Our present day stock market is one that is difficult to navigate for the informed. It is fairly easy for the dumb and uninformed. If you know the truth, you would short this market with all you've got. You would also be losing money. The truth is the banks have a lot of toxic assets still on their books and they are not getting any less toxic as time moves on. Unemployment is still moving higher even as many recipients of unemployment insurance exhaust their benefits and 'disappear' from statistics. The consumer is still heavily in debt and the country in which we live just raised the estimated indebtedness over the next ten years to nine trillion. Since the government put that figure out, I suspect you could double it and get closer to the truth. The only parts of the economy that show green shoots are heavily fertilized by 'stimulus' and government subsidies. 'Cash for Clunkers' has been good for the auto industry but this is merely a subsidy program to get people into cars that they could otherwise not afford and after a year or so of payments, will realize more debt is not their answer to prosperity. Home sales are showing monthly increases while yearly comparisons are still bleak. Sales are up because foreclosed properties sell on the cheap and the Federal Reserve is buying hundreds of billions worth of US Treasury notes to force interest rates lower than they would normally be thereby subsidizing the real estate industry. To date, 81 US banks have now failed and those that haven't, are standing largely due to Federal Reserve subsidies. Ditto for the insurance industry. Let's not even talk about Freddie Mac and Fannie Mae. Both are allowed to report fictitious earnings while hiding potential and eventual losses under the 'AOCI' column as I outlined in the last post. Ditto for banks. And now the Federal Reserve has amassed trillions of agency and government debt on their balance sheets. China and Japan are both closing in on a trillion in US debt as well. The way the Fed raises rates is they sell paper. Uh-oh. That will destroy balance sheets that hold that paper. Talk about a rock and a hard place. Wow! Fed stupidity is infinitesimal. So, the consumer is still broke, foreclosures and bankruptcies continue to rise, we have the world's largest collection of morons for politicians, and most companies would be hard pressed to show profit growth if they had to use honest accounting. Sell, sell, sell.
No, no, no. That's only if you know anything. If you are dumb and blind to the current policy of cheating and scamming, then party on. There is a bull market raging and making money is all investing is about. Since there really isn't anything constructive to point to, the Fed has to goose the stock market higher to sell their notion of economic recovery. See, the stock market is up. The economy must be getting stronger. That's all you have to know. Just buy. Ben and the PPT have your back. And no, you don't have to know anything about anything. What do you buy? Does it matter? Market rallies that are subsidized with a flood of money push everything higher. Yes, even oil. Did I say that? Never mind. You are not supposed to know anything.
The one thing you need to know is who's throwing the party. Like a good guest, we need to know who to thank. The Federal Reserve is of course, the man. Sure their banking buddies and Treasury Department shills are with them but the Fed is stoking the rally flames. Notice the chart below. Last week was a good week. President Ben was distracted a bit with his visit to Jackson Hole, Wyoming and he couldn't stand at the monetary printing press all day to pump up the market. So, other than about an hour or so of trading, the market went down or sideways. There were a couple of big bursts higher that only lasted for a few minutes but that's all it takes. The PPT has put sellers on notice. They are not welcome at this party and they will not be tolerated. So, if you don't know anything about anything, this is your market. Party on. Keep buying right alongside Ben and the PPT and watch your portfolio grow. Nevermind that the fallout will be higher oil prices, higher inflation, higher taxes, and less control over your life. But hey. Sacrifices have to be made. Don't you want the stock market to go up? It's not like it will go up on its own! Ditto for car sales, house sales, banking, insurance...
Oh, you weren't supposed to know that stuff. That could interfere with your 'investing'.
DIA one week ending 8/21/09 (15 minute bars)
Chart courtesy StockCharts.com