A Rally Without Wilt
On March 9, 2009 Ben Bernanke gave birth to the current rally by issue of proclamation that there would be no more 'big bank failures' in the US. By virtue of the return of 'mark to fantasy' accounting, Citigroup said they made a profit. Instantly, our current rally began. Of course, Bernanke now owns the banks as illustrated by his mandate to Bank of America CEO, Ken Lewis, to buy Merrill Lynch or else. That else included a pink slip. Now you know who's boss! Since the Fed's coup of August of 2007, I have been documenting this abysmal turn of events in American history. As April wound down, all analysts were trying to gauge the effects of the Fed's so-called 'stress test' on banks. Most guesses were that the big boys would be required to raise hundreds of billions in capital. Big deal. The Fed will give it to them even if they have to take it from you and me. The big effect? Nothing - and the Dow rally rolls on. Besides, after jacking the shares of all banks higher for the past six weeks, why would Bernanke let the bank rally fail over a silly little detail like lack of capital. No one stops a scam in mid-scam. He will see it through.
Interestingly, with the Dow at close to 8200, it now has a P/E of about 30. We can't say for sure because earnings are no longer for sure. With mark to fantasy accounting, earnings have become whatever the Fed needs them to be. Therefore, unless the Dow drops some 50% very quickly or earnings improve significantly really fast, the market is grossly over-valued. But, and this is a big 'BUT', we are in a different era now. This is a government run market and a government run economy. Capitalism is muted and federalism reigns supreme. Earnings no longer matter anymore and market rallies can be sustained because the Fed says so. The Governmental Department of Pathological Lying (ie, the Commerce Department) claims that consumer spending increased by 2.2% in the first quarter. See, the economy is improving. That is, unless you believe their reported GDP number of minus 6.1%. Now remember, a large part of GDP is consumer spending. If consumer spending was up 2.2%, how could GDP be down 6.1%? We must also remember that a large part of GDP is government spending. What number would you like to put on that? Do you think it declined what with bailout - stimulus- debt ballooning politicians carrying on the Fed's manifesto? I find this, and all numbers our government puts out to be more fictitious than the tale of Little Red Riding Hood. But, with the economy on the ropes and gasping for air, the government needs a stock market rally and that is what they are going to get. If there is any bad news like contracting GDP, there has to be some good news to offset it like consumer spending. Truth is the enemy of the State as Joseph Goebbels, (Nazi Propaganda Minister) said. Damn the earnings and fundamentals, full speed ahead!
I won't repeat the real economic numbers. They are all bad. The government wants us to believe, however, that they are getting 'less bad'. It's like if you were shot in the carotid artery, you would begin to bleed profusely. That would be very bad. Soon, your body would run low on blood and the flow of blood would lessen. Oh, that's good. You are getting better. Stand up and do jumping jacks! But, we want a market rally so we are willing to believe anything to make that possible.
Oh, by the way, Chrysler declared bankruptcy one day after claiming to secure agreements with creditors. Liars. Then Mr. Obama said that 'bankruptcy was not a sign of weakness'. Nah, it's just a flesh wound. Strong companies declare bankruptcy everyday. Who's next? Exxon? Walmart? Microsoft? Is everyone on acid except me? Why didn't someone from the press question the man about this statement of deception? Is the media brainwashed like the Obama-nites? Hey, don't jeer me. The Republicans are just as stupid and inept as the Democrats. America is a country devoid of leadership. It is also a country devoid of intelligence. Else, how else do we let such stupid people run our country?
Okay, let's talk truth. Chrysler is run by a hedge fund and venture capital group. They apparently bought credit default swaps that would repay them if Chrysler went bankrupt. Our government offered them a deal to accept pennies on the dollar for their debt but they did not accept. Why? Well, they were talking to bailout Barrack. Again, don't jeer me. The idiots before him started the bailouts and now the new guy is just doing what the old guy did. Why? Because he is told what to do by Lord Ben! Anyway, the owners of Chrysler will come out better because of their derivative operations if the company declares bankruptcy. So, derivatives strike again. Why won't there be any legislation passed by the current administration to limit the use of derivatives? Because the Fed runs the derivative show through the Bank of International Settlements. Game - set - and match.
Below is a 5-day chart of the DIA ETF. As always, note the volume at the beginning and end of each day. This is when the PPT is most active.
Stock chart courtesy of StockCharts.com
1-week 30-minute bar chart of the DIA week ending 5/1/09