October 27, 2012
Reasons to feel bad about the economy, or, its not the stock market, stupid.
Any falling market is not likely to be manipulated, at least by the Federal government, although this does not mean it still doesn't fit in with their plans. Yet one could still be asking, is it so that the government has truly been driving up the market not only artificially-which they always do-but directly by buying setting up some arrangement for the purchase of equities? I cannot know the details of the machine at work but one can see its effect, and below I will give you the critical proof that this is the case. In the meantime, this week was still a fall though have remained flat for four days. I am not yet ready to say the manipulation has ceased, let alone that it will never return. But I do not wish to leave people with the impression that the manipulation is only noticeable when the market is going up and disappears whenever the market falls. Rather it can be seen whether the day ends up or down.
During the period from October 4th 2011 through October 4th 2012, the manipulation of the stock market the S&P hit a low of 1075 and a high of 1463. The thing which is peculiar here is that the low occurred on October 4th 2011 and the high occurred on October 4th 2012, precisely a year and a day following. Is this a mere fairy tale? A gain of 36% in precisely one year against a global economic downturn. So is attributing this to government manipulation merely a conspiracy theory? How many are coming out giving weight to the idea that the economy can sink but that stocks are still the best place to have your money. Well historically this might be so, and this is what they are relying upon. But we could be facing a decade or more of anemic equity markets and I believe that many recognize this and are attempting to conquer it with psychological counteraction. Convince people that they ought to buy and invest and it will all blow over. And some might point to the 2.0% 3Q growth as an indication that things are not exactly falling off the cliff. But consider, most would have predicted the government would do all it could to bring up 3Q so that it would exceed 2Q because of the election, of course. Yet 2Q was revised down from 1.7 to 1.3, and I think the 2.0 number might come with some rounding. In other words, since it is merely a loose estimate in any case, why not make it seem higher, just like folks use $1.99 to make something costing $2 enter your mind as $1, but nonsensical as it remains it has become the conventional way to price. But subtract out all the government activity and I am convinced we are already in a recession.
Here’s the issue then, as people are saying, well China growth is still 7.4% and the US is not in recession, so things are not as bad as everyone is saying. Yet besides all this the market is still inflated beyond where it would otherwise be without support from government buying. This buying has nothing to do with the Fed and what Burnanke is up to. Also in August of 2011 there was a market decline of 17% in just a few days, when China growth and US GDP numbers were higher than they are a year later, so how can people be saying that things not being so bad as some say is sufficient to keep the market going up. Do people who study the market lose sight what they said only a few months or years ago? The truth of the matter is that if the stock market can decline 20% in a situation where the economic situation appears better than it does now, then certainly a 20% decline can occur where the economic situation is worse than it was then. In addition, the market is being artificially floated, regardless of what anyone might say the cause of such a thing might be. Therefore people have one of two choices: to believe that the government will support the market levels until they can stimulate the economy and prevent a worldwide depression, or that the government will be unable to prevent a stock market decline and we are then in for a large 30% or greater correction. There is a simple means to both illustrate the government manipulation and to estimate the extent the market is inflated over where it otherwise would have been.
May 2011 was the peak of the stock market, since then the real stock markets have been in decline, the fake inflated market has continued to defy the gravity of economic decline, a decline which was scarcely predicted as real a year ago by many. But what normally occurs is that the stock market plunges prior to the sure indications we are heading into an economic decline, but this time the governments of the world decided to prevent the market from declining, their goal being to avert a global depression, but has it worked? The federal government increased spending 10% to as to boost 3Q GDP, and it seems that this is not the only thing they have done, after all the Fed is also at work, interest rates are artificially low, taxes are low, and state budgets are being aided by federal money too. And there is the question of what the real inflation rate is, given the amount of artificial money being circulated by the Fed. In other words, the government is still engaged in stimulus of an extreme nature, although it is difficult to estimate the amount, it must be in the trillions. But here is a means to judge how far the equity markets have been artificially boosted, and this is by making a simple comparison between the Dow Industrial Average and the price of aluminum.
If Trump was looking or something big, this is the potential election changer.
