labor to get that jobs number
where it is at.
Allegedly the country added 295,000 jobs for February, continuing a strong showing. But also the number of first
time unemployment claims rose to 331,000 for the last week of February. A plus 295,000 for the month and a minus
331,000 for a week. The minus has the edge. Then we discover the vast majority, at least 205,000, of the added jobs
were at or near minimum wage levels. Wages have not grown in the past six years on a per job basis, at best they've
stagnated but the doubt that the government is stroking the raw data is growing. Simply put, there is no doubt the
median pay per hour of labor has fallen since 2007.
That is why retail sales are floundering. Americans do not have disposable incomes to spend.
The Affordable Care Act is a good place to start. It is undeniable that medical costs have risen since it was passed.
But where most people are feeling the pinch is in higher health insurance fees and/or higher deductibles. For the
insurance companies to stay viable, they have to make a profit. Higher costs have to be covered by higher premiums
or higher deductibles or a combination of the two.
Whichever way it is determined, the consumer is paying more out-of-pocket than he was before. With wages flatlining, that means less cash in hand. This is what is showing up in retail sales.
There may be reasons to be bullish on the market. Those reasons are hard to see when faced by a declining ability of
Americans to spend. Without spending by the average consumer, where does that leave the markets' long-term
outlook? Bears, without Fed-inspired inflation, would have devoured the Bulls long ago.
It is a sign of changing times that even the economists of the insulated financial world are starting to split sides.
"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas
Jefferson