Market Manipulation, What Do Stocks Get That Credit and Bonds Don’t?
Stock-Markets / Market Manipulation Aug 18, 2012 - 12:00 PM GMTBy: Graham_Summers
I’m sick of writing about Europe. The entire situation over there is such a complete and total disaster that you could literally write a 12-volume set about it. So let’s forget about it for a while and look at something else which is only slightly less depressing… the rest of the world.
A reporter called me the other day to tell me that famed Wharton School professor Jeremy Siegel argues there’s a 50 percent chance — or better — of the Dow tipping 17,000 by the time the president takes the oath of office. The reporter wanted to know my thoughts on this.
Aside from the fact that this kind forecast is totally worthless (what’s the other 50% chance outcome? That the Dow goes to 1,000?) I cannot for the life of me understand where all this bullishness is coming from. Do people simply not bother reading the news or engaging with reality anymore?
What’s reality? Here’s reality.
The US is clearly heading into another recession in the context of a larger depression. And it’s doing this while in the worst economic shape in its post-WWII history.
We’ve never once entered a recession when the average duration of unemployment is at an all time high, industrial production has failed to break above its previous peak, and food stamp usage is at a record high. We’ve never done this.
We’re doing it now.
And this is happening at a time when the Federal Reserve is out of ammo. I realize that 99% of so called “analysts” claim that the Fed and the rest of the world’s Central Banks will unveil some sort of stimulus to save us… but these folks are either talking their books or have no clue about how the financial system works.
My questions to anyone who says that money printing or more QE will help us:
1) We’ve already seen massive central bank coordinated interventions… they all failed (September 2011, November 2011, July 2012). What makes this time different?
2) QE 1, QE lite and QE 2 have spent in the ballpark of $3 trillion. That’s roughly 20% of the US’s GDP and we’ve had the weakest economic recovery in the post-WWII era… how would more QE help?
And finally, the real question, which will prove that the QE crowd doesn’t understand the global financial system…
3) How would buying Treasuries or other sovereign bonds… thereby sucking collateral out of the system… help an already insolvent banking system (the world’s $700 trillion derivatives market is backstopped by Treasuries and other senior assets)?
Here’s another point to bring up with any “expert” who claims QE is the answer…
The Too Big to Fails, the very banks which the Fed has done everything in its power to prop up, have over $200 trillion in derivative trades… backstopped by only $7.12 trillion in assets.
How would buying Treasuries or other assets from these banks help them?
Just a thought. Maybe one “analysts” should actually think about rather than mindlessly blathering about how QE is just around the corner… like they have for over a year now.
And this is completely and totally ignoring Europe, which is honestly on its way to breaking up if not a full-scale systemic collapse. Then of course there’s Japan whose own debt implosion is about to begin. And finally, China, the “miracle” where LEI, electricity production and oil demand are all rolling over indicating a recession.
Oh, and I almost forgot, even “officials” in China admit the economic numbers coming out of the country are nonsense.
Chinese Data Mask Depth of Slowdown, Executives Say
Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.
Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.
Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.
The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals.
http://www.nytimes.com/2012/06/23,....
So… the US is entering a recession. Europe is imploding. Japan is imploding. And China is entering a recession.
And yet, somehow out of all of this, the stock market will explode higher because the Central Banks have got some secret trick hidden up their sleeves… something that will magically solve the world’s problems? Are people forgetting that the ECB along with the IMF AND Germany couldn’t solve Greece’s problems in TWO YEARS!?!
Seriously, think about that for a moment… the ECB… with the IMF… and Germany’s help… couldn’t save GREECE.
And these are the people we’re planning on saving the world economy?
God help us. Dow 17,000?
This whole situation reminds me greatly of 2008. Back then the economic fundamentals were deteriorating, banks were imploding, but stocks kept rallying because everyone thought the Fed or someone else would save the day. Stocks always get it last. And the credit markets and bond markets are predicting some very VERY bad is coming down the pike.
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Good Investing!
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Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
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