As you can see the Dow and aluminum price trend together, that is they rise and fall together, but they do not always track together, meaning they do not move precisely together, but they do periodically realign. This chart shows this relationship holding over the past ten years, but when do the two curves not only diverge but begin to trend in contrary directions, with the Dow heading up while the price of aluminum plunges, precisely at October 4th, right when the manipulation of the markets began (red arrow), which I have been tracking persistently since then on this page. This merely is a confirmation and another way of illustrating the effect. But it also gives us a means to quantify the amount of the distortion caused by the artificial inflation. And as we can calculate, this shows aluminum at its price immediately after the announcement of the so-called QE3 and it shows that the Dow at this point would be around 10,000, but as low as 8,000 before this, and as aluminum prices have dropped since then, it would be somewhere closer to 9,000, which is how we can know that the market is inflated by about 50%, and thus it would plunge from its high by about a third or roughly 30%. However, this cannot be precise because there are always deviations, and a stock plunge might impact economic figures to a certain degree, but the chart indicates the close correspondence that the equity markets have with aluminum prices which arise from use of aluminum, supply and demand: low demand leads to low prices.
One might always argue that this deviation might be caused by something else, but it is both the time of when it began which indicates it arises from government manipulation as well as that they are contrarily trending. Investing for a market decline would have been a very good decision back at the end of last summer, but the government stepped in to assure that the market not be allowed to fall. But this chart is interesting for one other reason, it also differentiates the Fed impact from the stock inflation impact, for aluminum prices were tracking the Dow through QE1 and QE2, but then they began to fall, and so the Dow followed before it was interrupted. This also indicates that ‘Operation Twist’ had very little effect at all on the economy, and QE3 led to a transitory and still present rise in material prices, including aluminum, copper, gold, and silver. But 100% of the increase since last year's low arose from this artificial stock inflation, and despite what most people say, the Burnanke contribution has been 0%. So has the government been buying equities to inflate the stock market? QED it seems to me.
There is perhaps not much more that can be said, beyond the reality that this is only the beginning. But I am not convinced that this is a partisan issue, an ideological issue alone, and thus it might make no difference who wins the presidential election, market manipulation might become another tool in the governments arsenal to postpone fiscal responsibility. No doubt the President blames the Republicans but the chart indicates that the decline in the market in August had nothing to do with the debt ceiling debate and the US downgrade, these might have been triggers, but it appears to have been merely a coincidence. The assessment that it was the Republicans were responsible for acting to discredit Obama by causing the 17% market decline in August and for acting to ‘stall the recovery’ is dead wrong. The reason for the decline was the termination of QE2, and had nothing to do with the Republicans. This is merely a red herring and the President is entirely to blame for covering up a natural economic downturn with false market inflation for political reasons, perhaps under his view that he was counteracting the ‘dirty politics’ of the Republicans. But realize I can only surmise based upon his rhetoric, but the Democrats certainly seemed to blame the S&P downgrade for causing the stock markets to decline, as the President did say that people might have been spooked by the debt ceiling debate. Perhaps they were, but this shows that headlines and investor confidence do not drive the markets, but fundamental economics do. Any trigger would have caused these declines.
Eventually the two curves will meet up, the President is merely hoping to keep markets up until he can turn this economy around. And I imagine that their government economic models are predicting that the economy will show signs of improvement in 2013 or 2014. But I ask again, is it the governments job to assure that equity markets rise? Is the government going to be intent on controlling the economy from now on? Anything that is done, even for the best of reasons, can be ultimately bad. Especially in the way that preventing a ‘crisis’ also assures that nothing will change, back to ‘business as usual’, a return to the what the people who benefitted the most wish for, and that people remain unresponsive, uneducated, or undeterred. I am not in favor of a crisis, but this crisis is just as much the product of making every attempt to push our troubles into the future as it is on simple economics, pushing it into the future now is not the solution. Doing the right thing now is the solution. As with people who build up credit card debt, the first thing to do is to start doing the right thing Now, not put it off into tomorrow by applying for yet another credit card. I know what the Prez says: get the economy going now and then pay the bills later. However, there is a great deal of difference between the government stepping in to help and the government acting to undermine the systems they are obliged to protect and preserve, although thier intent was to achieve this secretively, to decieve people into believing the stock markets could not be deterred. But their view must be, 'we have no choice', but then too, is it even possible for the government to act to eliminate the possiblity of recession and depression if they just work out the right procedure for dealing with it? But to create a market that pushes up 100% in four years! Isn't the better thing to improve investments in research, to develop realistic growth expectations, and find means to get us through a recession rather than taking such extreme measures to keep us out of one and satisfy their seemingly obsessive quest to push up equities and assure growth no matter what? The government cannot assure permanent growth and cannot pick and choose what succeeds and what fails. They might try, but the more they try the more trouble they will cause. Even governments are not omniscient, and cannot act on the presumption that they are, or have the arrogance that they ought to be.
