August, 2009, closes with the Dow closing in on a monthly Fibonacci retracement level of 38%. The chart below shows the Dow in black and the Shanghai Composite in candlesticks. The Shanghai hit its 38% retracement at the very beginning of August. Coincidentally, this coincided with a record 700,000 brokerage accounts opening in a day in China. Some things never change and some things are always right in the stock market. The little man is always wrong at the worst times. And give China credit. They call their rally from March a 'bubble' while we call ours a 'recovery'. But what would you expect. Our government is the lieingest group of people in the history of man. Their latest is there is no inflation in the US. Therefore, social security recipients will not get a cost of living adjustment in the coming year. Really? This is the same government that contends that we need government run health care to control cost that have doubled in the last ten years. Since health care is a fifth of our economy and seniors generally use more health care than non-seniors, this seems to me to be a rather pathetic use of truth when you need it and lie when you don't. Anyway, The Dow maintains a rally. Is it a bear market rally or is there room to go?
Clearly, the stock market is firmly in the hands of the government and their shills. For instance, high frequency trading has been in the news of late as a technique used by big brokerage houses like Goldman Sachs to make tons of money without investing. Did I say 'brokerage house'? Well, they are actually a bank. Well, they became a bank when it was convenient enough to avoid bankruptcy and at the same time, get in on the heist of trillions orchestrated by our Treasury and Federal Reserve. High frequency trading is illegal and it is referred to as 'front-running' in compliance vernacular. It happens when a trading firm picks up a high volume of trades coming to an exchange and the firm uses computer trading to then beat the original trade to the exchange, buy the stocks ahead of the real buyers, and then sell the newly acquired shares at a slightly higher price to the unsuspecting suckers. Well, this used to be illegal before banks ruled the world. Now, it's just more profit for the Fed shills.
Let's get back to the question of the rally. Is there more to come? I believe there is because absent a strong stock rally, there is no economic recovery. Remember, stock gains add to GDP. So does massive government spending. This will allow the government to pretend that there is real growth going on. Other than the areas of the economy that are being subsidized like autos (cash for clunkers), housing (buy now and get $8,000 back in subsidy), banking (make up your own accounting rules to show profits), or big salaries for insurance execs, the average American, from what I see, is still eating spam and pretending it is steak. We are still indebted on a personal level and indebted on a national level such that we are adding an extra million to our debt every seventeen seconds. If debt were the magic seed of prosperity, each of us should have a hundred credit cards and every one should be maxed-out! So, fundamentals are not behind the rally unless we pretend. But oh, what a rally so far. I suspect this bear market rally will peter out but not until the PPT runs the Dow to close to 11,000. Why? This is above a 50% retracement level and it would put the S&P 500 at 1,200. That's the level it was at when former Treasury Sec. Paulson aided the monopoly of his firm, Goldman Sachs, by burning Lehman Brothers to the ground. Granted, all the financials were bankrupt and likely still are if truthful accounting were to be employed. But that's reality. We are not living in reality. We need fantasy to keep the rally going and fantasy is what we'll get.
But right now, Bernanke is serving two masters. The stock market is now purely a function of inflation. Bernanke clearly thinks the golden printing press is the answer to all problems. When the PPT pumps money in, the market rallies. That makes the US dollar fall. That makes bonds sell off and the Chinese don't like that. They hold nearly a trillion so they call up the ignoramus standing at the printing press and demand support. So, Ben has to run over to the bond market and manipulate the yields lower by buying large quantities of Treasuries. He has pledged to buy $300 billion of the garbage by October and he is almost there. After that, hold on to your seats. Who knows what this Chinese puppet will do then. So anyway, when Ben and the boys are busy buying Treasuries, stocks fall because no one with a functioning brain cell thinks any of that crap is worth buying. Ben has to hurry up his Treasury purchases so he can run back over to the NYSE and keep the stock bubble inflating. Did I say 'bubble'? I meant, 'recovery'. Sure, that's it. I say we 'recover' right along with Ben until he gets the Dow back to around 11,000. Then, let's see what other lies these people will tell to perpetuate the biggest scam ever perpetrated on humanity. Look at the chart. With world economies so intertwined, is it possible for the US market to continue to rise while the Chinese market falls? One of these charts has to be wrong. Stay tuned...
6-mths ending 8/28/09 - Dow in black, Shanghai Comp in candlestick
Chart courtesy StockCharts.com