The 3 Worst Pieces of News So Far in 2014

2014 is still young, but some of the very recent developments have the potential to be more than quick glitches and really ding the economic recovery and derail the stock market rally.

2014 hasn’t exactly started off with a bang for stocks.

The S&P 500 and Dow Jones are in the red so far and there’ve been three down right negative and unrelated news items.

1) According to FactSet, 94 out of 107 companies on the S&P 500 that have issued an earnings outlook for the fourth quarter have fallen below Wall Street consensus. This 88% ‘over promise’ rate is the most pessimistic reading since FactSet started tracking the data in 2006.

2) The official U-3 unemployment rate fell from 7% to 6.7% in December. How is that bad news?

Unfortunately, U.S. employers added only 74,000 jobs in December while 347,000 ‘workers’ left the workforce. For every 1 person that found a job, 5 people left the workforce.

The chart below plots the S&P 500 (NYSEArca: SPY) against the unemployment and labor force participation rates.

In a normal environment the participation rate and unemployment rate do not move in the same direction, just as the cost of living and ones disposable income do not move in the same direction (if one goes up, the other goes down and vice versa).

3) The ‘dumb money’ is getting foolishly giddy about stocks. This data point is not a poll, it’s an actual money flow indicator.

Sometimes there’s a discrepancy between what investors say (polls) and what they do (money flow). Investors not “putting their money where their mouth is’ existed for much of 2013.

Not so now. This indicator shows a clear commitment to stocks with very little fear. This indicator is close to a reading that preceded the 2010 Flash Crash, which shaved 1,000 points off the Dow Jones (DJI: ^DJI) in one day.

The chart that shows exactly how concerning this extreme reading is, along with a fascinating nutshell analysis, can be found here: Flash Crash Indicator Nearing Flash Crash Signal

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Dow 14,200 – 2007 vs. Today

One person’s loss seems to be someone else’s gain. The fake QE bull market has created new realities. Whether good or bad, they seem unjust for many, with the exception of 1,426 lucky ones.

The Dow Jones just got within 50 points of its 2007 all-time highs. Looking at the chart below it appears as if all the agony caused by the 2008 financial crisis has been erased.

But guess what? A chart can be deceptive. I’m not the first and probably won’t be the last to point out the painful differences between Dow 14,000 in 2007 and Dow 14,000 in 2013.

On open-eyed trip down memory lane will highlight many perverse market realities not captured by any single bar or candle chart. What are they and who profits from them?

The two most recent Dow 14,000+ readings happened in February 2013 and October 2007. Let’s compare the two.

The table above speaks for itself and tells the story of millions of Americans still left without (adequate) jobs, out of their homes, bankrupt, and/or on food stamps.

The chart below ads a few more brush strokes to that picture as it plots the S&P 500 against unemployment (the rosy U-6 number), food stamp recipients and the Fed’s balance sheet.

But there’s another story to tell. The story of the “1%-ers” or the “1% of 1%-ers.”

According to Forbes, the year 2012 saw 200 new billionaires, a 16% increase over last year. The total number of billionaires is now a record 1,426 worldwide.

As a group, billionaires’ net worth soared to 5.4 trillion, 17% year over year increase. The average net worth of a billionaire is $3.8 billion according to Forbes. It’s tough to find historical data on the world’s billionaires, but in 2004 there were 691 billionaires collectively worth $2.2 trillion.

Although the future of the fake QE bull market is uncertain, we already know the winners and losers of the great fake recovery: The ‘expensive champagne elite’ (winners) and ‘cheap beer economy class’ (losers).

There are now more billionaires and more welfare recipients than ever before. Whether QE and worldwide quantitative easing is to blame for this we don’t know.

Unless they find a way to profit and not get hurt by QE, the middle class will become the next ‘mammal’ on the list of endangered species.