Stock Market Review - 04/25/2009

Dear Mr. Fantasy

'Dear Mr. Fantasy play us a tune

Something to make us all happy

Do anything to take us out of this gloom

Sing a song, play guitar

Make it snappy'

This is the opening verse of a song by Traffic titled 'Dear Mr. Fantasy'. Aside from the brilliant guitar work of Steve Winwood, I think the lyrics are very applicable to our current stock market. Mr. Fantasy in our case is of course, our new leader, Mr. Bernanke. There is terrible economic gloom all about the globe and our stock market has become our worst nightmare. We can't take the pain nor can we accept the reality that our financial system has bankrupted itself and our politicians' solutions have been to bail the financials out by bankrupting the rest of us. We also can't handle the truth. But here it is anyway. Avert your eyes if you are sensitive to raw truth.

We all want to think of the stock market as a trip to Las Vegas where we will play poker to the wee hours of the morning and rent a van in the morning to take our winnings back to our home base. But, we don't want to have to study the game of poker nor do we want to bother ourselves with the rules. We just want to sit at a pretty table and look at the pretty cards that are dealt to us satisfied with our oblivion as to the meaning of any of the faces on the cards. We want to toss our chips into the pile in the middle of the table and then rack in the winnings. To this we are owed. It is our right. We are stupid Americans and Europeans and Asians. Through our 401(k)s and online accounts we want to direct our investment cards and garner great rewards from Wall Street. But, we don't want to know anything about the process. Or, we want to think that we know what we are doing. 

Then comes the smackdown. We have ultimately lost and we have to consider that we are not as rich nor as smart as we thought we were. Just because we have the capability of filling out a new account form and writing a check to establish an investment account, we believe we have boarded to train of affluence. Now the train has plunged down a ravene and taken our retirement plans with it. Do any of us have the skills to operate in a declining stock market?

Of course not. Well, some professionals do but it takes serious training. Enter Mr. Fantasy - Ben Bernanke. Wave the magic wand. Give us our money back. Make it better. Please. Do anything. Yes, take over the government. Print money like a drunken Zimbabwean. Let corporate America re-cook the books like they did in the good old days. Presto! We are cured! Banks are now profitable again now that 'mark to fantasy' accounting has been re-instated. Ford lost a billion and burned through less cash than expected and it rallied 20% on the news. Bernanke threatened to fire the CEO of Bank of America if he didn't play along with the saving of Merrill Lynch. His right-hand man, Tim Geithner, continues to produce acronymic saviors like TARP and TALF and SCAM. All of it from the land of ridiculous but we like Mr. Fantasy a lot more than Mr. Truth. 

Meanwhile, our largest car manufacturer, GM, is preparing for bankruptcy and 15% or so of us are preparing to go look for a job that we don't currently have. Our standards of living are dropping and our government is mesmerized with a 'save the financials' approach that is devaluing our currency and ultimately all of our assets. Brilliant! In their belief that they can rescue everything, our government is involved in a near daily manipulation of the stock market. Look at the chart below and you can clearly see the pronounced spike in volume at the beginning and end of every day. Every drop is met with a powerful spike higher. The market needs to clear the Dow 8000 level very quickly or we risk a resumption of the bear market. 

Please Mr. Fantasy - play a tune, sing a song, just make us happy! We'll give up our freedoms and rights and Constitution and surrender to your will. Only our profound stupidity makes us believe we know how to invest. The stock market always goes up, right?

The DIA 5-day 30 minute bars week ending 4/24/09

Stock chart courtesy StockCharts.com

Stock Market Review - 4/18/09

Mark to Fantasy Returns With a Rally!

Go figure. The FASB changed the accounting standards back to the 'Mark to Fantasy' method from the Mark to Market method. Presto! All the ills of the banks have suddenly been cured. Everything is fine. They are all making record profits and the share prices of the big banks are reflecting this sudden shift back to Bush economics. No one questions the method as long as stock prices rise. Who cares about the 'real' story? Haven't we had enough of that over the past two years? Using 'real' accounting makes stocks sink. So, we have gone back to fantasy land. Finally! Whose idea was it to use reality in the first place? Oh yeah, that Bush fellow. I'm glad we got rid of him and brought in a different fellow preaching 'change'. I like fantasy better. So does the stock market.