October 20, 2012
One thing should be made clear, there are only two possible explanations for the markets surging so much in the face of the changes which have arisen within the last year, when many were still cheerful and optimistic about the situation: a manic response to the thought of economic collapse or active government manipulation. All we need do is look back at the change in how it was perceived starting in December how 'this market' was surging despite the developing circumstnaces: recession in Europe, China slowing down, America just keeping its nose above water. And many were speaking optimistically about things not driving us into recession and of QE3 coming to save the day. And yes, we are not in a recession by the numbers, but this is so only if inflation is being reported accurately, which it might not be (see below) and we never did get QE3. In fact of the market gains seen since October 4th, 2011, 100% have been driven by government purchasing of equities, the Burnanke effect has been ZERO. Yet when you hear commentary you always hear people speaking about Ben and the Fed.
Yet despite what people have been saying, the markets are driven by economics ultimately. And the decline in August 2011 was neither due to headlines or nervous investors or Republicans or a crisis of confidence, but of an economic downturn, made up for somehwat by the stimulus spending that started being injected into the economy in 4Q 2011. We are seeing better economic numbers now merely because there has been an intensive effort to reverse the downward trend, and to keep markets held up to give the stimulus time to work and Europe time to sort out its problems. This is why the stock manipulation arose, because it takes months for stimulus to impact economic figures, and we were days away from a stock market decline in October 2011, so this explains everything. The Euopean leaders were desperate for something which would save thier necks, and the US offering to hold stock markets up and give them advice, essentially to do in Europe what was done here in the US, to keep them out of a depression long enough so that the American economy could turn around, which would then turn around the European economy, which would then turn around the Chinese economy. And this is also why housing has improved during the past year. It has arisen from a despearate bid to keep us out of a global depression. But all attention appears to be focussed on improving things so as to assure a second term for Obama, as though all their hopes are pinned on the magic of the Great Baracko to save the situation. But truthfully, what the US did to keep us out of a depression did not work, and so it is not going to work in Europe. It is no longer a matter of politics, it is a matter of fundamentals, and yes they can keep their nose above water but it still doesn't mean we are not in serious trouble, floating down river where the currents are gaining and a potential falls awaits us. Simply put the solution has been: drive the market up to prevent a panic, increase consumer confidence, encourage spending, and then suggest there is nothing at all to worry about.
The last two weeks have been unusual: what we have seen is last week M-F showing no manipulation/risk-off and a down trend, this week M-Th showing manipulation/risk-on and an upward trend. So why did the markets escape the manipulative finger last week? I have my notions, although I am not going to give them here, but it could be as simple as a test to see if the market would rally on its own. Clearly the market did not advance last week, even when economic news was somewhat positive, and this week we heard Barclay's telling investors to ignore the 'Fiscal Cliff' and buy equities, the EU said the crisis over there was over, and here in the US we saw improving economic numbers (in certain cases at least). But the fundamentals, what drive markets, are still weak. There is an attmept to wish investors to drive markets up, but politicians were also counting on the fact that this was merely a 'crisis of confidence' brought on by investor nervousness about the 'debt-ceiling debate' the US downgrade in August, and the potential for a European crisis. They must watch CNBC, who likewise tend to evaluate the market according to headlines. So despite a worstening situation the market always sprung up on any 'good news' out of Europe. Yet we still stand with the markets 50% higher than they would have been if this manipulation had not occurred.
