Saturday, April 24, 2010

Stock Market Review - 04/23/2010

Bullishness of Bankruptcy

57 US banks have failed this year. States, counties, cities alike are cutting expenses and scrambling to pay bills from falling tax revenues. Real estate foreclosures have hit an all-time high. Unemployment is still double digits by any measure and so many Americans are on food stamps the grocery stores might want to think about adding a 'Food Stamp' register to go along with their 'Express - 10 items or less' registers. Europe is discovering just how broke they are as Greece continues to reveal their debt mountain is still growing. Derivatives have worked to bankrupt them and yet derivatives are the only savior. As much as the dimwits in Euroland try to convince the world all will soon be well. it is clear they are going to have to ramp up the old Euro printing press. It's the only way out. Well..., they could crack down on derivatives but we all know that these little instruments have become the sole profit machine of global banks. And so therefore, banks rule the world now and derivatives are here to stay. To be sure, there will be some kind of 'financial reform' instituted by our bozo politicians. But, I'm sure that banks will be exempted. So any way, with this backdrop, there is a stock market rally under way.

So this week, I give you a two-month chart of the DIA. This chart shows the tale of two economies and which tale is winning. The first paragraph above is reality. Sovereign nations are failing. Well, at least the ones that don't own a well oiled monetary printing press. Budget cuts are affecting every US city. Taxes are rising to pay for less services. The poor are getting poorer and the rich are getting richer. The rich, like Goldman Sachs and the other global banks, are getting rich by pilfering governments and enslaving them through the promises of 'risk control' by using the magic of derivatives. The banks' bottom lines are improving magnificently through accounting 'adjustments', tax changes that benefit them, and 'investment banking' trading. Fortunately, the investing public is ignorant and suffers from amnesia because no one seems to remember that 'investment banking' and 'trading' is what bankrupted the big banks just two years ago.

But now, they have the central banks on their side. They have the printing press. They have the treasuries of the tax payers. They have the laws and they make the rules. For instance. JP Morgan 'bought' the mortgage giant, WaMu, at a 'going bankrupt' sale in 2008 for $1.9 billion. They then managed to get the tax laws changed so JP can now write off WaMu's losses prior to the purchase date when JP didn't own them. Schazaam! Now JP is due a $1.4 billion tax refund! I feel like they could at least offer us a shower and a cigarette! In addition, the governments run the propaganda machine that spits out ever improving good news about the 'economic recovery'. I won't go down the list but suffice to say, it's all good. In fact, all the economic news is downright dreamy! Thus we have a stock market rally. Obviously the stock market is always going to believe statistics. Reality is what each of us sees everyday. Is the economy really getting better? Small businesses were polled a week ago and 80% of them said things were getting worse, not better. So much for reality. There is a stock market rally of historical proportions going on people. We don't need no stinkin' jobs and we don't need no stinkin' savings. All we need are statistics that tell us what we want to hear.

Now, I like a rally as much as the next guy. Especially, rallies like we now see. There were only 4 down days for the Dow in March. With only 4 days to go in April, there have only been 3 down days in April. And, one of those down days was the Friday drubbing due to the SECs announcement of a fraud lawsuit against Goldman Sachs. Not to worry. As I told all who would listen, the market would forget about it over the weekend and the rally would resume. Presto! It's as if some great power had wrestled controls of the stock market away from investors and hooked it up to a printing press that always buys thus punishing any sellers resulting in a 'buy' only market. Of course it will go up everyday from now on! Besides, the lawsuit against Goldman names only one individual - a Frenchman named Fabrico Tourre. That's french for 'Martha Stewart'. As I have said, the Europeans are miffed that the US doesn't police the big banks and they get to perpetrate scams at will to enrich themselves. Our regulators had to finger someone so they turned to Martha. Apparently she wasn't involved hear so they threw another scapegoat into the ring of accusation. Isn't it odd that the German banks stand to lose the most on Greece's financial distress and we finger a Frenchman as the culprit? You know how much the Germans love the French?

Anyway, look at the chart. It's pretty. It's under control. Yes, the market is a tale of reality and statistics. It also strikes me that a bubble, or balloon, can be inflated in two ways. One, the inflator can exhale into the bubble, pull away to inhale, and then exhale again. The bubble expands in lurches. The other way to blow the bubble is to hook it to a machine, or a compressor, that steadily pumps the air. The smooth ascent of the market looks like the latter. We should all enjoy it until it pops. Keep blowing, Ben!

DIA 2mths ending 4/23/10
Chart courtesy

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