CBS News: Is Wall Street getting ready to bail on the “recovery”?

posted at 4:41 pm on March 19, 2014 by Ed Morrissey

Not that it’s much of a recovery, as CBS Moneywatch analyst Anthony Mirhaydari points out in his warning to investors. Full-time work has fallen by 4.2 million full-time equivalents since the start of the technical recovery in June, and the civilian workforce participation rate has dropped to 36-year lows — with most of the decline coming well after that recovery, as this BLS chart from January covering 2009-2013 demonstrates:

bls-civ-part-rate-2009-13Despite “ultra-easy” monetary policies at banks and financial institutions, job creation and economic expansion remain stalled. Up to now, the boom on Wall Street offered the only real success story from the past five years, and is Exhibit A in the White House’s economic policies that are trying to force corporations to pay more in wages to address stalled wage growth. However, Mirhaydari sees that success story coming to an abrupt end … and soon:

Like all things, the string of good luck will eventually end. Nonsense you say? Well, insiders are already running for the exits.

Consider that despite the push to new highs for most of the stock market in early March, fewer and fewer stocks have participated. The percentage of S&P 500 stocks in uptrends hit nearly 76 percent, well off peaks near 84 percent set at the end of 2013.

Translation: Buyers are finding fewer and fewer bargains at these prices.

Or consider what’s happening at the sector level: Only three remain in uptrends based on a percentage price oscillator analysis. One, transports, is the only pro-cyclical sector left with any strength. And the other two, consumer staples and utilities, are classic safe haven plays that do well when investors are worried about the future.

Corporate insiders and the Wall Street banks are bailing out too, dumping money-losing IPOs unto the market as fast as they can in what is classic late bull market behavior. According to the folks at SentimenTrader, 74 percent of announced IPOs have no earnings. That’s the second-highest ratio in history. One of the main drivers of this has been the activity in the super speculative biotechnology sector, accounting for 13 percent of all money-losing IPOs. That’s the second-highest ratio in 20 years. Over the past year, 20 money-losing biotech IPOs have been announced, returning to a high not seen since the summer of 2000.

Moreover, much of IPO activity has been driven by private equity and venture capital firms in what, in retrospect, could be a classic example of the “smart money” selling to the “dumb money” at the top.

Mirhaydari recommends that his clients take a defensive position on investments until the dust settles. This might seem a little alarmist at the moment, but it’s probably good long-term advice.  The problem is that without the kind of explosive growth we usually see after sharp recessions, arbitrage can only take us so far. We need to generate real growth to get more resources into the economy, and we need monetary, regulatory, and tax policies that encourage that kind of investment to generate real growth and innovation. Unfortunately, as the past five years have shown, our tax and regulatory policies have benefited the largest players in the market at the expense of smaller innovators and competitors, while keeping capital on the sidelines and workers on unemployment. And nothing from Washington indicates that those problems will get better — and to the extent Barack Obama succeeds in his economic agenda, it’s likely to get worse.

Unless something dramatic happens, the coming correction will probably look a lot like the “recovery” — wan, dispirited, and stretched out long enough to keep the lows from getting too low. But no one looking at the growth and jobs numbers can have much optimism for Wall Street, let alone Main Street.

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Oh yah – get ready for the Wall Street Spring!!!

dentarthurdent on March 19, 2014 at 4:43 PM

and BISHOP!!!!

dentarthurdent on March 19, 2014 at 4:43 PM

“Forward.”

Don’t miss the period.

Schadenfreude on March 19, 2014 at 4:43 PM

Yellen said she’s cutting back on printing money, probably ending it at the end of the year.

So, Crash for Christmas?

Hopefully it will hit before the midterms.

PattyJ on March 19, 2014 at 4:48 PM

I see nothing to indicate a correction is forthcoming. Just the usual wall of worry that the street eats like candy. This is the least loved bull market in history. That is just fine with me.

MJBrutus on March 19, 2014 at 4:48 PM

Unless something dramatic happens, the coming correction will probably look a lot like the “recovery” — wan, dispirited, and stretched out long enough to keep the lows from getting too low.

And then there’s the Putin effect…

BKeyser on March 19, 2014 at 4:48 PM

But no one looking at the growth and jobs numbers can have much optimism for Wall Street, let alone Main Street.

And yet “smart” people are demanding the GOP make 2014 elections all about Obamacare.