It also looked like the straw was in the foam again this week, with markets showing an intensive rebonding trend. On Monday markets skipped off break even and rose, but about 2:45 showed a slip, but hold on, that slight uptick means something.
And so here we can see four days of rebounding markets. On Wednesday we see drop followed by a rise, and all three days M-W the indicies end in positive territory. This changes on Thursday after Google game out with their significant earnings miss towards the middle of the day. But markets recovered somewhat from this. Look at the final hour(s) of trading in each case and we see pushes upwards. One thing which has been virtually absent during the past year are markets which appear to show stochastic behavior, which means that they move this way and that, they start down and end high or start high and end low, or start low and go high but then fall again. It has been almost pandemically inclnied to hold its gains once achieved. These curves show this, but I am not sure the manipulation can stand up against high volume, and this is what we might have seen on Thursday. There is also a strange circumstance which has arisen in the last two market surges, that of 10/16 and that of 9/27, that on both days First Solar was the biggest gaining stock.
But then we see the decline on Friday with the indicies falling between 1.5 and 2%. Are we seeing here a change, or is this merely from an attempt to create a 'correction' to give people a chance to buy in. Last week I was figuring the decline would be followed by an upsurge this week, which happened, but the unrelenting decline of Friday did take me by surprise. I am attmepting to keep wraps on things so as not to give too much away, but I am just warning you, the Friday drop indicates that the government manipulation might not be able to prevent a real serious crash. And given the circumstnaces, there is far more to be concerned about than the much talked about 'Fiscal Cliff'. What is a cliff when you are on the brink of a chasm. It is only that the chasm has been obscured from our view, and literally because it is filled with lots of newly printed money.
So now this brings me to something I have been intending to mention for weeks: inflation. Inflation can be caused by human activities, from simply the money supply outstripping economic growth. It really has nothing to do anymore with gold or any other essential currency. Anything that is rare or useful can be used as money, which is why gold is utilized, because it is rare and easy to carry. But artificial money works just as well, the rarity of it is controlled by the Treasury and Central Bank, although I am not presuming to be an expert or even knowledgeable on how this system really operates. But there are two principle things people can do which cause inflation: increases in wages outstripping increases in production and the government printing more money. This can drive up the CPI (consumer price index), the first by increasing demand but not supply, so this drives up the cost of items which have flexible pricing. While people speak of 'supply and demand' driving prices it should be noted that there is such a thing as inflexible demand which means that something is purchased at about the same rate regardless of what it costs. And it should be noted that many business use fixed price points for products, so you can buy many many Apple iPads and Amazon Kindles and they do not raise their prices. Prices remain just the same, although they will be put on sale if demand is weak. But there is another thing which does cause inflation: essential shortages. This would mean primarily raw materials, so that price points could not be held down because the demand for raw materials is high but there remains a limit to how quickly they might be extracted or as to what their ultimate quantity is. This can create temporary inflation if it is just dealing with a difficulty keeping up with a short-term increase in demand, but remains if it is due to an essential shortage, such as if new sources of oil could no longer be located but demand for oil remained high.
So how is the government able to print billions or trillions in new money and yet keep the inflation rate below 2%. I cannot answer this specifically, except only to say that the inflation rate only takes into account certain price increases, and I am sure that this is all being controlled by computer programs wihtin the Federal governmnet so all they need do is specify the settings they prefer and let the computer decide how to regress to the number they have set. This is probably why Burnanke doesn't appear too perturbed about inflation rising. But it does seem to be counter-intuititive. Although one reason that this can occur too is simple: deflation, that the value of money is actually going up not down. Deflation caused by people spending less can thus be offset by the government printing more money, and likewise inflation caused by people spending more can be offset by the government printing less money, or through adjustments in interest rates set by the Fed. In other words, to satisfy the Fed's mandate of creating price stability and controlling inflation. So does this mean we were not experiencing inflation?
