NEW YORK (
) -- The
TV comedy series had an episode titled "The Bizarro Jerry" in which everything "normal" was turned upside down and inside out. The
seems to have accomplished something similar with its experimental Quantitative Easing (QE) policies.
For the first time in a long time, underlying economic fundamentals are turning positive. Ordinarily, this would be good news for investors. But in today's upside-down, topsy-turvy, bizarre markets, "good" news is bad for investors. The blame for this is squarely on the Fed's QE policies and similar policies adopted by other central bank mimes.
The Good News
In the labor markets, job openings continue to be hard to fill (JOLTS report), layoffs and firings are at levels not seen since 2007 (Initial Jobless Claims, week of Aug. 10), and Voluntary Quits ("Take This Job and Shove It") are rising.
The consumer appears to be holding up (retail sales), and deleveraging appears to be on its last legs (rising credit card and auto debt). Europe looks like it has bottomed (positive second-quarter GDP growth), and the news from China shows higher growth levels than penciled in by the pundits.
Normally, such news would be accompanied by rising equity prices, but not this time. In the U.S., the U.K., Europe, and Japan, recent positive economic data has been met with equity market selloffs. On Aug 15, the
Dow Jones Industrial Average
sold off 218 points despite five-year lows in jobless claims, a continuation of positive retail sales trends, and high and rising homebuilder confidence, a good leading indicator of future home sales.
The table shows the performance of the world's equity markets with activist central banks for the year until the Fed's "tapering" announcement on May 22, and then from May 22 to Aug 15. Note that until May 22, the markets with activist central banks performed quite well despite relatively stagnant economies, but after the "tapering" announcement, equity prices have been less than stellar. Normally, during the first signs of a change in policy toward tightening, what we find is both rising interest rates
rising stock prices because monetary policy tightening means a strengthening economy.