Happy Nomad on March 19, 2014 at 4:53 PM

Anything to do with the huge amount of suicides amongst Wall Street types these past few months?

portlandon on March 19, 2014 at 4:53 PM

Do you mean to tell me all the money they devalued by ‘printing’ more has been a wasted effort?

DinaRehn on March 19, 2014 at 4:53 PM

Anything to do with the huge amount of suicides amongst Wall Street types these past few months?

portlandon on March 19, 2014 at 4:53 PM

It’s almost like history is repeating itself in slow motion…

DinaRehn on March 19, 2014 at 4:55 PM

12th Wall Street type commits suicide this year.

portlandon on March 19, 2014 at 4:55 PM

I wonder what they know that we don’t

DinaRehn on March 19, 2014 at 4:56 PM

There’s been a recovery?

rbj on March 19, 2014 at 4:56 PM

Wall Street is controlled mainly by Limousine liberals and they made more money under Obama than any other President in history… This is the biggest Wall Street bubble of all times and it is caused by the Feds printing trillions of dollars to buy Wall Street toxic assets and lend them money at zero interest and in return they lend the money to consumers at much higher interest… And all this at the terrible expense of Americans and for generations to come… The Republican party should run against Wall Street, it is the enemy of Capitalism and the United States…

mnjg on March 19, 2014 at 4:59 PM

CBS News: Is Wall Street getting ready to bail on the “recovery”?

In this version of musical chairs, all of the big players will still have a seat when the music stops. But those of us who haven’t been playing much or at all will be left standing and lose.

Dr. ZhivBlago on March 19, 2014 at 5:03 PM

There’s been a recovery?

rbj on March 19, 2014 at 4:56 PM

My collie says:

The kind that only a rodeo clown could believe in.

CyberCipher on March 19, 2014 at 5:04 PM

“The Fed Window is Closing”

Crash – bang – boom

jake-the-goose on March 19, 2014 at 5:05 PM

There’s been a recovery?

rbj on March 19, 2014 at 4:56 PM

He’s not dead, he’s merely resting!

Back in 2009 the experts were calling this a jobless recovery. That’s pretty much the way it has turned out even though the administration has cooked the numbers so often that there is no integrity behind their reporting.

Happy Nomad on March 19, 2014 at 5:08 PM

“The Fed Window is Closing”

Crash – bang – boom

jake-the-goose on March 19, 2014 at 5:05 PM

All according to plan.

tru2tx on March 19, 2014 at 5:14 PM

Wall Street is doing great because companies are doing great. Companies are doing great because they are churning out the same output while having less overhead. Human resources is the number one expense of any company. They don’t want to hire because of the obligations that come with taking on employees. So they are forced to become more efficient. As a company becomes more efficient, it’s bottom line gets fatter. As the bottom line gets fatter, the stock value rises.

The irony is that what is good for a company’s efficiency, is bad for employment. Obama’s administration is hostile to business. So business does not hire. But what businesses are finding is that by not hiring, and instead using existing workers, they can actually just become more efficient. As a result, companies are sitting on huge cash assets.

Socialist policies may be bad for employment, but Wall Street like the efficiency that they force on the businesses.

HugoDrax on March 19, 2014 at 5:15 PM

Just watch the Fed – as long as they are buying, keep investing. Eventually Yellen will succumb to the reality that Obama has zero political cover for the fed and they will at least have to start unwinding some of their positions.

But until they do – market pressure is pushing up – not down. Commodity prices are falling.

Zomcon JEM on March 19, 2014 at 5:18 PM

Zomcon JEM on March 19, 2014 at 5:18 PM

Yep. That’s about the size of it. The other thing to consider is that the Fed debt at $17.5 TRILLION means that DC cannot afford to see rates tick up. Not even a tiny bit. They picked Yellen because she’s their dovish gal. Today we had a dip when she suggested that maybe the Fed could hike the rates by a 1/4 in 2015. I say that it’s not gonna happen. Not by a long shot.

MJBrutus on March 19, 2014 at 5:25 PM

…there’s a reason you are working 12 hours a day 6 days a week…and have not had a raise since 2008-9!

