Thursday, January 24, 2008

The Game Is Rigged - Stock Market Rise Is Artificial

International stock markets fell up to 6 percent on Monday the 21st on fears of American inflation and an American recession. When the US market opened on Tuesday the market plummeted and then recovered, finally losing 130 points on the day. On Monday the Fed announced a giant bailout by lowering the interest rates 3/4 of a percent. On Tuesday the President announced a tax rebate give away to further help stave off the looming recession. Yesterday the market came back very strong gaining three hundred and odd points. So these signs of the inherent strength of the US economy seem to show that the recession may not be either deep or long and that the measures taken in Washington were effective and timely. It seems that way, but I think that something else has happened.

The truth is that the capital that is still located in the United States does not have good options right now. The fact that there is still a rush away from Real Estate is a clear signal that it has not hit bottom. The median average home price is down for the first time since records on these prices have been kept. But the market is showing that it foresees much deeper erosion in prices to come. So capital will not go to Real Estate to weather the storm.

Since the interest rates have been lowered again and the inflation is rising sharply, CDs or any other traditional banking instruments are out of the question. The interest that they yield will definitely be below the level of inflation. The fourth quarter inflation figures that came out last week were at 6% accrued annually on wholesale orders. Those figures will enter into the general economy this quarter and presage high inflation throughout 2008. The lowered interest rates and increased deficits in Washington will accelerate the rate of inflation. Therefore capital won’t be heading for the banks.

Other investments that are solid, such as foreign currencies and precious metals are already so expensive that only the truly pessimistic investor will unload the shaky greenback and take a severe beating to buy up gold or Euros.

Now thanks to the falling dollar and our inflation, the stock market still looks like a deal to the foreign investor. We talk about the strong market because it has increased in value from January 2000 until today almost 10% from 11,200 to 12,294 as measured by the Dow Jones Industrial average. In the year 2000, the American Stock market was still losing value after the dot com crash, so its performance is even better than the ten percent. Lets say 15% then, it won’t matter much. During the same time the value of the Euro as measured in dollars has gone from 95 cents to a dollar, forty-seven. That is a rise in value of over 50%. In other words the values of US stocks have not risen in the last seven years for the European investor; they have declined sharply. At this time the US stock market looks like a terrific bargain to the foreign investor and they are investing heavily. That investment (the selling of America) is one of the two things that keep the Dow from taking a serious dive.

Since US capital can’t go abroad without a big hit in the currency exchange, it will probably stay here. As we have seen, Real Estate is out, metals are out for most investors and banks are out. That leaves the stock market. A lot of money is in the stock market from both American and foreign investors and that capital will keep the Dow from crashing. In fact the rich will get richer through this recession. Inflation will be high: over ten percent by year’s end and unemployment will increase to six percent by that time.

The idiot, inflationary giveaway of 150Billion will be way too late to stop the recession. The IRS announced that they would need at least until June to cut the checks. By then the recession will be set and unyielding. It is a waste of money. It is a waste of money that the government does not have. It is being called a tax rebate, but it is just a give away, and as such there is no good reason not to give it to the people that need it most. But instead it will go to everyone that has a net tax payment. Debt and inflation is all this will achieve.

It seems that all of the economic strategies that come from Washington are designed to protect the capital of the rich at the same time that they produce un-payable debt for our children and high inflation that keeps the poor in poverty. The game is rigged.


Anonymous said...

I just wrote something along these lines in regard to how much the U.S. depends upon debt to artifically inflate the economy. I'd be interested in hearing what you think: America's Economic Deflation.

Anonymous said...

I've seen coworkers put money in a 401k and the balance goes through a sawtooth waveform at a frequency of 1 cycle per 10 years. The balance goes to $X, then a crash and suddenly it's half. 1- years later it gets to that original $X balance, then biff, it's half that $X. Yet they funnel money down it like a power supply powering a sawtooth oscillator.

If the markets aren't rigged to ensure you NEVER retire, I don't know what is. You'd be better off putting your money in a small fireproof safe, put that in a bigger fireproof safe and put that under your bed. Better than stuffing a mattress, your money would be safe in case of fire. It might even survive re-entry from orbit.