Two weeks ago the WHO (White House Occupant), Mr. Obama, went to Europe for the G-20 meeting where he sucked up to our pals in Europe, apologized for our 'arrogance', and bowed to the Saudi King. His trip was deemed a success. Well, of course it was. Not that anything whatsoever came out of the trip. But these days, any news that isn't related to more layoffs, corporate losses, or bankruptcies is deemed as 'good news'. So it was. Last week, Mr. O went to the conference of the Americas to hang out with our Latin pals. He shook hands repeatedly with Mr. Chavez of Venezuela and vowed greater cooperation with whatever they wanted us to do. I'm sure the market will deem this as a 'success' as well. So be it.

It looks like Mr. Bernanke would like the Dow to go up and knock out the last lower high of the current downtrend which was Dow 9000. So be it. He has the money and the printing press. As you can see from the chart at the bottom, the Dow ETF the DIA shows a lot of volume at the beginning and end of each trading day. The chart is of 15-minute bars so you can see the trading that ended Thursday and Friday was heavy on the selling. I guess Goldman Sachs or BofA wanted to book some trading profits so Mr. Bernanke allowed them to make gains. I'm sure he will give them the nod when he is about to jack the Dow higher so they can get back in.

Are you shaking your head? This market has dissolved into a 'cartel' of sorts. It is certainly no longer a 'market'. It is manipulated beyond fundamentals or reason. Take gold and silver. Both are heavily shorted and silver so much so that there are more short contracts than ounces of the metal. Who could possibly do such a thing? Probably JP Morgan - the right arm of the Federal Reserve. They hold 90% of the short contracts by virtue of their derivatives. Everything always comes back to derivatives. Why would they short the metals. Well, it seems to me that the only thing the central bank has is federal reserve notes. Most people call this stuff money but it is really indentured notes. The central bank has to keep the profoundly ignorant populace in line and believing that the garbage in their wallets is real money. The biggest threat to this idea is the metals and most importantly, the ascending price of the metals in response to the fiat printing of federal reserve notes. How does the central bank keep the price down? They short it. They want the holders of metals contracts to cave in through margin calls and losses so the central bank can in fact buy up all the metal they can. Why? Because they know that at some point, even the stupidest of the populace that we call our Congress people will realize they have been scammed. The metals take off in price and who now holds the metals? Yeah, that's the way scams work. You know the 'Golden Rule', right? The man with all the gold makes the rules. If you attended my lectures or read my newsletters, you would know why your precious stock market or your real estate or anything else that you think of as an asset is in fact declining in 'value' relative to gold and has been doing so since 1971. The bank is fleecing the population of their gold and the population is allowing this to happen because they are ignorant of the process and greedy for what they believe to be their retirement salvation - the stock market. That greed is also working with the false belief of the masses that they actually understand market investing. They don't and they are losing big time over the past couple of years. But, to complete the process of collecting all the gold and silver, the central bank has to let the populace carry on in the belief that the stock market is their meal ticket. The public has to be led to believe that they know what they are doing and buying stocks is a smart thing to do. So, the central bank lets the game go on. At least, for a while. Hey, it will be announced next week that Mr. Obama was wearing brown socks and the stock market ought to go up 200 points on the announcement. That ought to take our attention away from the fact that one of our biggest manufacturers, GM, is bankrupt, our banks are likely the same if we applied reality, and so too are the people that owe the loans that the bankrupt banks hold. Cheers, and enjoy the rally while it lasts. Has anyone checked the P/E ratio of the Dow lately?

One week DIA - 15 minute bars

Stock chart courtesy StockCharts.com

Stock Market Review - 4/9/2009

Best 5-Week Rally In 70 Years!

