Friday, February 12, 2010

Stock Market Review - 02/12/2010


Pilobolus is a fungus that lives and grows in cow dung. Everything in nature exists in balance. Disturb the balance and nature goes askew. Cow dung doesn’t decompose on its own. Fortunately, the fungus, Pilobolus, lives in the dung and helps to decompose the organic matter. Otherwise, the Earth would be covered in, well, dung. Amazingly, the fungus can eject a spore at a speed of up to 45 mph. Now you know where the phrase, ‘shooting the #%&#’ (sorry, kids could be reading this) comes from. And you thought you weren’t going to learn anything today!

So why am I going on and on about fungus and cow dung? Well, I was thinking about the current state of the stock market and for the week ending February 12, 2010, the main story dominating the mind of investors was Greece. It seems the worlds’ investors suddenly realized that the bankruptcy of the world was unfolding like a very slow train wreck. Greece just happened to be the next car in line. Of course, there is always some crap, or dung if you will, worrying investors. And, in the new era, it seems that every time we dig through the dung we find Goldman Sachs staring right at us. This time is no different.

Greece is a member of the acronym PIGS - Portugal, Ireland, Greece, Spain. All are members of the European Union and all are struggling economically. Yes, I know there is a ‘worldwide economic recovery’ underway and that is another reason I started this piece talking about dung. The only person stupid enough to believe that would have to be stupid enough to believe in global warming. We have seen record snowfalls this year and here in the Southern part of the US, we are currently bracing for yet another snow storm. Global warming is yet another con used to extract higher taxes and further the distraction from the real story of the day - the central bank coup! Anyway, Greece is having problems and the market is worried. You can watch the network news and get the pablum from Katie Couric or some equal nitwit but let’s cut the dung and get to the real story.

Like the rest of the world, Greece can’t face the TRUTH. Central banks have destroyed currency valuations and living standards have taken a turn for the worse. To pretend they haven’t, governments have borrowed money to keep the wealth illusion alive. Of course, membership to the EU mandates that counties limit their borrowing deficits to 3% of their GDP. Greece has now admitted to deficits in excess of 12% of their GDP. Aaahhh - if they could just use a magic monetary printing press like the US and print some more money, they could sell more bonds and carry on with their orgy of delusion and spending. Their government could hire more workers to do less and they could pay them more and offer them lavish retirement benefits. Their government leaders could hire 17 personal aides apiece at an expense of several million to the tax payer. They could funnel money from the printing Treasury to the banks so they could bestow lavish bonuses to their executives that over-borrowed their country into bankruptcy in the first place. They could reward incompetence and punish prudence. They could reward the clueless and skill-less investors while at the same time castigate, obfuscate, and invalidate the enlightened and skillful by turning their stock market into a mockery of knowledge and truth. Oh, wait a minute. I was supposed to be talking about Greece and not the US. But Greece has a problem. As a member of the EU, they don’t own a printing press. They can’t borrow, print, and spend their way out of indebtedness like the US can. (I am tilting my head at an angle and winking rapidly at you right now as I chuckle at the absurdity.) So, what do they do? Well, of course they now have to wait for a ‘rescue’ package from their central banker. Yea! Isn’t that the cure for everything? Borrow and spend until you cant’ pay your bills and then sit back and let the central bankers rescue you. Print, fellows, print!! On Dasher. On Dancer. On..., wait a minute - that’s Santa Claus. Well, whoever these fellows are just hit the ‘Print’ button and all will be well again!

I trust you now detect a bit of my sarcasm. If it were a matter of helping a country out of a jam, that’s one thing. If it were a matter of just restructuring a few loans, that would be another thing. If it were a matter of a country giving up its illusion of wealth, that would be yet another. No, my friends. This is much deeper. Don’t let the Katie Courics or other bozo news ‘journalists’ on other financial networks deceive you. Besides, deception is the sole purpose of government. No, we have to look deeper. We have to follow the scent back to the dung pile and turn it over. Look! There’s Goldman Sachs again!!!

Let’s start by getting some perspective. Greece has a deficit of 12% of its GDP. What is its GDP? In US dollars, the GDP for Greece in 2009 was some $344 billion. 12% of that is $41 billion. 3% of their GDP would be $10 billion. So basically, they just need help on about $31 billion in debt. Oh come on! $31 billion. Is that it? A Goldman exec makes that just in bonuses every year. Bernanke uses that to blow his nose. Are we really to believe that all the world stock markets are suddenly in correction mode over $31 billion? Okay, let’s turn over the dung.

It’s not the debt. It’s the derivatives that are tied to the debt. According to the BIS, Greek banks held $244 billion in derivatives at the mid-point of last year. By using derivatives, $40 billion in debt could turn into hundreds of billions or even trillions just at the twinkle of Goldman Sachs’ nose. Wait a minute, that’s Santa Claus again. Let’s be honest. Does anybody really care about Greece and their $344 billion in GDP? No. But, derivatives and credit default swaps are everywhere. France and Germany hold a lot of the Greek debt and my guess is they also have a lot of the playdoe ‘securities’ we all like to call ‘derivatives’. The bottom line is if the country defaults on the debt, the derivatives dissolve and the swaps get called into play. Who owns them? The big banks of the world. Who orchestrated the scheme to allow Greece to balloon their debt above their allowable ceilings? Goldman Sachs. Every time a pile of dung is turned over, Goldman Sachs is right there. And now, Greece is like a big bank. They are too big to fail.

What does this mean for the sacred stock market? Again, for perspective, the deficit in the US is pushing 11% of the US GDP. Somehow, investors think bailouts are the cure and printing money solves all problems. The world is waiting for the EU to solve the potential default in Greece with a bailout. That thought obviously weakens the Euro and in a relative default, strengthens the US dollar. The only thing that drives the market is inflation pushed by currency printing. So, if the dollar appreciates, the Dow will drop. The skilled and knowledgeable investors will recognize the dire nature of the situation and take the appropriate action - sell and short. However, we all must acknowledge the Plunge Protection Team (PPT) and their actions. It is obvious to a child of 3 that Dow 10,000 is their ‘line in the sand’. The chart below is a look at the DIA for the week ending 02/12/10 with 10-minute bands. One can easily identify the 10,000 mark or the corresponding 100 mark for this ETF by the point where it immediately and forcefully jolts higher. That would be the ‘bottom’ to pundits. How does the market suddenly turn higher at this point. Let’s be honest. The average investor is 1) not this observant, 2) doesn’t have the money to ‘jolt’ the market, and 3) doesn’t have the guts to pull the trigger when the market is plunging. Take a look. Every single time the DIA broached 100, there was an immediate surge back up. I suspect that Bernanke had to clean his pants out several times this week as his beloved index threatened to cave in after all his hard work to manipulate the market/ economy higher over the past year. The Fed of course can’t manipulate the markets by himself. He needs shill banks like JP Morgan and Goldman Sachs. After all, somebody has to actually do the trading.

As the real market tries to adjust to the risks of default and potential for economic constraint and contraction, a certain balance restores a true ‘market’. Investors will find the correct value of the market. They just need the banks to refrain from putting more dung on the scales. Let the Pilobolus grow! Who’d ‘a thought little old Greece could do this much damage? Is Portugal, Ireland, and Spain waiting in the wings. If you want the truth, it is buried beneath a pile of Goldman dung!

DIA - 10 minute bars 02/08/10 - 02/12/10

Chart courtesy

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