If they are only considering certain things, inflation might be 2%, and real GDP does not include increase due to inflation but only increase which is supposed to be due to growth. But this can also be misleading if the inflation number is being under-reported. So that if inflation in the US is really above 3% we would have no growth at all and would technically be in a recession. And this also might explain why then we are not seeing job growth.
Perhaps the monetary finagling which distorts reported GDP was behind Bill Clinton’s claim earlier this year that we were already in recession. In other words, subtract out government spending, monetary easing, and market manipulation and we would now already be in a recession. And there is every reason to believe this is so, but while we cannot say the government data is erroneous this does not mean it is not inaccurate (does not present things as they are) and misleading (gives the wrong impression).
If we are merely speaking of the CPI so as to judge inflation, this might well be coming in at 2%, and that it is rather persistently held indicates that there is a good deal of Fed finagling going on to keep it there. But this does not include some types of inflation, especially inflated stock prices for instance. In addition, it is probably maintained using a range of monetary tools which means it is not perhaps an accurate representation of historical inflation (according to how it is typically assessed). Meaning that merely because the reported inflation rate is 2% does not mean under the same conditions 50 years ago it would have been 2%, but that this arises from how monetary involvement by the government has been refined to produce something in line with what is deemed expected. My reason for saying so is how well inflation has been kept under control regardless of the rampant worldwide monetary easing going on. People say this should bring about inflation yet the government is clearly not so perturbed, seeming to have found ways to channel money or otherwise offset consumer price inflation, although I do not pretend to understand the mechanisms involved the conclusion would still be that systemic inflation is actually much higher than the reported 2%.
If they included the inflation within the stock market as monetary inflation then this would be inflation of 50%. In other words, stocks are priced 50% higher than they otherwise would have been. But this isn’t included in the CPI data, although for people who are buying stock they are buying them at inflated prices. So this is not necessarily helpful to anyone who wishes to buy, which is also true of anyone who wishes to buy goods.
I would be interested in hearing from someone who might have anything to say about a true measure of inflation, but as far as I am aware prices are higher this year than last year. I am inclined to think too that increases in business revenue arise more out of inflation than it does from growth, which would explain why we are having some improvements in earnings and revenue for many companies even through economic growth is hovering around 1% and manufacturing employment is still on the wane. And I am extremely concerned about this ‘fake out’ being performed by the White House, to convince people that things are economically better than four years ago so that they will spend more and improve the economy. But I think most people are aware of the reality, and more are beginning to realize the stock market is not only being influenced by government monetary policy but is being directly manipulated by the government. I am only surprised that people are so passé about the notion, which even the Fed is entirely comfortable with. Some might say government action is keeping us out of a depression but at the same time it is like treating an ailment by filling someone full of harmful drugs. It is difficult to know which is ultimately more harmful, that which temporarily hinders the disease or the devastating impact it is having upon his body for the longer term. We are even kept in the dark as to the situation, given that this might hinder buying, so they keep us ignorant and deceive us. But if people borrow to buy homes and purchase goods, what happens if the economy collapses anyway, we are then encouraging people to buy what they cannot afford and then take away their means of paying for it. This is why there is a commitment to keeping the monetary pipeline going until things improve, they have bet entirely on an economic improvement at the end of the tunnel, and this is why they have gone to such extreme lengths. But I think also because the White House blames the House of Representatives for their inaction (and vice versa). But how can you stop manipulation once it starts, especially when it is viewed as being solely an ideological consideration, as though government extremism on either side is not going to destroy people’s lives. Whenever the government does anything it will benefit some and harm others, and they know it, but they are also responsible for it, but only seemingly if they know it will influence how folks vote.
