The Stock Market is King and Cash is the Joker


To paraphrase Socrates, we know enough to know that we actually know very little. We were reminded of this on Saturday morning when we woke to see global markets soared on the news that the US unemployment rate had dropped on better than expected employment growth.

This confused us. We thought that bad news was good news. And that good news was bad news. On this logic, the good news on employment should’ve been bad news for the stock market. A lower unemployment rate should bring an end to the Fed’s easy money quicker than expected. So the market should’ve tanked.

But it didn’t. It went up. By a lot. Good news IS good news. And it seems that bad news is still good news too. Because soon after the employment data came out, we learned that activity in the US services sector came in weaker than expected in April. And the employment sub-component of the report reflected a slowdown taking place, in stark contrast to the earlier, bullish jobs release.

And to top it off, US factory orders contracted by 4% during April, again below expectations.

So the world’s largest economy is slowing down and creating jobs, which lead to higher stock prices and greater wealth for the few who actually own stocks. But instead of spending that magically created ‘wealth’, the lucky few roll the dice again and punt on stocks going higher. And the stocks oblige, whether the news is good or bad.

Stocks continue to make new highs as the torrent of money created by central banks goes into ‘things’ (but not gold!). In a slow growth environment, the share market is king and cash is the joker.

Such is the world created by the central banker as supreme monetary architect.

It’s all good!

Greg Canavan
for The Daily Reckoning Australia

Join me on Google+
From the Archives…

The US Federal Reserve: What a Humiliating Failure!
3-05-13 – Bill Bonner

The End of the Road
2-05-13 – Bill Bonner

Why Apple’s Advantage is Gone
1-05-13 ­– Dan Denning

The Kamikaze Rally That Could Drive Stocks Higher
30-04-13 – Dan Denning

Australian Deficit: Where Did the Money Go?
29-04-13 – Dan Denning

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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3 years 5 months ago

According to the article on US unemployment on Bloomberg the word “possible” was place in front of the sentence “US unemployment fall”.

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