Thursday, August 13, 2009

The Markets 'shrugged'...

Greetings good citizen,

This is beginning to read like the ‘flip-flop’ show, where every day ‘dueling pundits’ battle it out over the state of the economy.

Let’s see, if yesterday was ‘nay’ then today must be Yea! as yesterday’s ‘profit taking’ morphs into today’s ‘bargains’ with the Dow tacking on 120 points!

Did you read last night’s offering closely? If you did then you know the current ‘rally’ is a total hoax because what we’re seeing isn’t a ‘rally’ at all, it’s a sell off! Only $13 million dollars worth of shares have been bought while over a billion dollars worth have been sold.

The question that pops into one’s mind is if this is a sell-off then why aren’t the markets going down? The answer is really quite simple, the Dow, the S&P and the Nasdaq are all ‘indexes’ which only display ‘general’ movements in the markets not specific ones.

There are only thirty companies listed in the Dow and a full third of them are ‘financials’, some of which are still trading below the so-called ‘minimum’ for listing on the Dow. (Dow ‘minimum’ is $10 a share.) So if you want to drive the ‘Dow’ up, all it takes is nudging a few of these ‘cheap’ stocks in a positive direction.

The same goes for the other two. In fact, that was one of the items pointed out in post a few nights ago, how ‘bizarre’ it was that stocks with rather poor market positions were suddenly ‘surging’ for no apparent reason…

But now you know the ‘reason’, they’re pulling off a rally that’s actually covering for a sell off ‘on the cheap’!

Let proceed to today’s dose of ‘Happy Talk’.

Fed Reports, Wall Street Shrugs and Moves On

Published: August 12, 2009

overly Optimistic investors took advantage of a two-day decline on Wall Street to jump back into the market on Wednesday, pushing stock indexes sharply higher as the Federal Reserve offered a more optimistic read on the economy.

As expected, the central bank’s Open Market Committee chose not to raise target interest rates from their record-low levels of effectively nearly zero percent, and its four-paragraph statement offered no jaw-dropping surprises about the economy or Fed policies. But it did say that the economy was “leveling out” and that it would end a program to buy $300 billion in longer-term government bonds at the end of October. [you know ‘why’ they’re ending that program, don’t you good citizen? In order to ‘buy’ bond they must first ‘sell’ bonds and that hasn’t been going real well lately…]

The Fed’s statement said little that investors on Wall Street did not already know. It said that financial markets were continuing to improve, that the economy was likely to remain weak “for a time,” and that tight credit, job losses and reduced wealth were all restraining consumer spending. [Normally, such an assessment from the Fed would send investors screaming the exits…but no, that hasn’t happened since the Investment banks seized their direct pipeline to the printing presses.]

“I don’t really see anything here to blow our socks off,” said Dennis Cajigas, senior market strategist at Lind-Waldock. [Every article they quote some Mickey Mouse, obscure investment house that we, the public, knows nothing about…]

Despite rising oil and gold prices and weakness in the dollar, the Fed said it expects inflation “will remain subdued for some time.”[Of course, this is the same fed that declared that the sub-prime mortgage mess was ‘contained’…] Some analysts are expecting inflation to surge as the government racks up huge new deficits (a record $180.7 billion in July) to finance the stimulus and other projects.

Investors welcomed the Fed’s assessment.

At 3 p.m., the Dow Jones industrial average was up 172 points or 1.85 percent while the broader Standard & Poor’s 500-stock index was 1.78 percent higher. The Nasdaq rose 2.2 percent, lifted by gains by rivals Apple and Microsoft. [This brings us back to the issue of how many share does it take to ‘move the market’? Do you suppose just a few would do it? Naturally, it’s probably more so a function of ‘who’ does it rather than how many shares trade hands…]

The Fed’s decision to wind down its purchases of government securities, which had aimed to keep interest rates low, caused a stir in bond markets, where Treasury prices fell. The yield on the benchmark 10-year note, which rises when demand falls, rose to 3.72 percent from 3.67 percent late Tuesday.

“Judging by the immediate market sell-off, there were more than a few participants who were hoping for a greater commitment toward Treasury purchases,” Joshua Shapiro, chief United States economist at MFR, said in a research note. [More solid analysis from yet another ‘world renowned’ investment house…]

Although markets wavered earlier this week on some analyst downgrades and more subdued economic figures and profit reports, traders were betting that Wall Street was still headed higher. The major stock indexes have gained more than 10 percent over the last month on signs the long recession may be ending, and that companies are poised to grow again. [With P/E’s in excess of 140, how do you suppose these companies are ‘growing’…oh, right, you’re not suppose to know about the P/E ratio or what it’s for.]

A smaller-than-expected increase in the United States trade deficit bolstered hopes that trade was rebounding after several months of contraction. The Commerce Department reported that the trade deficit edged up 4 percent in June to $27 billion, from May’s $26 billion as imports rose for the first time in 11 months. [Explain to me again why we’re supposed to be cheering for our Chinese suppliers?]

Exports increased 2 percent in June from the month earlier, showing increasing demand for semiconductors, civilian aircraft and telecommunications equipment. On Wednesday, shares of Boeing were up, as were shares of the computer-chip maker Intel.

But led by declines in China, most stock markets around Asia fell as investors pulled back in the wake of mixed economic data the previous day. Many analysts have long said that a technical correction was overdue, given that Chinese stocks have outpaced most of the rest of the world with an 80 percent jump since the start of the year.