In addition, we face another sort of inflation, as market prices arise from psychological perceptions, and just as a side-note, that when we consider something and consider it to be worth about $10 we might do so from a historical perspective, that this has been a reasonable price for such a thing because it might take $5 to produce with unionized labor in America. But when the same item is produced in China for 50 cents it is still sold in the store for $10, because the psychology of the market has not adjusted to the change in cost expectations. So businesses make mountain-high profits from the sluggish market response to cheap merchandise coming out of China. This is far more significant economically than how you shift around the tax burden. So stores might give 10% or 30% or even 50% off on items, and it seems like a good deal, but even at 50% off their profit is still $4.50, about what it was for the goods produced in the US. This is why sales and discounts are so numerous, because profit margins are much higher than they used to be. And why the discrepancy can be maintained only through it being subsidized by government debt and money printing. In other words, when goods are made in China we are told they can be produced more cheaply, but we are not receiving the full benefit of this, both through the inflated prices which we are still all too willing to pay for them and also because of the elimination of higher-paying jobs here at home. As I have always said, what use is it if something now costs $5 that used to cost $10 if you haven’t any money to buy anything because you don't have a job. This also illustrates the defect with government spending to offset economic decline, and cheap consumer credit, because it prevents people from recognizing the reality of the economic situation we find ourselves in. What concerns me too are the market analysts and advisors who essentially say: we’ll recommend people buy stocks even if it arises from government manipulation, any gains are fine with us. Caveat emptor.
October 6, 2012
One has to be concerned about a president who says on an open mike "I'll be able to do more once I don't have to run again for re-election", and then we might truly see what the man Obama is all about and precisely what his vision for the United States might be. But more so that to try to disguise economic decline and to aid Europe. Not that we should not be doing things to aid our economy or to help Europe, but there is just a great deal more going on than we are being told. Obama has become the Czar of the American economy and Merkel has become the de-facto President of the EU, with Draghi taking his role as the Fed Chairman, in what you might expect from US advisors, to simulate the system we used to get out of the recession. And precisely why did Merkel visit China a few weeks ago? They are not sure any of it will work, but it seems currently every effort is being done to hold back a crisis until Obama can be re-elected and no longer has to be answerable for his actions. Scary! But it's October folks, but November might turn out to be a shock for us all.
As it is, there was bad US economic data out on Thursday, and yet again this was accompanied by an announcement, this time from Draghi that he would do two months of intensive bond purchasing. This has been the modus operandi on Thursday to counteract bad data with some sort of positive statement, this week Draghi while last week China sinking more cash into its system. All it needs is a phone call from the President: "Could I ask a favor, I need you to announce something dramatic on Thursday." Strange how announcements of performing turbo-stimulus are supposed to be such a positive rather than negative sign, but then it seems the markets are still acting according to the President's orders. The employment report on Friday was almost laughable, not that I doubt the integrity of the superficial numbers, but that it clearly showed they had done what they could to boost employment just prior to the election and to get it to 7.8%, below where it was when he took office. I myself don't quite understand how you could have such a dramatic improvement in employment and increase in participation with just over 100,000 jobs. And on top of this, almost all the jobs being 'created' are service-sector part-time jobs, manufacturing jobs declined. And beyond this, if I take a job that lasts two weeks and then another which last two weeks, how many jobs have been created: 0, 1, or 2? I am still unemployed, I only worked one job at a time, but technically it counts as 2. And because the broader unemployment figure remained the same, it appears that most of this was due to people who lost their unemployment benefits who then took part-time work. But this is merely my own supposition. And a few weeks ago aircraft orders were helping to boost manurfacturing data, then suddenly all these orders were apparently cancelled! Again it looks like an attempt to boost up numbers until the election stimulus kicked it. All I can say is, whichever party you support, have we ever seen such blatant manipulation of economic indicators? And what of the markets? Many more are getting suspicious of their continued upward direction, although many are still convinced its the Fed. Here are this week's charts.
This is what we might regard as a 'hold things together until the election' mode. What is odd about it is on every single day this week the markets started out positivve, dipped, climbed and then all but Thursday they had a downward trend with a rise in the last hour. Thursday was steady but for the NASDAQ (shown here) which lagging the other two hit break-even before 11:30 and then climbed. Each of these shows some indications of manipulation, but on Tuesday I noted that the S&P was not being allowed to fall below 1440, which I was keeping an eye on as this was its prior proximate low. Some might regard this as techincal resistence, so I predicted the market would follow with a proximate high, and sure enough the market climbed near to its recent peak. Not only this, but despite the downward trend, only 4of the data points are negative, and 11 are positive. And of the negative two of them are essentially 0%, then one Dow at -0.24% and NASDAQ at -0.42%.
