On Friday, December 6, a jobs report was released showing improvement in the data for the economy…
The number of jobs added was higher than expected; and the unemployment rate fell to 7%, which was also further than expected.
The stock market reacted to the positive news by going up.
The Dow was up on the day by almost 200 points.
Ironically, while it seems to make sense that stocks would head north on the good news, it’s actually out of the ordinary in the bizarre world of central banking that we live in today. Because in recent times, good news for the economy oftentimes results in bad days for stocks.
Since a better outlook for the economy means the Fed may tighten its monetary policy, this is seen as bad news for stocks.
It’s been common to see big down days when good news is announced — at least in the last few years.
Just Right
I guess we all have to change our way of thinking now.
Whereas before good news meant bad news for stocks, and bad news meant good news for stocks… now good news means good news for stocks, and bad news means bad news for stocks.
By saying this, I’m being somewhat sarcastic and somewhat serious at the same time.
You see, after the stronger-than-expected jobs report came out and investors reacted with enthusiasm, the financial media was saying that stocks reacted positively because investors thought the figure was good — but not great enough that the Fed would “taper” any more than expected.
Basically, the jobs report was good, but not too good.
(This reminds me of Goldilocks’ and her porridge: not too hot, not too cold… it was just right.)
This just shows the absurdity of trying to figure out this market right now.
While some individual stocks may be justified in rising based on the fundamentals of the company, I think it’s safe to say that most stock gains are coming as a result of Federal Reserve policy.
Excuses, Excuses
The adjusted monetary base is getting close to five times what it was back in 2008, and the Fed is continuing to create $85 billion per month in new money.
Meanwhile, Janet Yellen, the “inflation dove,” is going to take over the reigns from Bernanke in less than two months.
When stocks want to go up, they will go up. When investors want to buy, they will buy.
As long as investors think the fiat money party will continue, any story will be taken as good news for stocks. Investors can find any excuse they want to buy.
Now, this is not to say that the party will go on indefinitely… Once investors get spooked, it can also work the other way — wherein every new story is an excuse to dump everything and get out of the market entirely.
The bottom line is this: Don’t fight the Fed. And don’t fight investors who are determined to see a rising stock market.
There will be a good time again to short stocks, but I don’t think we’re there yet.
As long as the Fed is pumping in $85 billion per month, I wouldn’t bet against the broad stock market…
I’m not saying it can’t abruptly collapse, but I don’t think that’s a good bet right now.
My advice is to invest accordingly.
Until next time,
Geoffrey Pike for Wealth Daily
