by David Haggith, The Great Recession:
This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve tried to push back up to that distant high that means new life several times, but each time the market falls into a pit again.
The market’s inability to rise without falling again is getting to be nerve racking for those who stayed in the market, trying to make it work for themselves. For Dennis Gartman, who writes the very influential Gartman Letter, last Wednesday was, in fact, one of the worst career days of his life:
Having been 150 Dow points higher and then only moments later to have traded down to where the Dow was suddenly 150 lower, the market finished effectively unchanged, with the Bulls and the Bears left scratching their heads and wondering aloud, “What the hell just happened?” …Yesterday was our worst day of the year thus far, as that which we were long of fell and that which we were short of closed unchanged. Long ago we learned that when things go awry and do so as “majestically” as they did yesterday it is best to simplify, simplify and to simplify again. Getting smaller; getting less involved; curtailing positions in numbers and sizes is the only proper way to respond and so we did exactly that…. Yesterday was a disaster which we wish to put behind us, and by getting smaller and less widely involved we are in the process of doing so.
These are the last gasps of a stock market (and economy) that is struggling to rise again to new highs, which it simply cannot do now that QE has been turned off and the oxygen tank of zero interest is being slowly turned down. I’ve said it wouldn’t be able to, and it hasn’t. It’s spent a year proving I’m right about that, never breaking through that ceiling into a realm of new life.
The zombie “bull market” doesn’t know it’s dead
While Wednesday was a day for some to retrench and rethink their strategies, Thursday’s anniversary of that last (now very distant) market high was no cause of celebration either. Stocks jolted downward again — nearly a hundred points on the Dow. If you bought the market indexes a year ago and just sat on your investment, you’d be 4-5% poorer today. Yet, some still call this a “bull market.”
Earnings growth for companies in the S&P 500 has shrunk for three quarters in a row while companies piled up on debt to keep their stock prices from falling by cannibalistizing themselves with stock buybacks. As I wrote in another article, buybacks are ending. Their support for the stock market is rapidly deteriorating. Yet, some still call this a “bull market.”
Wall Street blew off news that Walmart (which has been closing stores left and right) reported significantly improve earnings and focused on repeated hints of a Federal Reserve interest-rate hike in June. The bulls are back to their one-track obsession with the Fed as being the only real money in town. Even the revival oil prices failed to lift spirits. So, the Dow closed lower for its fourth week in a row. Yet, some still call this a “bull market.”
The pileup of corporate debt reached critical mass and is now a mushroom cloud. Since the close of 2014, delinquencies in commercial and industrial loans have spiked 124% to reach a point higher than they were in 2008 when Lehman Bros. crashed.
The following chart shows where we stand in the commercial-industrial credit cycle. You can see that the last two times delinquencies rose this high, we were in or just entering a recession.
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