The Dow and the S&P 500 hit new highs yesterday. Gold fell $8 an ounce.
Why would the market capitalization of US corporations go up? Already at record levels, what extra good news is there?
With the S&P 500 yielding 2.4%, it will take investors about 40 years to get their money back.
Where’s the upside? Beats us. So, we will turn from the ridiculous to the sublime: Pope Francis is calling for “redistribution of wealth.”
We have always had a sentimental attachment to religion. Some of our earliest memories were hatched in the pews: the smell of burning candles and wool suits worn only on Sunday… the capacious vestments and flickering lights… and, of course, the hymns; we can still recall many of them half a century later.
The words, too, we remember, as music and poetry – the old King James Version and the 1928 Book of Common Prayer. Today, we are out of sync. We know the chants and liturgy in 17th-century English, with “sitteth”… “proceedeth”… “begats” and “begotten.” We still say He “spake by the prophets,” putting us at odds with the rest of the congregation.
A friend of ours died a few years ago. He was on his deathbed, where he was given last rites. Then he recovered a bit, only to sink again. A second time the priest came to prepare his way into the afterlife.
“I didn’t think you were a believer,” we asked him, after the second visit.
“Oh, I’m not a believer. I just go along. It would be vulgar not to.”
Breaking the Spell
We are happy to go along with our religion, such as it is. But the clergy doesn’t make it easy. If organized religion survives, it will be in spite of its protectors and promoters.
In the 1970s, they decided that we should modernize our rogations and supplications. Out went the familiar rhythms, sung mindlessly for so many decades. In their place came bright, shiny clunkers.
“Follow me,” said Jesus in the King James Version, “and I will make you fishers of men.” We never really considered the meaning of it until the improvers changed it. Then it was too late. The spell was broken. “Come, follow me, and I will send you out to fish for people,” says the New International Version.
This was supposed to be easier for worshipers to understand. It also avoided the word “men,” which had become politically incorrect by the 1970s. But it left us with awkward thoughts.
“Fishers of men,” was a charming metaphor, but “send you out to fish for people,” was a command. Or worse: It made us think of a poor Christian with a hook in his mouth. Alternatively, the expression could be interpreted to mean that if you followed Christ, you would be turned into chum. None of these images was particularly attractive.
A Green Hell
Nor do the improvers limit themselves to religious advances; we don’t recall any mention of reforestation in the Bible, but they’re sure it’s in there somewhere.
In summer, the shores of the Chesapeake Bay tend to be hot and humid… with a dense growth of trees, bushes and vines. A traveler, set ashore below Annapolis, finds himself swatting mosquitoes, picking off ticks and scratching the poison ivy between his fingers. He might think he had stumbled into the Amazon Basin.
Four hundred years of experience has taught the locals to keep the jungle under control. That is why your editor spends many of his weekends with a chainsaw in his hands, cutting back the trees from the previous year, trying to keep his farm from becoming a green hell.
Nevertheless, the church authorities – who must come from the Great Plains or the Western Desert – have given the youth group the goal of planting trees.
How they knew the area lacked trees was never explained. But when we arrived for Sundayservice this past weekend the deed had been done – undoing the work of at least four generations of vestry.
For decades, mowers kept the field clean. Whenever the adults were busy in the church hall, the children rolled down the hill next to the church… ran wild in the meadow… hopped… leapt… slid… yelled… and frolicked. But now if they roll down the hill, they will run into a tree.
A New Spirit of Generosity?
Likewise, if God had a plan for redistributing wealth, he forgot to mention it.
But the highest authority in the Roman Catholic Church must have some thoughts on the matter. Here is the Huffington Post on the story:
Pope Francis called Friday for governments to redistribute wealth to the poor in a new spirit of generosity to help curb the “economy of exclusion” that is taking hold today.
Latin America’s first pope has frequently lashed out at the injustices of capitalism and the global economic system that excludes so much of humanity.
Does God approve of taking money, by force, from some people to give it to others? How much money does God think a family of four should have? Are people better off… or worse off… if they are the recipients of a wealth redistribution scheme?
We don’t know. Neither does anyone else.
Further Reading: The real redistribution of wealth in America is from middle-class savers to the 1%. And the folks doing the redistribution are drawing government salaries. Fact is the American Dream is a lie. You can do all the right things – get a decent education, a decent job, work hard and save your money – and you will still get poorer. Luckily, there is one simple trick – developed by a group of “rogue millionaires” – that allows you to opt out of the system altogether… and finally live the life you want. To find out more, read on here.
More on Small-Cap Divergence…
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Yesterday, I drew your attention to the performance gap between the Dow and S&P 500 blue-chip stock indexes… and the small-cap Russell 2000 Index.
Some more on that divergence today… and why it matters.
Small caps are down 4.5% so far in 2014, versus a year-to-date return of 2.8% for the S&P 500.
But that divergence is larger if you measure the relative performance of the two indexes from the recent peak in small caps in March. As of Friday, the Russell 2000 was down 10% from its peak. The S&P 500 is up 0.1% over the same period.
The small-cap index hasn’t experienced a peak-to-trough decline of this magnitude since November 2012.
As the chart below shows, the Russell 2000 is also now trading below its 200-day moving average – a trend line widely considered to be the “line in the sand” between a bull and a bear market. This is also the first break below the 200-day moving average for small caps since November 2012.
Why should you care?
Because when the bulls are stampeding, small caps tend to lead the charge. In fact, in the eight years since 2000 when the S&P 500 delivered positive returns, small caps averaged annual returns of 23% versus average annual returns of 16.4% for the S&P 500 – a 40% outperformance.
You should also care because corrections in small caps tend to be followed by corrections in blue chips.
This is the 36th peak-to-trough decline of 10% or more for the small-cap index since 2000. And each of the 35 previous corrections, were accompanied by a correction in blue chips – with an average decline of 12.8%.
As I said yesterday, if the pain continues in small caps, it will likely spread to blue chips next.