Tuesday, August 4, 2009

Happy Talk...supersized!

Greetings good citizen,

It’s like déjà vu all over again, isn’t it good citizen? We had this dance last week and the week before that too. It makes sense to see the markets climb when commerce is humming…but commerce ain’t humming.

Worse, there isn’t anything to make commerce ‘hum’…the economy is still contracting (at a pretty good clip) because consumers are broke and employers (bless their greedy hearts) are slashing wages across the board, making an already bad situation that much more dire…

What’s wrong with this picture good citizen?

What should be busting your stones big-time, Bubba, is that stocks are ‘money like’ instruments. If you have shares of stock, you can take it to a broker and trade them for cold hard cash, or you can use them as collateral and borrow cash.

Unlike money, share values aren’t ‘fixed’. Shares that command a hundred dollars today may not fetch a hundred pennies tomorrow. This is why there are ‘rules’ to buying stocks and why the ‘price/earnings’ ratio matters. The P/E tells you if a given stock is priced rationally.

Otherwise there is nothing to prevent a company from buying their own stock at ever-higher bids, inflating the value of all of their shares.

If the earnings aren’t there, the price isn’t justified.

So, what is driving stock prices higher? Could it be you…or more succinctly, your money that these big trading desks have access to, virtually for free?

Before we get too carried away, let’s see if the article provides us with a single shred of credible evidence that the economy is ‘on the mend’…

Markets Rise on Signs of Economic Growth

[We have a ‘red flag’ right there in the headline, ‘signs’ are open to interpretation…]

Published: August 3, 2009

For thousands of investors whose portfolios are benchmarked to the Standard & Poor’s 500-stock index, recovery was a thing with four digits on Monday.

The closely watched stock index crossed 1,000 points for the first time since early November, fueling hopes that stock markets would continue to march higher as the recession showed signs of reaching a bottom. Like other market gauges, the S.&P. 500 is still off more than a third from its all-time highs, but it has rallied strongly off its bear-market lows and is now up more than 10 percent for the year. [I’m withholding a crucial bit of information from you good citizen, be patient for just a while longer.]

The day’s activity added more momentum to a three-week surge that lifted the Dow above 9,000 points and kindled optimism that banks and major corporations could still turn profits, even as the toll of job losses mounts and the prospects for economic growth coming out of the recession remain uncertain. [This last statement alone should be enough to make you cry ‘bullshit’ but they have pulled off ‘jobless recoveries’ in the past.]

As Wall Street headed higher for another day, waves of optimism about global industry lifted financial markets and lifted the price of oil, grains metals and other commodities, as traders bet that a recovery would lift global consumption and revive the demand for raw materials.

Automakers were reaping a boost in sales from the government’s “cash for clunkers” program, which gives credits to motorists who trade in their cars for new, more fuel efficient ones. The Ford Motor Company reported that sales rose 2.3 percent in July, its first monthly sales increase since 2007.

Shares of Ford were up more than 6 percent, and American-traded shares of foreign car companies Toyota, Nissan and Honda were all higher. [But they aren’t telling us how by how much…makes you wonder, doesn’t it.]

Analysts said the deluge of subsidized auto sales unmasked a sign of economic recovery: pent-up consumer demand. Although consumer spending fell at a rate of 1.2 percent during the spring, consumers are more confident than they were last winter, and they are still willing to spend money when enticed by a bargain. [Sadly, the same ‘logic’ (or lack thereof) was applied to the housing markets when banks were giving away 120% mortgages (with nothing down!) to anyone with a pulse.]

“The key here is, where’s the consumer mindset?” said Marc Pado, market strategist at Cantor Fitzgerald. “Consumers, when they perceive the bottom, are willing to jump out and buy high priced durable goods. The consumer’s getting hungry. “Signs of improvement the industrial sectors of China, Europe and Britain bolstered stock markets in Asia, London, Paris and Frankfurt. And more positive readings on manufacturing and the housing market in the United States propelled stock markets on Wall Street toward their highest levels of the year. [Do you see any ‘specifics’ here good citizen? No, no you don’t…nor will you, the article doesn’t contain a single one.]

In the last hour of trading, the Dow Jones industrial average was about 105 points or 1.2 percent higher, and the S.&P. 500 was up by 1.3 percent, hovering just above 1,000 points. The Nasdaq composite index was crossed above the 2,000-point threshold, a line it had not breached since early October.

Leading the way were companies that sell oil and natural gas, and those that manufacture basic materials like steel, paper products or plastic. Investors rushed to buy their shares as the price of oil rose more than $2, to nearly $72 a barrel, and the prices of gold and copper also surged.

A surprising, though slender, 0.3 percent increase in construction spending in June also leavened the mood on Wall Street and offered optimistic forecasters another sign that the housing market was near bottom, if not already staging a recovery. [There is still a HUGE overhang of unsold homes on the market and foreclosures are still proceeding at a frightening clip. Where are the buyers…or is our pal ‘flipper’ up to his old tricks?]

Builders spent more money in June to construct new homes, hotel projects, commercial centers and other projects, the Commerce Department reported on Monday. Part of the overall rise came from a 1 percent increase in government construction spending as stimulus projects began to get under way. [This is definitely a case of apples vs. oranges here good citizen. The stimulus bill is for ‘infrastructure’ spending, not hotels and industrial parks.]

And the Institute for Supply Management reported that manufacturing activity contracted at its slowest pace since last August as businesses reported more orders and higher production than previous months, and improvements in employment conditions. The group’s manufacturing index rose to 48.9 in July, from 44.8 a month earlier.

“This is good news, though we still can’t be sure if further sustained strength is possible in the face of continued consumer deleveraging,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “This could just be a catch-up after the post-Lehman disaster.

There is so much deception here as to make it easy to debunk all of these ‘signs’ for what they really are…bullshit!

Why do I say that, good citizen?

It has to do with that little factoid I’ve kept from you…the one regarding where today’s P/E ratio currently stands.

I’m telling you right here and now that no ‘sane’ investor is buying stocks. A ‘good’ P/E ratio is 7, meaning the share price is roughly seven times what that stock ‘earns’.

Coincidentally, today’s average P/E ratio is also 7…seven freaking hundred!

Stocks are priced today at 700 times what the average share earns! Who but a certified nut is taking that kind of a gamble…although it has happened before during the ‘tech bubble’.

Stocks that had zero earnings were selling for $500 a share…and we all know how the tech bubble worked out.

So, if ‘regular’ investors aren’t buying stocks…who is? Could it be someone that can borrow from the Fed for nothing?

Um, we all know that economic information has become increasingly ‘politicized’ with economic performance being made to appear much better than it really is.

Here, on the cusp of the third ‘jobless recovery’ in a row, can we, as a society, afford to remain ignorant?

I’ve said it before and I’ll say it again, this nation won’t survive another jobless recovery!

Imprisoning the ‘disenfranchised’ will spark such a violent reaction that there may be no pieces left to pick up once the smoke clears and the dust settles.

Lying to the public is a dangerous game even in the best of times. Lying when our society is perched on the brink of collapse is nothing short of suicidal.

Thanks for letting me inside your head,


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