Shazaam! When the Fed wants a rally, boy do they  get one! As the market closed for Good Friday, we have just experienced the best 5-week rally in 70 years. Of course, the rally was helped mightily by the PPT 200-point plus final hour of the day rally on Wednesday. The market was in danger of slipping back to the middle of the long term double top (Dow 7500) and that is just not allowed on Bernanke's watch. He knows what we all know. If the Dow goes below the 7500 mark for a sustained period, it confirms the double top and eventually the index will fall to triple digits. Not 'by' triple digits - 'to' triple digits. So, since our man Ben has the printing press at his disposal and control of the government under his jurisdiction, up we go. I think the rally will continue because Ben knows we must take out our previous lower low of Dow 9000.

Oddly, the market powered higher after the Fed released the minutes from their last FOMC meeting siting more downside economic pressures ahead. They also admitted that the economy was getting worse and not better. So? Who needs and economy. The Zimbabwe stock market does not need an economy so why should we? What has the stock market got to do with the economy? The two were separated by the Fed several years ago so the subservient people would not complain about having their country stolen from them by bankers. The Fed continues to drive the market higher with conjured news and a fresh flow of cash guaranteed to solve the ills of any quandary. Besides, the Fed announced something or other about something or other and that was all the market needed for a rally. I think they said Bernanke wore brown socks with black shoes on his way to the printing presses on Wednesday. What difference does it make anymore? Just shut up and go buy some stocks. Obama said so too. Surely you are not going to question him? The Fed wants a rally. Ergo, there is going to be a rally.

Oddly, Wells Fargo bank announced on Thursday that they were reporting record earnings for the quarter. Shazaam! Just steal a few trillion from American ignoramuses, get the FASB to re-allow mark-to-fantasy accounting, let the banks borrow from the Fed at zero and lend to us at twenty plus, and presto! Record profits! Why are you still reading this piece? Shouldn't you be out buying bank stocks? Forget reality. Buy the scam. Look at it this way. If the Harlem Globetrotters were playing the other team that they always beat, which team would you put your money on to win?

Let me close the Easter message with the new prayer that our Fed wants us to pray:

Our Fed which art our ruler, hallowed be thy name. Thy federalism come. Thy will be done, on mainstreet, as it is on Wall Street. Give us this day, our stock market rally. Forgive us our doubt, as we forgive our short sellers. Lead us not into market losses but deliver us guaranteed governmentally manifested riches. For thine is the control, the market rallies, and the adulation of all forever. A-Ben. 

Play the rally but remember that you only need a TARP when there is a hole in the roof.

Dow 15-minute bars, week ending 4/9/09 

Chart courtesy StockCharts.com

Stock Market Review - 4/3/2009

Saved By Accounting

I have included a one-month chart of the Dow ending on Friday, April 3, 2009. We have been in rally mode since the tenth and maybe we will continue. Why?

We all know the economic data is terrible. This week we learned that auto sales were down 40% but that wasn't as bad as it could have been. Unemployment was up to 8.5% but that wasn't as bad as it could have been. We lost a bit less than a three-quarters of million jobs but that wasn't as bad as it could have been. House values plunged the most on record but that wasn't as bad as it could have been. You name it, and it wasn't as bad as it could have been. So the glass is half full and about to be filled up with magic dollars from the Fed's printing press. All is well. Even if it weren't, we could fix it with a few little accounting adjustments.

The FASB bowed to Congress and a relentless recession and ruled to discontinue the so-called 'mark to market' rules that made financials in particular value their 'assets' at fair value. Turns our 'fair value' was something like zero and that put a damper on lending. See, the financials have a bunch of garbage that they pretend is capital from which they base their lending practices. If the garbage can be counted as whatever they need it counted as, everything is copacetic. Bring back NINJA loans. Bring back subprime activity. Fog up the mirrors and let's get the world even more indebted than they already are. What's the problem? This activity makes the stock market go up. Fine. I'll play.

