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Bronze Is The New Gold And Why Swallowing Aliens Never Ends Well

Tyler Durden's picture


It's not unheard of for stocks to rally when economic conditions are weak, particularly when corporate profits are doing well; Q2 marked a new all-time high run rate of S&P profits. As a result, the 13% gain in the S&P this year is not a complete anomaly. But, as Michael Cembalest of JPMorgan notes, in prior cycles, 'weak economy' stock market rallies were predicated more on the view that a private sector recovery was just around the corner, rather than the current view that more Central Bank stimulus is just around the corner. The other notable aspect of the rally is that it took place as earnings forecasts for 2012 and 2013 have been falling, and as Q2 revenue growth slowed. To paraphrase what’s going on, Cembalest believes "Bronze is the new Gold" as expectations are so low, that anything better than recessionary data can be well-received by markets.


Here’s one example: on August 3rd, the US payroll report was released. Around 160,000 jobs were created, and the S&P 500 rallied by more than 2%. In this instance, markets awarded a gold medal to a bronze medal performance. That payrolls beat low expectations explains part of it, but in the past, 2% rallies on payroll day only happened when payrolls really took off. The chart below shows each time since 1966 that the S&P 500 rallied more than 2% on payroll day. As you can see, 160,000 jobs is at the low end of historical catalysts.


Another way to think about this: there's so much pessimism around, that a positive surprise can have a positive short-term effect on markets. It's hard to measure pessimism; people try, using investor surveys; put-call pricing differentials in options markets; short interest in cash and futures markets; hedge fund net risk exposure; and the amount of cash on corporate, mutual fund and household balance sheets. The JPM CIO would add a 2% stock market rally on mediocre payroll gains as another indication of elevated investor pessimism as he is reminded of some academic papers showing that the stocks in the Dow rated 'sell' by Wall Street analysts generally outperform 'buy'-rated stocks, and that the same holds true for tech stocks. In other words, capitulating after all the bad news is out can be a bad strategy.

US companies have a lot of cash (note: the largest tech, pharma and industrial names hold around 70% of it overseas), and we are seeing a pick-up in announced buybacks and M&A. But demand isn’t strong enough to merit much of an increase in hiring trends or capital spending. We expect payrolls to average around 150k, and roughly 2% GDP growth. It’s a stable, mediocre trend whose durability will depend to some extent on the election and the outcome of the fiscal cliff debate. On the latter, markets appear to be assuming that the large legislated tax drag on GDP of ~4.5% will be negotiated down to ~1.5%.

Of course, the other factor behind the recent rally is the prospect of unlimited bond purchases (and other financing schemes) by the European Central Bank, as it absorbs the hundreds of billions in sovereign and bank debt exposure that investors don’t want anymore. Let’s use a science fiction lens here. Swallowing an alien is one sure-fire way to get rid of it, but then you have to wonder what happens once it gets digested.

Color me very nervous on how this all turns out in the end.


Source: JPMorgan


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Mon, 08/13/2012 - 12:59 | Link to Comment Blopper
Blopper's picture

Stock market can still rally despite corporations losing money, during hyperinflation.

Mon, 08/13/2012 - 13:06 | Link to Comment SeverinSlade
SeverinSlade's picture

Why exactly is JPM discussing the prospects of Alien porn?

Mon, 08/13/2012 - 13:10 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Because Tranny porn is so yesterday?

Who do you think supplied the SEC with the Tranny porn?

<Sorry, rhetorical question.>

Mon, 08/13/2012 - 13:13 | Link to Comment SeverinSlade
SeverinSlade's picture

Paul Krugman?  He loves the prospects of an alien invasion...Seems likely that he probably jerks it to the Alien movies.

Mon, 08/13/2012 - 13:16 | Link to Comment malikai
malikai's picture

Have you guys ever seen alien porn? It's totally modern day Keynesian.

Mon, 08/13/2012 - 14:23 | Link to Comment Manthong
Mon, 08/13/2012 - 13:00 | Link to Comment oklaboy
oklaboy's picture

weeeerrrrreeeee offf to see the wizard, the wonderful wizard of ozzzzzzzz

Mon, 08/13/2012 - 13:05 | Link to Comment The Wizard of Oz
The Wizard of Oz's picture


Mon, 08/13/2012 - 14:02 | Link to Comment Tunga
Tunga's picture

Do you mean Lizard? 

Mon, 08/13/2012 - 13:00 | Link to Comment Blopper
Blopper's picture

Everyone can still lose money even during hyperinflation, when stated in real term.

Mon, 08/13/2012 - 13:01 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

in this system ya need a brass ass

Legalize Competing Currencies
By: Dr. Ron Paul, U.S. Congressman

YaY!  the slewiePlankTM BiCheZ!

i am now 100% certain thet the FED is gonna get a face-full of pi-rat!


Mon, 08/13/2012 - 13:01 | Link to Comment Meesohaawnee
Meesohaawnee's picture

for the millionth time. ITS NOT STIMULATIVE!! we need to quit using word. its only stimulative to big bonues and commodities. Its "screw the middle classative" !!

Mon, 08/13/2012 - 13:05 | Link to Comment fuu
fuu's picture

WTF! JPM is a face hugger.

Mon, 08/13/2012 - 13:31 | Link to Comment Dr. Engali
Dr. Engali's picture

I can tell you how it all ends up.... the alien eat's it's host from the inside out. Then once it's done with the host it escapes and grows into a monster that consumes everything in sight. In this case the monster is hyper inflation. In the end there will be war.

Mon, 08/13/2012 - 13:17 | Link to Comment flyme
flyme's picture

Perception is everything, yet nothing at all.


Mon, 08/13/2012 - 13:21 | Link to Comment Father Lucifer
Father Lucifer's picture

Obviously BTFD

Mon, 08/13/2012 - 13:36 | Link to Comment Headbanger
Headbanger's picture

I told you the BERNANKE is an alien.. The BORG queen!

Mon, 08/13/2012 - 13:42 | Link to Comment sitenine
sitenine's picture

Race to the bottom, bitchez!

Mon, 08/13/2012 - 13:46 | Link to Comment LeisureSmith
LeisureSmith's picture

Look at that ominous alien crouching in the corner over there, quick! someone swallow it.

Mon, 08/13/2012 - 13:56 | Link to Comment orangegeek
orangegeek's picture

We are just one more fat finger away from heading downward.  The SP500 has been trading in a 10 point range for almost a week.  The bollinger squeeze crowd must be salivating.

Mon, 08/13/2012 - 14:15 | Link to Comment Headbanger
Headbanger's picture

And the VIX got below 14 today. 

If anybody even says the word "sell" the market will implode

Mon, 08/13/2012 - 14:57 | Link to Comment poor fella
poor fella's picture

But it might implode higher.

Mon, 08/13/2012 - 13:59 | Link to Comment You Didn't Buil...
You Didn&#039;t Build That's picture

Yes, the economy is buzzing along I see......BTW, did you see my EBT card; I know I just had it in my pocket.....mmmm.

Mon, 08/13/2012 - 14:05 | Link to Comment Tunga
Tunga's picture

Capitalisim is two aliens fighting over who to swallow.

Mon, 08/13/2012 - 14:07 | Link to Comment Tunga
Tunga's picture

So there's these two aliens eating a JPM banker, and one says to the other; Does this taste funny to you?


Mon, 08/13/2012 - 16:29 | Link to Comment spanish inquisition
spanish inquisition's picture

Bronze is the new gold

Next up, the Special Olympics everyone is a winner market.

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