KOOLAID2 on March 19, 2014 at 5:28 PM

HugoDrax on March 19, 2014 at 5:15 PM

Wall Street is doing great for two reasons and two reasons only:

1. The Federal reserve is printing 85 billions dollars a month to buy Wall Street toxic asset in form of mortgage securities…

2. The Federal Reserve is lending money to Wall Street at almost zero interest and then the Wall Street bankers are lending it to consumers at much higher interest making record profits…

All the above at the terrible expense of the producers and for generations to come we are going to pay for this…

Wall Street is now the biggest enemy of real Capitalism… It is controlled by Limousine Liberals…

mnjg on March 19, 2014 at 5:29 PM

mnjg on March 19, 2014 at 5:29 PM

I thought they dropped the purchases down to 80 or 75 billion a month?

The Fed expanded its holdings of Treasury and mortgage-backed securities by $85 billion each month in 2013 in an effort to spur job creation and drive down unemployment. In December the Fed announced that it would cut the volume to $75 billion in January. It said Wednesday that it would further reduce the volume of purchases to $65 billion in February: $30 billion of mortgage bonds, $35 billion of Treasuries. It also said it was “likely” to continue the retreat, setting the table for another $10 billion cut at the next meeting of the Fed’s policy committee in March.
My bad, 65 billion

I am not so sure the wall street people are loaning the money to consumers. More likely they are loaning it to the Federal Government to buy bonds…

I get where you are coming from, but I really do not see a big consumer borrowing splurge going on right now and just keeping the numbers correct as for the purchases… Sentiment is right, facts are off.

astonerii on March 19, 2014 at 5:36 PM

Not that it’s much of a recovery, as CBS Moneywatch analyst Anthony Mirhaydari points out in his warning to investors. Full-time work has fallen by 4.2 million full-time equivalents since the start of the technical recovery in June,…

Minor corrections to both that summary and what Mirhaydari claims.

- Using seasonally-adjusted data from the CES, the private-sector jobs market is about 1.4 million full-time eqivalent positions short of the peak of March 2008.

- Using seasonally-adjusted data from the CPS, while there are 5,074,000 more people working at least 35 hours per week (full-time, which includes those working multiple part-time jobs to get to full-time) compared to June 2009, there are still 4,056,000 fewer people working at least 35 hours per week compared to the pre-recession peak of November 2007.

I don’t know where Mirhaydari came up with his 4.2 million missing full-time jobs, but the 4.1 million fewer full-time workers is pretty close.

The discrepancy between the two sets of numbers I quoted is partially explained by the fact there are 2,572,000 more people working fewer than 35 hours per week (part-time) than there were in November 2007 (with 129,000 fewer people working part-time than in June 2009).

Steve Eggleston on March 19, 2014 at 5:37 PM

Hey if we’re lucky maybe albill will show up and tell us all what this truly means.

Bmore on March 19, 2014 at 5:53 PM

I can’t wait for the outcome. I just hope a lot of good people don’t get hurt.

crankyoldlady on March 19, 2014 at 6:19 PM

12th Wall Street type commits suicide this year.

portlandon on March 19, 2014 at 4:55 PM

I wonder what they know that we don’t

DinaRehn on March 19, 2014 at 4:56 PM

They know that monetization of the national debt in the from of Quantitative easing and unprecedented international EFI’s is a precursor to hyperinflationary collapse that will make the Weimar Republic look like a bunch of pikers.

gryphon202 on March 19, 2014 at 6:23 PM

As a company becomes more efficient, it’s bottom line gets fatter. As the bottom line gets fatter, the stock value rises.

The irony is that what is good for a company’s efficiency, is bad for employment. Obama’s administration is hostile to business. So business does not hire. But what businesses are finding is that by not hiring, and instead using existing workers, they can actually just become more efficient. As a result, companies are sitting on huge cash assets.

Socialist policies may be bad for employment, but Wall Street like the efficiency that they force on the businesses.

HugoDrax on March 19, 2014 at 5:15 PM

A few comments:

1) earnings are also growing because companies are buying back their stock at record rates. They don’t need more equipment / capital spending because they already have too much capacity, so they spend the money where it helps the bottom line the most: shrinking the shares outstanding that earnings are divided by.

2) Companies are indeed sitting on huge piles of cash… but they got that cash by issuing huge piles of debt. Corporate debt is at record levels–more than offsetting the cash on the balance sheet. They sold the debt because it is so cheap that any CFO that didn’t build a cash war chest should be fired.

