Fragile Friday – Can Low-Volume Bounce Hold into the Weekend?

What total BS.

The volume on the S&P to the upside has been pathetic and yesterday was no exception with just 92M shares trading on SPY.  To put that into context (which we reviewed in yesterday's Live Member Chat Room) – we've had 4 up days and 5 down days in March and the SPY volume on the 5 down days has been 647M while the volume on the 4 up days has been 344M – just half of what the down volume has been.  

Nonetheless, despite the massive outflow of funds, SPY is only 3 points below where it started the month, at 210.  Even if we give the benefit of the doubt and pretend this isn't a blatant act of market manipulation designed to fool retail investors into buying the dips while Fund Managers and Banksters run for the exits – it's still an indication that this "rally" has a very weak base and could easily collapse in a dramatic fashion.  

Traders tend to become complacent during rallies and they don't take profits or they don't keep hedges (usually because they get tired of their hedges failing during the rally) and that is exacerbated by the Corporate Media, who are also paid to stampede the sheeple whichever way the Banksters need them to go.

In this morning's news alone, US Steel (X) is idling a Minnesota plant due to lack of demand for steel and 15M tons of coal production went off-line in 2014 due to lack of demand and the IEA says oil prices will continue to fall due to lack of demand and the IDC predicts Global shipments of PC's will decline 4.9% due to lack of demand.  

Yet you are paying record high prices for stocks?  Doesn't SOMETHING seem wrong about this to you?  It doesn't matter if you can't put your finger on it – SOMETHING is wrong and, if something is wrong, you need to be cautious with your investments.  We took advantage of the dips to press some of our LONG-TERM beaten-down commodity plays and we took some profits off the table while we also ratcheted up the protective hedges in our Short-Term Portfolio because we simply think there needs to be more consolidation before this market goes any higher.  

As noted on Dave Fry's XLF chart, FREE MONEY from the Fed(s) has enabled companies to buy back record amounts of their own stock.  Last Thursday, we discussed how buyback money accounts for 85% of the inflows into the markets and that inspired the Harvard Business Review to agree with me, publishing a scathing indictment of GM's $5Bn buyback scheme (almost 10% of the stock), calling it "Bad for America and the Company."   

GM did $20.4 billion worth of buybacks from 1986 through 2002. If it had saved that money and earned a modest 2.5% on it, the company would have had $35 billion on hand when the financial crisis and Great Recession hit and probably would not have had to file for bankruptcy protection. As Bob Lutz, the veteran auto executive, said recently, stock buybacks are “always a harbinger of the next downturn…in almost all cases, you regret it later.”

GM is just a drop in the bucket, adding to what is now over $600Bn in planned buybacks for 2015.  Buying back stock doesn't build anyting, it doesn't improve your business – it only decreases the number of shares your earnings will be divided into so it LOOKS like you are earning more, which then masks the need to make investments in more productive things – dooming the company down the road.  

But most investors don't care about "down the road", they care about todays move or the month's move and hardly ever the quarter.  The average time a US investor holds a stock has dropped to 22 SECONDS.  You can thank high-speed trades for that but it wouldn't take too many people holding stocks for 31M seconds (a year) or 315M seconds (a decade) to bring that average up a bit.  But they don't – there are so few buy and hold traders left that we have a little club (the Value Investing Congress) where we commiserate once a year.  

Sadly, when the market is run to please the 22-second investors, the rest of us suffer.  When the shareholders have no loyalty to the company, there is no one to hold the CEOs and the Boards accountable and that means they can feel free to plunder their companies to enrich themselves – after all, who cares what damage they've caused after they've gone?   

That's why, rather than investing $5Bn in better electric cars or hydrogen fuel cells or better auto designs, GM is buying back 10% of it's own stock.  It enriches the guys who have stock options and the board members and the CEO gets to look like she's running the company well and, of course, it enriches the Banksters who run the buyback deals (nice commissions on $5Bn) so who cares whether GM is competitive in 2020 – not any of those people's problems…

We don't invest in R&D, we don't invest in Durable Goods, we don't invest in training and hiring employees, we don't invest in infrastructure – even though we know it's a crisis.  We're ignoring the cost of Global Warming (another way we pretend there are profits by pushing the true cost of pollution to our children) and it's no wonder the index of our competitiveness fell off a cliff (though back to 3 now that the rest of the World is also failing).  

But the stock market is up so all must be well.  

Have a great weekend, 

– Phil