“We have reached valuations that we normally reach about 3 or 4 years into a recovery — but we’re only 6 months into a recovery now. The markets are pricing way ahead, but Father Christmas just doesn’t come so quickly,” Markus Rösgen, head of regional strategy at Citigroup in Hong Kong, said.

In Europe, the FTSE 100 in London rose 0.97 percent or 45.42 points, the DAX in Frankfurt rose 1.22 percent or 64.28 points, while the CAC-40 in Paris gained 1.48 percent or 51.48 points.

I know, I’m messing with the schedule here good citizen but I felt it would be appropriate to provide an immediate ‘reality check’ to counter the above bit of ‘froth’.

Experts never learn
By (world renowned AND reviled as a ‘perma-bear’) Peter Schiff

There is an inexplicable, but somehow widely held, belief that stock market movements are predictive of economic conditions. As such, the present rally in US stock prices has caused many people to conclude that the recession is nearing an end.

The widespread optimism is not confined to Wall Street, as even President Barack Obama has pointed to the bubbly markets to vindicate his economic policies. However, reality is clearly at odds with these optimistic assumptions.

In the first place, stock markets have been taken by surprise throughout history. In the present cycle, neither the market nor its cheerleaders saw this recession coming, so why should anyone believe that these ‘fonts of wisdom’ have suddenly become clairvoyant? [Especially in light of the investment banks new found access to the ‘Federal cash box’]

According to government statistics, the recession began in December 2007. Two months earlier, in October, the Dow Jones Industrial Average and S&P 500 both hit all-time record highs. Exactly what foresight did this run-up provide? Obviously, markets were completely blind-sided by the biggest recession since the Great Depression. In fact, the main reason why the markets sold off so violently in 2008, after the severity of the recession became impossible to ignore, was that they had so completely misread the economy in the preceding years. [While the point is well taken, I believe this to be a rather ‘charitable’ assessment of the situation.]

Furthermore, throughout most of 2008, even as the economy was contracting, academic economists and stock market strategists were still confident that a recession would be avoided. If they could not even forecast a recession that had already started, how can they possibly predict when it will end? In contrast, on a Fox News appearance on December 31, 2007, I endured the gibes of optimistic co-panelists when I clearly proclaimed that a recession was underway.

Rising US stock prices, particularly following a 50% decline, mean nothing regarding the health of the US economy or the prospects for a recovery. In fact, relative to the meteoric rise of foreign stock markets over the past six months, US stocks are standing still. If anything, it is the strength in overseas markets that is dragging US stocks along for the ride.

In late 2008 and early 2009, the "experts" proclaimed that a strengthening US dollar and the relative out-performance of US stocks during the worldwide market sell-off meant that the US would lead the global recovery. At the time, they argued that since we were the first economy to go into recession, we would be the first to come out. They claimed that as bad as things were domestically, they were even worse internationally, and that the bold and "stimulative" actions of our policymakers would lead to a far better outcome here than the much more "timid" responses pursued by other leading industrial economies.

At the time, I dismissed these claims as nonsensical. The data are once again proving my case. The brief period of relative out-performance by US stocks in late 2008 has come to an end, and, after rising for most of last year, the dollar has resumed its long-term descent. If the US economy really were improving, the dollar would be strengthening - not weakening. [You can’t argue with that assessment…]

The economic data would also show greater improvement at home than abroad. Instead, foreign stocks have resumed the meteoric rise that has characterized their past decade. The rebound in global stocks reflects the global economic train decoupling from the American caboose, which the "experts" said was impossible.

Though the worst of the global financial crisis may have passed, the real impact of the much more fundamental US economic crisis has yet to be fully felt. For America, genuine recovery will not begin until current government policies are mitigated. Most urgently, we need a Federal Reserve chairman willing to administer the tough love that our economy so badly needs. The fact that Ben Bernanke remains so popular both on Wall Street and Capitol Hill is indicative of just how badly he has handled his job.

Contrast Bernanke's popularity to the contempt that many had for Fed chairman Paul Volcker in the early days of Ronald Reagan's first term. There were numerous bills and congressional resolutions demanding his impeachment, and even conservative congressman Jack Kemp called for Volcker to resign.

Had it not been for the unconditional support of a very popular president, efforts to oust Volcker likely would have succeeded. Though he was widely vilified initially, he eventually won near unanimous praise for his courageous economic stewardship, which eventually broke the back of inflation, restored confidence in the dollar and set the stage for a vibrant recovery. Conversely, Bernanke's reputation will be shattered as history reveals the full extent of his incompetence and cowardice. [I’d beg to differ here because the probability is excellent that Mr. Bernanke will be the last Fed chairman.]

As Congress and the president consider the best policies to right our economic ship, it is my hope that they will pursue a strategy first developed by Seinfeld character George Costanza. After wisely recognizing that every instinct he had had up unto that point had ended in failure, George decided that to be successful, he had to do the exact opposite of whatever his instincts told him. I suggest our policymakers give this approach a try.

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets. Euro Pacific Capital…

While I, like many, do not completely agree with Mr. Schiff’s assessment of the current situation (He is, after all, a capitalist) his insights are far closer to reality than all the ‘Happy Talk’ that is presented for public consumption by the corporate owned MSM.

As the world you actually encounter every day with your own two eyes continues to deviate from the ‘Happy Place’ the MSM offers for your consumption, the seeds of revolution are sown…

Thanks for letting me inside your head,


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