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Should You Buy into the Wall Street Spin Machine?

Jan 10, 2012
Ron DeLegge

Despite Europe's ongoing sovereign debt crisis and China's stalling growth, the media continues to mislead the public with a false portrayal of the global economy and market. "The bigger the lie, the more people will believe it" saying seems to be the case.

“Stocks climbed to a five-month high,” the Associated Press cheerfully proclaimed. Statements like this are enough to make a bull…well, even more bullish. (For the record, there's nothing wrong with being bullish. This is a free country and everyone's entitled to an opinion, no matter how wrong it may be.)

But why have U.S. stocks (NYSEArca: VTI) been rising? Here’s what the AP said: “Trade data showed strong Chinese demand for metals and a bullish forecast by aluminum company Alcoa pointed to a stronger global economy.”

With such rosy and authoritative sounding words, it’s easy to see how a vacationing person could come to the wrong conclusions. Then too, these are the news headlines and words from major media outlets, whose mood is always swinging and swaying based upon what the news should be – not what it necessarily is.   

The Truth about China
No matter what emerging market (NYSEArca: VWO) permabulls say, China’s economic activity (NYSEArca: FXI) is not growing according to plan. The country faces the threat of a European recession that will drag China and the rest of globe through an abyss of unknowns. 

Chinese December imports posted their slowest growth rate in two-years and there’s no way to put a positive spin on this. Imports increased by just 11.8% and missed target estimates from economists polled by Bloomberg. Here’s a forecast you can bank on: As Europe goes, so goes Chinese exports. 

And let’s not overlook China’s host of domestic problems that include an overheated property market and a shadow banking system. In December, home prices in the country fell for a fourth consecutive month and the government has intervened with stricter mortgage requirements. Analysts are projecting a 5% decline in home sales in 2012. 

Over the past three months, Chinese stocks (NYSEArca: GXC) have posted a modest gain not because of solid fundamentals as the pied pipers suggest, but on expectations of stimulus intervention by its financial orchestrators. If a country can’t achieve legitimate organic growth, then manipulated growth is the next best thing. (See the Federal Reserve.)

The fact is there’s a domino effect that will be felt throughout the world, especially for commodity exporters (NYSEArca: HAP) who rely heavily on China’s imports. If China’s domestic economy is slowing, demand for basic materials will falter. The law of gravity cannot be altered, no matter how hard a Nobel Prize winning economist tries.

Yes, China is the world’s second largest economy in the world. And yes it is powerful. But that doesn’t make it the invincible giant that many paint it to be.

The Dark Side of Retail Sales
The Commerce Department is expected to project a slight gain in December 2011 retail sales from 0.3% compared to 0.2% in November.

In anticipation of these retail numbers, one media outlet said that “faster job growth and a pickup in wages helped put Americans in a better mood.” It’s still not clear whether they are referring to North Americans or South Americans.

How desperate were retailers (NYSEArca: XRT) to eke out sales gains of whatever kind this past holiday season?

Toys “R” Us locations stayed open from December 20 through Christmas Eve – an amazing 112 straight hours.

Macy’s had its stores open for a 24-hour period during the week leading up to Christmas.

Only a retail neophyte would argue that extra insane long hours are a free lunch proposition. Longer store hours automatically translate into higher operating costs. Employees get paid more and keeping the lights on costs more.

In the end, steep discounting, free shipping, and extended store hours may have contributed to slighter higher sales, but they unfortunately came at the huge price of cutting into corporate profits.

Looking Ahead
Before looking ahead, we must not forget where we were.

At the beginning of 2011, Wall Street’s analysts predicted an 11% rise for the S&P 500 (NYSEArca: SPY). Unfortunately for their followers, the index ended the year flat, making their forecasts wrong. The same goes for emerging market stocks, which cratered around 20% in value.

Nevertheless, the media has always been a wonderful accomplice in getting out the message out to the investing public to buy and sell at the wrong time. This, in fact, harmonizes with the very definition of media. The word “media” is actually rooted in two words - “me” and “dia.” In Spanish, the word “dia” means day. Put another way, the word “media” literally translated means “me first today.” Keep that in mind as you digest their headlines. They come first, you second.  

The ETF Profit Strategy Newsletter analyzes key levels and inflection points for the market. The January edition highlights a short list of mega investment themes and the ETFs to play them.

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