The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
The U.S. economy is still not close to being fully recovered from the Great Recession, but investors could give a mouse's posterior about this sad fact.
That point was hammered home Thursday. Stocks, which many believe are due for a fall because of how well they've done this year, were flat despite a trio (troika if you're nasty) of disappointing jobs reports.
Housing, which has been the life of the economic party so far this year, took a bit of a stumble. Starts plunged in April.
The job market, which seemed to be slowly getting better, also may be taking a step back. The latest weekly initial claims figures, which are admittedly volatile, rose sharply from a week ago.
And inflation? What's that? Consumer prices fell for the second straight month. The absence of runaway inflation is of course a good thing, especially when you consider that the Federal Reserve has pumped an inordinate amount of money into the system with its asset purchase programs. But if prices continue to dip, that's a big problem. Deflation is much worse than mild inflation. Just ask Japan.
Ah yes, Japan! It has taken steps to combat deflation with a vengeance this year. The Bank of Japan's stimulus, dubbed Abenomics in honor of the country's prime minister, is like the Fed's quantitative easing.
And human growth hormones.
There's the rub. The longer that the U.S. stays in tepid growth mode -- what I've been calling the "low and slow barbecue recovery" since 2010 -- the comparisons to Japan will only increase. After all, the U.S. also has an aging population and a large government debt load. The Great Recession ended in June 2009 and here we are in May 2013 still with a lackluster recovery. So we're almost halfway to our own Lost Decade.
The perverse thing about this is that Wall Street would be overjoyed if the Fed had more of an excuse to expand QE, as opposed to reducing or tapering it.
Investors naturally love that the Bank of Japan is out-Fed-ing the Fed. The Nikkei's more than 40% surge this year makes the 15% rise in the S&P 500 look puny by comparison.
Even though there are many smart people, including members of the Fed, who are worried that QE ∞ will eventually cause a huge inflation headache and create more nasty asset bubbles down the road, the market doesn't expect the Fed to pull back on its easing anytime soon.
That's really the only reason to explain why stocks are continuing to head higher despite a round of first-quarter earnings that has been mixed at best. Wal-Mart (WMT) posts disappointing sales and the market brushes it off? Farm equipment giant Deere (DE) issues weak guidance yesterday and we hit record highs again?
Investors clearly expect the Fed to keep coming to the rescue. Forget about "Sell in May and go away." The only cutesy market aphorism that matters right now is "Don't fight the Fed."
And with good reason. The most influential members of the Fed -- chairman Ben Bernanke, vice chair and likely Bernanke successor Janet Yellen and New York Fed president William Dudley -- have gone out of their way to stress that they don't think the Fed can afford to end QE as long as the job market and overall economy remain weak.
Bernanke has also been taking pot shots at Congress for its refusal to help get the economy back on track. As long as the Fed talks about fiscal policy being a drag, there is absolutely no chance that the central bank is going to take away the heavily spiked punch bowl.
The so-called bond vigilantes have pretty much given up hope that rates are going to shoot higher anytime soon. Sure, the 10-year yield has crept up near 2% again. But that's still much closer to the all-time lows than where it was when the economy was roaring in 2005 and 2006.
And even Dallas Fed president Richard Fisher, a self-described inflation hawk who has in the past been critical of Fed stimulus, said in a speech Thursday that politicians are a big reason why the economy hasn't yet rebounded in the way most of us would like.
Fisher, who titled his speech "Fiscal Policy. Oy!" had these tough words for elected officials -- a group I like to call our nation's least and dimmest:
"I have sworn fealty to a dual mandate of conducting monetary policy so as to maintain price stability AND create the monetary conditions for full employment and prosperity for all, not just for the rich and the quick. This, I fear, we will fail to do unless Congress and the president develop and deliver on a strategy that complements ours at the Fed."
Translation? If you think the Bank of Japan is aggressively easing, you've ain't seen nothing yet.
That's why stocks could keep climbing. It doesn't matter that the economy is not healthy enough to make most average consumers feel better. Wall Street only cares about the Fed.
This can't last forever, of course. Sooner or later, the economy is either going to slow so much that we have to start worrying about another recession (and no amount of stimulus will help prevent a market pullback if that happens) or the economy will start showing signs of a legitimate, sustainable and robust recovery. In that latter case, the Fed will have no choice but to end QE and start raising interest rates.
But for now, at least, investors can enjoy the fact that the United States is basically morphing into Japan Lite. Who cares about the health of the economy as long as central banks keep those printing presses running 24/7/365? Joy.
Shares of Panasonic dropped almost 20% in early trading in Tokyo Thursday after the electronics company posted a loss and dramatically lowered its forecast for the year.
One of the world's largest television manufacturers, Panasonic has been shedding jobs for years amid slack demand. The Japan-based company said Thursday it was suspending its dividend, and that business conditions are expected to become "much more severe."
The company also said it expects a MORECharles Riley - Oct 31, 2012 11:48 PM ET
China's unofficial boycott of Japanese products found another victim Monday, after Honda said it expects to report lower income for the fiscal year.
The automaker lowered its net income forecast for the year ended March 20 to $4.7 billion from the previous estimate of $5.9 billion, saying it expects less income from affiliates in China.
Honda shares trading in Tokyo dropped almost 5% on the news. The company also lowered its forecast for MORECharles Riley - Oct 29, 2012 4:20 AM ET
Global demand for U.S. securities is still strong, with China remaining the largest foreign holder of U.S. debt, according to the Treasury Department's latest report on foreign holdings.
The U.S. government's top international creditor continued to add to its holdings, albeit modestly, according to the July Treasury International Capital report, which measures the flow of funds into and out of U.S. securities, including Treasuries, agency-backed securities, corporate debt and stocks, MORECatherine Tymkiw - Sep 18, 2012 12:44 PM ET
The world is hungry for U.S. debt.
Foreigners increased their holdings of long-term U.S. debt by $25.6 billion in April, up from a $21.9 billion increase in March, according to the Treasury Department's latest report on foreign holdings of U.S. debt released Friday morning.
The United Kingdom, France and the Caribbean had the biggest appetites for U.S. government-backed debt, according to the Treasury International Capital data (TIC) for April.
China, the U.S. government's MOREMaureen Farrell - Jun 15, 2012 12:06 PM ET
Business journalists are having fun chronicling the stock market woes of Facebook (FB). I call the phenomenon Zuckenfreude. But when it comes to technology train wrecks, Facebook can't hold a candle to the disaster that is Sony.
Shares of Sony (SNE) are trading at a more than 3-decade low, dipping below the 1,000 yen mark in Tokyo on Monday for the first time since 1980. That's four years before Facebook CEO MOREPaul R. La Monica - Jun 5, 2012 12:44 PM ET
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