The press's fierce determination to avoid blaming any of the steep decline in this nation's stock markets so far this year on horrid U.S. economic data, or on the Obama administration which has given us such a sour economic environment, has gone way beyond annoying.
Shortly after noon at Yahoo Finance, as the Dow Jones Industrial Average's Friday dive hit 500 points, Nicole Sinclair, who is also a senior analyst at TheStreet.com, asked: "Why the heck are the markets tanking?" The mystified Sinclair came up with five reasons. None of them directly related to U.S. fundamentals, which she eventually described as "mixed," or recently released data, though she finally mentioned "disappointing" December retail sales in passing in her second-last sentence.
Here were Sinclair's five factors. The closest she got to citing a real domestic cause was in her first item. She asked the right question, but then failed to answer it (bolds are mine):
... Oil, Oil, Oil
... So why are low oil prices affecting the markets? Cheap oil means cheap gasoline. So shouldn’t that help consumer spending?
... There seems to be a growing consensus that low oil prices have been a net negative for growth, as outlined in a recent note by Bank of America Merrill Lynch. In the 6 quarters since oil prices started ot drop, U.S. GDP has averaged 2.3%, only a slight improvement over the 2.1% growth rate for the first five years of the recovery.
Consumers aren't spending their supposed gas price windfall, partially because some people are choosing to save what they aren't spending, partially because others have been hit by other costs (e.g., Obamacare deductibles, higher college costs for those who aren't borrowing), and partially because incomes aren't rising (in fact, as noted earlier today, the poorest 20 percent have seen their incomes decline).
Let's get to Sinclair's other four items:
... China
Stocks in the second-largest economy in the world have entered bear market territory for the second time in seven months. Why are U.S. investors interpreting China’s woes as poison for the U.S.?
First off, China has been an important source of global growth with significant spending power. Being the second-largest economy in the world carries some weight.
Second, there is an important psychological effect in the markets, especially as China is a big purhaser of treasuries and a big force in global currency markets, according to Hanson.
In addition, a lack of clarity on the true health of the economy has added to the volatility.
... The dollar
Rising rates lead to a stronger dollar. When the dollar rises rapidly and oil falls quickly, the implications for earnings are significant. Expectations for rising rates are putting upward pressure on the dollar. And over 30% of the revenues for S&P 500 companies come from outside of the U.S. and thus are negatively impacted by a rising dollar.
The manufacturing sector in the U.S. has weakened. "This shows up disroportionately in valuations in the major indices," according to Hanson.
... Credit market question marks
In December, the junk-bond market, comprised of riskier companies with high debt levels, was under pressure amidst the oil slump, as worries abounded that companies in energy-related sectors would default on their debt.
... Uncertainty over the Fed
... But while Fed Chair Janet Yellen emphasized during the December press conference that the committee will remain economic data dependent in its rate decisiosn going forward, many investors are concerned that our economy is not yet healthy enough for a continued rise in interest rates. While some data has continued to improve—notably, the unemployment rate—worries have abounded about continued pockets of mixed data, including Friday's disappointing retail sales, along with still-low inflation and global concerns that reflect a less healthy economy.
Uh, Nicole, the only strong data is in job growth — and as I noted yesterday in my post about Rick Santelli's take on things, even the talking heads on NBC were poking holes you can drive a truck through at Friday's jobs report, and the unemployment rate has likely been kept down by data manipulators at the Bureau of Labor Statistics, which appears to be artificially excluding people who are genuinely looking for work from the labor force.
Somehow Sinclair failed to mention the following U.S.-related reasons why the U.S. stock markets dropped like a rock on Friday (final damage: Dow, -2.39 percent; S&P 500, -2.16 percent ; NASDAQ, -2.74 percent):
- The specific drops in retail sales: a seasonally adjusted -0.1 percent overall and even -0.1 percent excluding autos, which until the past couple of months have held on while other areas fell. December retail sales were up by only 2.2 percent over December 2014, a level which in the past has been a recessionary red flag.
- Industrial Production: Per the Fed, it fell by 0.4 percent in December, after a downwardly revised drop of 0.9 percent in November. December 2015 production was 1.8 percent lower than December 2014 — the worst reading since 2008, and another historical recessionary indicator.
- Manufacturing and Trade Inventories and Sales — The Census Bureau told us that inventories fell by 0.2 percent in November. This wasn't necessarily bad news, because they've gotten way too high. But sales also fell by 0.2 percent from October, and came in a stunning 2.8 percent below November 2014.
- As if we needed more bad news, the Empire State Manufacturing Index came in at -19.5 (a negative number means contraction) — the lowest reading since 2009 and the largest miss compared to expectations (which averaged -4.3) on record.
Sinclair had to work really hard to totally ignore three of the four items just identified and barely touch on retail sales while looking for external reasons why the market fell so sharply Oh, and did I mention that Walmart announced.
Finally, while citing the Fed, Sinclair failed to mention a very troubling statement which was at least two hours old at the time of her writeup:
New York Fed President Says "If Economy Weakens Further, Would Consider Negative Rates"
In other words, a key Fed official told depositors that he'd be fine just taking their money, because they feel like it — all for the greater good, y'know. This is stuff one sees in banana republics — that, and a press with reporters who pretend that a nation's economic problems are everyone else's fault, and have nothing to do with the current presidential regime.
Cross-posted at BizzyBlog.com.