Since the Fed runs the market anyway, I think they need and want to push the Dow above 9000. This will take out the last lower high and give credence to a new bull market as opposed to a bear market rally. As the market closed Friday, you could see the troops massing for a charge north of the 8000 market scheduled to start on Monday. Can the market move higher on horrible economic data? Of course. Look at Zimbabwe. When does data have anything to do with a hocus-pocus stock market? All the market needs is money and buyers. It has one in the same in the Fed right now. Don't fight it. 

Buy bank stocks. A week ago they were garbage holding garbage. Schazaam! A quick change in the accounting rules and they are gold holding gold. This is the new era. Perception is all that matters. It used to be that accounting was steeped in two columns. Debits and Credits. Assets and Liabilities. When 'assets' became 'illiquid', they became 'liabilities'. They were disposed of by moving them to the 'Debit' column as losses. Then along came derivatives and leverage to the moon and such a process vaporizes the stock market in one swift accounting adjustment. One minute a financial institution is solvent and highly capitalized and the next minute they are neither. Poof! Since this furthers the decline of the stock market, we must now change the accounting back to the way it was in allowing the formation of the credit bubble that now threatens the financial structure of the world. We can't fix it so we are just going to allow it to bubble on. Beautiful! Change? I don't see any change!

The G-20 meeting concluded the way most people thought it would. There were a lot of politicians high-stylin' and profilin' but in the end, all they did was pledge to throw yet another trillion at the worlds' economic problems. But here's the problem.

Over the past fifteen years, GDP of the world has been boosted by debt spending. We spenders have not acquired assets. We have acquired liabilities. We cannot pay for our current liabilities much less afford to take on more. Thus, we are defaulting. So as not to imperil the beloved and worshiped bankers that stoked the fires of indebtedness in the first place resulting in higher stock prices, our governments have elected to both print money and steal money from all of us poor indebted people and give it to the banks. This gets their capital ratios back in line so they can continue to indebt us. Again, the accounting rules have now been rolled back to bubblicious times and the financial institutions can write numbers on pieces of paper to match whatever they need it to match. The problem is we can't take anymore debt. Our 'Liability' column greatly exceeds our 'Asset' column. Our 'Debit' column has exceeded our 'Credit' column. We are done. There won't be any resounding economic recovery until workers can make more money and even up the two columns in their personal accounting quagmire. And, sadly, the opposite is happening. Paychecks are shrinking and liabilities are rising. The only way to prosperity is good jobs and good pay. You can run the presses all day and stash the doe to the ceiling in every vault of every bank on the planet. All that does is reinforce the same pattern.

Years ago, money had some value. Therefore, lenders loaned money and actually wanted the money to be repaid at some point. Now, after years of Federal Reserve monetary value destruction, the money is worthless and the bank knows it. They don't actually want it back. They want your house or your car or your jewelry. Think about it. If the bank loans $100,000 for 30 years, the lender will pay them back with highly depreciated currency. If Bernanke serves the Fed long enough, the Federal Reserve Notes repaid to the bank won't even be worth the envelope in which they are returned. What we are experiencing right now is an asset grab engineered by the Central Bank. They want our gold and they are collecting it by inflation, deflation, and ignorance. 

Luckily for them, the populace is profoundly ignorant. Look at the people that the populace votes for in elections. Even sadder, the populace is convinced that printing money and giving it to the financial institutions is the right thing to do. This process inflated the price of assets and the central bank conspired to keep interest rates low to allow the populace to front the money to produce such assets into the economy. Finally, the credit bubble burst and the populace was drowned in their own stupid debt forced to surrender the assets back to the lenders having their salaries and lifestyles deflated. The lenders have started the process of confiscating assets at deeply discounted prices leaving the populace broke and profoundly ignorant of their role that they played in the initial financing of the lenders' property in the first place. Incredibly, the blame for the current Ponzi scheme is laid at the doorstep of former President Bush while the current President carries out exactly the same strategies in the name of change. Just how stupid have humans really become? If the strategy of printing money didn't work before, why does anyone think it will work now? Isn't this what Bush tried to do? God help us!

The Dow one month from 3/9/09

Stock charts courtesy of StockCharts.com