Neither of these effects are indicative of a strong economy.

PD Quig on March 19, 2014 at 6:30 PM

With all the manipulation and falsification of the economic data by this nest of liars in the obama administration, does anybody know if there is any real data on which the economists can rely to attempt to save this country? I know that economics is the dismal science, but how can they figure out where we really are and what really needs to be done with false data for the last five years?

Old Country Boy on March 19, 2014 at 6:34 PM

2) Companies are indeed sitting on huge piles of cash… but they got that cash by issuing huge piles of debt. Corporate debt is at record levels–more than offsetting the cash on the balance sheet. They sold the debt because it is so cheap that any CFO that didn’t build a cash war chest should be fired.

Neither of these effects are indicative of a strong economy.

PD Quig on March 19, 2014 at 6:30 PM

The corporations are assuming massive piles of debt because of ZIRP. They’re backed by the bankers, and the bankers are backed by FedGov, and it’s all setting on a massive foundational house of cards that could collapse with less than a day’s notice.

gryphon202 on March 19, 2014 at 6:36 PM

With all the manipulation and falsification of the economic data by this nest of liars in the obama administration, does anybody know if there is any real data on which the economists can rely to attempt to save this country? I know that economics is the dismal science, but how can they figure out where we really are and what really needs to be done with false data for the last five years?

Old Country Boy on March 19, 2014 at 6:34 PM

If you’re vested in stocks and bonds, have your finger on the proverbial trigger to sell short when this clusterfluke hits its natural logical progression. If you’re vested in USD currency trading, same thing. There won’t be a bank, municipal government, state government, or corporation that emerges from the coming disaster unscathed.

gryphon202 on March 19, 2014 at 6:38 PM

Then it will zoom up in November when more Democrats get booted out of Congress…

albill on March 19, 2014 at 7:10 PM

The Republican party should run against Wall Street and the Chamber of Commerce, it is they are the enemy of Capitalism and the United States…

mnjg on March 19, 2014 at 4:59 PM

VorDaj on March 19, 2014 at 7:13 PM

Despite “ultra-easy” monetary policies at banks and financial institutions

Please do not confuse low nominal rates with easy money.

Nominal rates are low because inflation expectations have been falling for decades, per Fisher and Friedman. But NGDP took the biggest fall since TGD in 2008-9 — that’s a deeply contractionary monetary policy!

QE has not been effective at easing, liquidity injections generally aren’t. The Fed’s mistake was in not simply changing forward guidance in 2008-9, they could have prevented a lot of problems that way.

Remember, the 1987 stock market crash was a bigger event, but had little effect on NGDP because we weren’t at ZLB and so the Fed responded competently. Now that we’re near the zero bound they’ve become very confused.

TallDave on March 19, 2014 at 10:40 PM

The damage to 401k accounts is the truly scary aspect to this.

KMC1 on March 20, 2014 at 12:35 AM

The market is spooked because after their fervent toasting of Yellin, due to her reputation as a big “throw some more currency in the mix” pumper, she has announced the FRB will be curtailing bond purchases to $55 billion and cutting from there, with a 1% base rate target for 2015 and 2.25% the following year.

That means Wall Street’s big party is winding down. All that essentially free money at the discount window was being used to buy equities, in effect on margin with no interest. Fund managers and bankers who dealt mainly in bonds (the bond market typically is over four times as big as the equities markets) have been facing near-zero returns and moving funds into equities in search of some returns.

But Yellin had little choice, the Fed banks were already getting overloaded on all this low-interest debt of questionable worth (including the Treasuries), they have to cut back and are in fact probably rather late in starting and slow in phasing it out.

The good news is that in the long term it will allow growth to resume (assuming we can roll back the Obama Era regulations with a Republican President) and cause private capital investment to finally rebound. Unfortunately, in the shorter term it means that some of the pain the FRB policy of “easing” was aimed at postponing will come due.

Expect the media and Democrats to blame the short term pain on Republicans, though.

Adjoran on March 20, 2014 at 12:57 AM

so, is shouting BISHOP! when being first to post an homage to a poster named Bishop who, at one time, was always first to post?

beselfish on March 20, 2014 at 7:37 AM

beselfish on March 20, 2014 at 7:37 AM

Yep.

BacaDog on March 20, 2014 at 8:58 AM