To say the market is rigged is an understatement. After over 30 years of trading commodities, I will flat out state without any reservations that lies and manipulation run rampant. If you think anyone is looking out for the small independent trader you are wrong. An unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position. For the big boys, its insider information, and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the weak out of their positions.
The Plunge Protection Team (PPT) is not some urban myth or Oliver Stone-style conspiracy theory. It is hidden in plain sight, even though the U.S. Government prefers to be tight-lipped about it. The PPT was born out of the 1987 crash, it is formally known as the Working
Group on Financial Markets, it was created by Executive Order 12631 and
signed on March 18, 1988, by President Reagan. Just imagine the
type of reversal Goldman Sachs and JP Morgan backed by the Federal Reserve can generate with a
concerted effort to buy S&P 500 index futures at crucial support points late in the day, it is more than enough to turn the markets from red to green in the blink of an eye
Following the 2008 collapse, the market started showing some odd patterns and many of us saw these as the result of what we called the "plunge protection team" this team appears to have morphed into a full-fledged market manipulation vehicle over the years. When stocks like Amazon trading at an astronomical P/E miss earnings and actually lose money it is hard to explain how they reverse after hours losses to close the next day posting a new record close. May I suggest that the market has become so distorted it no longer reflects reality.
Promoting and linking this all together is the idea that higher equity prices reflect a strengthening economy and creates a wealth effect that drives consumer spending, with this in mind those pushing hope and confidence are all in. This is what drives the market as the souls in charge amass a fortune doing "god's work" by creating money out of thin air. The defense or argument that consumer confidence and the economy would
be in far worse shape if "the to big too fail" had not manipulated the markets higher, is
full of holes, and their motivation far less than noble.
market prices mask many of the weaknesses we have created in the system while keeping intact pension funds and large banks higher prices have addressed
none of the real problems, but merely set us up for a bigger fall. We have created an unsustainable house of cards that at some point will collapse under its own weight. While many investors are skeptical of the ever upward moving market any bears that put a toe into the water tend to be very timid and run tight stops, making them easy targets, and accomplices to those wishing to manipulate the market ever higher.
All this is supported by a mix of a "cheerleading" as teams of media shows spout market wisdom
24-7, advice from things like "don't fight the Fed" to "it is a risk on day"
continues to push the markets ever higher. Beating the lowered earning
expectations, or even missing a forecast is a recipe for higher stock
prices. With great power should come great responsibility, it would serve those governing the market to take a long term view and realize they would benefit most by protecting and serving those in the marketplace, but greed tends to warp and distort reality.
If you think markets today are distorted, you are right. Distorted by
artificially low interest, easy money, currency games, and more. A word to the wise, we have seen in the market a total disconnect from Main Street. It almost looks like those controlling this game are afraid to go into any weekend or holiday without a strong appearing market. Even a bad report on job creation is twisted and spun as to mean more Federal Reserve support for easy money policies and a reason to rally the market. No suggestion of weakness no matter how subtle can exist because it may begin to unravel or blunt the already fragile consumer confidence.
The bottom-line is that the higher the market goes the more vulnerable it becomes to a major collapse and sudden downward move. Lately, we are seeing some large quantities of money flowing across borders and into crazy investments. With each new rally I feel a bit of deja vu, we have seen
this all before. Way back in 2007 we saw all stocks moving in unison,
always upward, often ignoring both the news and reality, note, it is
happening again. This is a reason for caution! If it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels
like a Ponzi scheme, then it is probably a Ponzi scheme.
Footnote; This post dovetails with many of my recent writings. Other related articles may be
found in my blog archive, thanks for reading, your comments are
encouraged. The below post lays out some of the thought presented by economist Allen Meltzer,
The Obama economic team have ignored history. Meltzer says the two most successful fiscal stimulus programs since World War II took place under Kennedy-Johnson and Reagan, both took the form of permanent reductions in corporate and marginal tax rates. Economist Arthur Okun, who had a major role in developing the Kennedy-Johnson program, later analyzed the effect of individual items. He concluded that corporate tax reduction was most effective. Another defect of Obamanomics was that part of the increased spending authorized by the 2009 stimulus bill was held back. Remember the often repeated claim that the spending would go for "shovel ready" projects? That didn't happen.
In his January 2010 State of the Union address, President Obama recognized that the United States must increase exports. He was right, but he has done little to help, either by encouraging investment to increase productivity, or by supporting trade agreements, despite his promise to the Koreans that he repeated in Toronto. Export earnings are the only way to service our massive foreign borrowing. This should be a high priority. Isn't anyone in the government thinking about the future?
Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That's part of the uncertainty that employers face if they hire additional labor. The president asks for cap and trade, that's more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large. Medicaid, is an excellent example, the new Medicaid spending mandated by Obamacare comes at a time when states face large deficits and even larger unfunded liabilities for pensions. All this only adds to uncertainty about taxes and spending.
Meltzer also finds other aspects of the Obama economic program are problematic. The way the auto bailouts ran roughshod over the rule of law with Chrysler bondholders given short shrift in order to benefit the auto workers union was very troubling. By weakening the rule of law, the president opened the way to great mischief and increased investors' and producers' uncertainty. That's not the way to get more investment and employment. Almost daily, Mr. Obama uses his rhetorical skill to castigate businessmen who have the audacity to hope for profitable opportunities. No president since Franklin Roosevelt has taken that route. President Roosevelt slowed recovery in 1938-40 until the war by creating uncertainty about his objectives. It was harmful then, and it's harmful now.
That's what the U.S. needs now according to Meltzer in not major cuts in current spending, but a credible plan showing that authorities will not wait for a fiscal crisis but begin to act prudently and continue until deficits disappear, and the debt is below 60% of GDP. He points out that plans have been put forth, like the one offered by Rep. Paul Ryan (R., Wisc.) but the administration and Congress ignored it. The country does not need more of the same. Successful leaders give the public reason to believe that they have a long-term program to bring a better tomorrow. Let's plan our way out of our explosive deficits and our hesitant and jobless recovery by reducing uncertainty and encouraging growth.
In 1980, Meltzer had the privilege of advising Prime Minister Margaret Thatcher to ignore the demands of 360 British economists who made the outrageous claim that Britain would never (yes, never) recover from her decision to reduce government spending during a severe recession. They wanted more spending. She responded with a speech promising to stay with her tight budget. She kept a sustained focus on long-term problems. Expectations about the economy's future improved, and the recovery soon began. High uncertainty is the enemy of investment and growth.
The point of this post is to make clear that just because we have muddled along putting band-aids on our economy does not mean that we have done anything but postpone the day of reckoning, and in many ways we may of made it far worse. The time the Federal Reserve has bought for the country to come to terms with its many problems has been squandered at a great cost. While many people say the economy is getting better others like me who are involved in business on Main Street all across America say this is not true and that an ugly reality is only being masked by the easy money and deficit spending policies we have today.
Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.