Sunday, October 31, 2010

The stock market gains of late are fake.

A few weeks ago I subscribed to a newsletter put out by Phoenix Research called "Gains Pains & Capital." The newsletter has blurbs of articles from their webpage - apparently they publish a new article just about every day. Their main audience is investors in the market (which I am no longer - nor do I recommend that anyone gamble their money in the stock market right now, probably not for a few more years). Nonetheless their observations are useful for people who are interested in economics and how the US's debt and economic crisis is going to play out. I've also received several interesting charts and graphs from Business Insider. Here are some excerpts from Pheonix's newsletter from the past couple of weeks, followed by a couple of the Insider charts and graphs which I think are relevant to the newsletter blurbs:

Phoenix Capital Research: Gains Pains & Capital eNewsletter Roundup

October 12, 2010
The Average American Has a Sub-Average Quality of Life

Let's take a slice of the adult American population, say, 100 people, and put them in a room.

Of these 100, nearly three quarters (73) complain of financial stress. In fact, of the ones who are divorced, 80% cited financial difficulties as the reason they split from their spouse.

It's not surprising to hear this, the official numbers tell us that roughly 9-10 of the 100 people we selected are unemployed. Of course, those are the "official" numbers. If you actually bother asking these 100 people to their faces if they've got work, you'd find 16-17 of them are unemployed, but the 6-7 extra to the official 10 listed as out of work are not counted by the Government because they've given up looking for employment.

According to the Government's official data, these people no longer exist, but they're standing there in our room, along with the rest of the folks who the Government DOES count. And they help explain how despite an official unemployment rate of 9.5%, roughly 13% of our average 100 (13 people) are currently using food stamps to buy food.

But even this number hides the real level of economic collapse in the US. All told 14 (14.3% to be exact) of our 100 average Americans are living at the poverty level. Only two countries in the OECD have higher poverty rates: Turkey and Mexico…

October 13, 2010
Are You Ready for the US Debt Spiral?

The US is now in a situation in which it must roll over TRILLIONS in old debt at the exact same time that it must issue $150-200 billion in new debt per month to finance its bloated spending deficit.

And this is coming at a time in which investors' demand for US debt is becoming shorter and shorter time span. Indeed, of our $14 trillion in debt outstanding, ONLY $550 billion of it has maturities beyond 10 years…

October 18, 2010
Are You Prepared for the US Debt Collapse?

The math does not lie... the US will either default on its debt or experience hyperinflation in the near future. BOTH of these are HORRIBLY US Dollar negative.
Those investors who don't prepare for these outcome will lose a lot... possibly everything in the coming currency collapse…

October 20, 2010
As I Write This, Stocks Are Topping... Are You Prepared for What's Next?

Once again, the US Dollar tanks and stocks explode, giving the dullards on TV a reason to prance and proclaim that stocks will never collapse again.

Never mind that all of the market's gains in the last two months have come on the back of US dollar debasement. And don't bother to question whether the US Government's policies have set the stage for a massive (as in 50%) drop in the US
Dollar in the coming years... stocks are a SCREAMING BUY shout the commentators on TV (none of whom predicted the 2008 meltdown by the way)…

October 22, 2010
The REAL Big Story for Financial Markets Today... Which No One is Talking About

You have to read between the lines on this one.

Few commentators realize what the BIG story is for the financial markets today. The BIG story is not the mortgage fraud, the corruption, or the computerized trading (although the last one dominates US stock markets' daily action).

No, the big story is the monetary actions of the massively indebted US vs. the credit cooling China.

Indeed, while Bailout Ben Bernanke and several his cronies at the Federal Reserve have been braying for additional QE and currency weakness, China has been aggressively restricting credit lending, raising interest rates, and generally making moves to cool its overheated system.

In plain terms, this is a conflict between the world's old superpower (its largest debtor nation) and its rising new superpower (its largest creditor nation)…

October 26, 2010
The Fed Wants to Unleash a BIG QE 2 Program... But CAN It?

Last Friday I wondered aloud if perhaps China and the US had struck a "backroom" deal regarding their roles in the ongoing "currency wars.

My primary reason for wondering this stemmed from a dramatic change in Treasury Secretary Tim Geithner's rhetoric concerning the US Dollar, combined with China's sudden decision to raise interest rates.

After all, the US had been branding China a currency manipulator and blaming it for the former's financial and economic woes for months. China, in turn, had responded by lowering the rate of its purchases of Treasuries, charging that the US Fed was damaging global balances and issuing veiled threats that it might consider the "nuclear" option of actively dumping US debt.

In this context, the sudden change in Geithner's rhetoric, combined with China's move to raise interest rates, marks a MASSIVE change in monetary posturing. It is, in a sense, a 180 on the US's part combined with an "actions speak louder than words" move on China's part...

October 27, 2010
Forget Stocks, What Happens When the Bond Bubble Bursts?

As I've stated in countless article before, the Fed is good at nothing but blowing bubbles. And while most commentators have focused predominately on the bubble occurring in stocks (if you compare where the S&P 500 is relative to economic data we are DEFINITELY in a bubble), a larger, more frightening bubble is currently brewing in bonds.

Since the 2008 Crash, investors worldwide have generally shunned equities in favor of the perceived safety of the bond market. Nowhere is this more apparent that in the retail investor market, where investors have pulled money from stock based mutual funds for 23 weeks in a row, while they're on pace to pile some $300 billion into bond funds this year (on the heels of a record $350 billion in bond fund inflows from last year).

This trend in the retail investor market is largely based on fear of stocks (two bubble and subsequent Crashes in ten years will do that) and demographics (the aging boomer population, now punished by a Federal Reserve hell-bent on keeping interest rates at zero, is ravenous for income to help them move into their delayed retirement).

…Treasuries are trading at levels not seen since the depth of the 2008 Crisis. We just had a TIPS auction close at a negative yield for the first time in history, meaning investors are willing to LOSE money just to park it with bonds that supposedly adjust for inflation (TIPS adjust based on the CPI which is nowhere near the REAL rate of inflation... see tomorrow's essay for more on this), and US corporations have ALREADY issued $217 billion in junk bonds this year, even HIGHER than last year's RECORD….

Yes, the stock market LOOKS like it's doing well - but US companies simply DO NOT have any real basis for their stock price gains. They haven't retired their debt. They haven't acquired tons of new customers. They don't have better or bigger assets. Even their supposed profit is at the expense of rehiring their workers and investing in their products and infrastructure. Look at this:

The rich are getting richer and those who actually depend on the company for their livelihood - employees and downstream (often smaller family-owned) suppliers - are getting nothing. And a lot of that profit that the fat cats aren't passing on is actually inflationary in nature. Look at this graph concerning Israel's stock market during the bout with rampant inflation in the 80s:

You see? It's all fake. Those businesses weren't really any more valuable - and neither are ours now! It's inflation in disguise. It's not real. Don't be fooled by it, class. Stocks are gambling with your money - and it's a bad, bad bet.

No comments: