Despite decent economic data reported last week, which includes productivity rising at a larger than expected 0.9% and jobless claims hitting the lowest level since 2007, the market logged its worst week of the year.
In a vacuum, economic data has actually been strong enough to justify the possibility that the FOMC may cut back stimulus. On earth where American companies sell goods and services, the economy seems to be getting dramatically worse. Some will argue that the Fed's long hinted at reduction in bond purchases next month (the dreaded "taper") is the blame. The more harrowing explanation is that the stimulus doesn't particularly matter one way or the other.
When in doubt listen to stocks.
Leo Hindery, managing partner at Intermedia Partners, says the difference between official data and corporate results is easy to explain: The data is garbage.
"Real unemployment terms is twice the official number," he explains in the attached video. Hindery says the way the government goes about counting jobs is little short of evil. "That category called 'part-time of necessity' is probably the most nefarious and insidious."
When the economic reality is flat to worsening, it shows up in Walmart (WMT) posting weak results.
The truth is simple: the economy is bad. But that doesn't make a strong market "fake." Corporate America is unquestionably in better shape today than it was during the dark days of the recession. Balance sheets are stronger than ever and there is literally cash parked overseas just waiting to find a home. There are also entire industries being created out of nothing at companies like Facebook (FB) and throughout the technology mobile space.
What bothers Hindery and perhaps one explanation for the stock market slumping last week is that a country can only go so far when all it does is sell itself advertising for goods made overseas. To create sustainable growth the economy will need to start producing jobs that result in tangible goods rather than services.
So how much is a negative real growth economy worth in stock market terms? About 2.5% less than it was last August judging by the S&P500 (^GSPC).
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- Budget, Tax & Economy
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- Leo Hindery