Saturday, August 11, 2012

Investment Bubbles


The current economic picture is rather gloomy. Europe is a mess. They are drowning in debt. Central banker Draghi is offering a lifeline that is inflated with more debt. Somehow believers want to believe more debt is the answer. China is slowing and almost no one believes Chinese data. Most pundits believe China is slowing precipitously. Their government is offering more debt a stimulus. Most believers want to believe more debt will perk up the economy. Of course, China exports heavily to the US and while the US regime claims all is well and recovery is taking hold, only worshippers of the regime share this belief. Just this passed week, we learned that mortgage delinquencies were rising again. It does not seem plausible that the Chinese economy could slow while the US economy strengthens. We should take note that only the current regime claims that things are getting better. Economic growth data from previous quarters is getting revised lower and expectations are getting reduced. Stocks?

Well, stocks are riding the bubble of central banker inflation. Every time indices threaten to weaken, a central banker somewhere pops out to offer ‘stimulus’. What they mean of course is more debt. These central bankers are trying to prop up equity markets by manipulating interest rates to zero. Sure, they can get rates to zero. All they have to do is buy up all the sovereign debt in the world. Then who owns these supposedly sovereign nations? Right - the central banks. That is the goal. But the populous has no understanding of pure evil or economics or almost anything that doesn’t involve some ridiculous reality TV character. And, as long as the stock indices continue to churn higher, no one will complain of lost liberties or lost capitalism. 

But given the overall economic weakness of world economies, and given the enormous debt loads of governments and individuals alike, and given the risk of imminent financial collapse at the twinkling of a derivative deal gone bad, the case of the rising stock indices would surely indicate that we are in bubble land. I believe we have entered into the greatest bubble ever blown and when this one pops, everyone is going to lose everything. In a sense, investors have already lost everything. They have surrendered capitalism. They have surrendered the ability to control currency valuation. They have accepted debt that can never be repaid. They have surrendered intellect. And, they have surrendered their future. Central bankers have all that stuff and they alone control the currency. When they say the currency is no longer valid, it will all be gone regardless of what investors see on their monthly statements. That day is coming soon.

The chart below is a look at this passed week. The Dow is in candlestick and we can clearly see that every time the Dow threatened to roll over, central banker manipulation propped it back up. I don’t know that there is any significance to the 13,000 level on the Dow, but the central bankers sure look head strong to defend it. Even Friday was a curious day. China announced very poor export numbers. That would seem to indicate that they were not exporting much to the US. Global economic expectations were again ratcheted down. Yet, it didn’t seem to matter. The Dow stumbled around until the last hour of the day when it lurched higher by over 40 points. A quarter of the days volume came in during the final thirty minutes of trading. To this, I say, ‘Good job Mr. Bernanke’. Of course, this little rally was instigated on this day by a Fed member saying more stimulus was needed. The bubble kept expanding. 

Oh, just one more thing. That red line is the EWP - the Spanish ETF. Readers may want to brush up on Spain but they are most likely entering into their own Greek-style debt depression. Didn’t matter. As we see from the red line in the chart, the EWP pretty much tracks the Dow. How’s that? Yep, regardless of solvency, almost all indices move together these days. Bubbles tend to play out like this. And of course, there is a lot of money to be made in bubbles. We just don’t want to be there when they pop. Bubbles Bernanke will surely declare ‘bank holidays’ when this happens to give his fellow robbers time to pilfer whatever is left of American savings. So, please don’t confuse whatever it is we are doing these days with investing. We are just riding the bubble while the central bankers inflate everything together.

5 days 8/6/12 - 8/10/12, 30-min bars: DJIA in candlestick, EWP in red
Chart courtesy

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

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