Ominous Warning From The Stock Market?

By Dr Robert McHugh – Re-Blogged From

….The Fed has become increasingly political, and they have taken their role within the Plunge Protection Team, their legislative right from the President’s Working Group established in 1988 after the 1987 stock market crash, to greater heights, more frequent intervention, and intervention that occurs outside of a stock market crash environment which was the original intent. In other words, the Fed can print money, hand it to its Wall Street surrogates, and order the purchase of stock index futures to push the stock market higher, or to slow or stop declines.

With the establishment that empowered the current Fed Chair and open market committee members politically incented to make sure the stock market remains steady, and that no collapses occur before the November election, it is difficult to believe that a stock market plunge could occur before November 8th as these Bearish divergences warn is likely. We also are entering a period of time seasonally where stock market plunges and strong declines are more likely to occur than other periods of each year. So a rational analyst would expect the Fed to be goosing this stock market hard over the next two months, mitigating the possibility of a plunge.

However, the previous two times we had a US presidential election where no incumbent president was up for reelection, we saw stock market plunges the adjacent months before the election, in 2000 and again in 2008. In both cases, the president that was elected came from the party previously out of power. So the next two months present a fascinating situation for the U.S. stock market. Knowing that a plunge is highly probable, will the Fed and Plunge Protection Team be working overtime to prevent that natural tendency for a free-market stock market? Or, are the divergences identifying an underlying Bearish condition so severe that they will overpower all the king’s horses and all the king’s men?

Speaking of goosing markets, The Labor Department’s Bureau of Labor Statistics reported with a straight face that the US economy created 151,000 non-farm payroll jobs in August 2016. However, they also reported that they included in that figure a guess, an uncounted fudge estimate, that 106,000 of those 151,000 reported new jobs were created by new businesses they hope started up in August and guess were hired by those new businesses in excess of lost jobs from business that ceased operations, their CES Birth/Death model report. In other words, the truth is closer to 45,000 new jobs were created in August, not the 151,000 they reported. The U.S. needs to create at least 150,000 new jobs each month just to break even, so it is clear the Fed has its excuse not to raise short-term interest rates in September and risk triggering a stock sell off. The guess here is nothing happens with interest rates until after November 8th. The labor force participation rate (the number of people who are either employed or are actively looking for work) came in at 62.8 percent in August, which means that 37.2 percent of the working eligible population is not working. Of course the political spin unemployment figure harboring all the headlines is 4.9 percent, not the real 37.2 percent. How, is this difference possible? The BLS simply decides not to consider 85 percent of the unemployed as unemployed for one reason or another. The bottom line: 95 million U.S. work eligible persons are not working.



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