Here on the day of the job's report the markets were falling without any clear indications they were being held up ariticially, until the last half hour when they suddenly turned up, the Dow was prevented from gonig negative and the S&P raised itself back to break-even. So the trend continues: keep the markets going up but at least do not allow them to go negative. So the markets netted about a 1% gain this week, and I presume this will not be achieved every week for the next year, or even the end of the year, but I imagine we will not see declined no matter how bad things get, even wars and conflcts have not caused market jitters. A lot of things that are causing market insiders to 'scratch their heads', but still no one is saying more than 'central banks'.
However, here are some final observations, the government has not explicitly stated its goals, nor said that it will promise to prevent any crashes from occuring, and recall that it was only a year ago that we experienced a severe 17% drop, and the government did not prevent this, nor the 2008 crash. So the psychology would be the same in any case, and at these levels some are thinking 'higher and higher' some thinking 'crash', but it is still impossible to say which, except that it is not likely we will go up another 20-30%, but that we also cannot presume the modest signs of economic 'improvement' in 3Q can be taken as anything more than a positive election uptick. But still I have seen nothing from the media suggesting precisely what this economic 'improvement' indicates: that the government is spending lots and lots of money, a la Great Depression. The President's hope has been that he can buoy up the markets long enough to get the situation in Europe sorted out and get our economy on the upswing. But US GDP for the past three years has actually been on the decline, persuading some that recession is imminent. But more so it is surprising to me how few people are not up in arms about the blatant actions of the Fed, let alone those I have been recognizing, and most people invested merely wish to play the dynamics. But here is what the President is thinking: win second term, win back the House on my coat tails, pass stimulus measures, print money, and regain the upward momentum. But this seems increasingly unlikely. And despite that Europe has seemed to give way to the President's persuasion, probably a deal of 'this is what we will offer you, this is what we want from you in return' sort of thing. Meaning, 'we'll buy your sovereign debt and give you assistance, but you have to do three things: keep your mouth shut about this being a crisis, make public announcements when I ask, and get your situation sorted out within a year'. So as to say, we'll buy bonds to keep yields down until you get a program together to do so, and this is precisely what we have. And 'if I'm re-elected I promise do give you even more help, if I don't get re-elected I can assure you you'll get no help from my challenger'. The Barack man is magical. It causes me to think of a guy who has lousy credit, is out of work, and is deeply in debt getting money from his charitable brother who has good credit, is out of work, and is deeply in debt.
September 29, 2012
The markets dropped this week, but as things are, with markets close to multi-year highs and with significant gains for 3Q. I presume the objective here is to exploit the relationship between stock market value and consumer confidence values, at least in the near view, the broader view is that keeping the markets up prevents a crash which they must view would send us into another Great Depression, so as it is we have seen the markets going entirely contrary to the economic reality since October 4th 2011, the very start of the manipulation, and as I wrote last week this is now proven fact. If we look at market movement over the past week this is what we see.
The market did fall on the 25th, but since it has shown somethimg of a steady moderate gain, and if this continues upwards rather than downwards then we are seeing the impact of further manipulation, which now could go on indefinitely! In fact if you look at the market over the past year, you see that the sign of relentless upward trending. Among them the recent claim that 11 out of the last 12 months were positive for the Dow, which was done for the first time since the 1950s. Is it merely coincidence that all of this positive product occurs during the very time when the government first decides to infiltrate and control the market? I am imagining it arises from some Constitutional provision, but then why do it secretively?
But I am absolutely stumped by this obsession that the Administration has with boosting the stock market, it does virtually nothing to aid the economy, although it might prevent some financial distress and political finger-pointing. But according to indications we might well go into a depression but there is no indication it would be deep. But it seems that the President is absolutely obsessed to assure that during his term of office that the markets go up and up and up, even when the economic fundamentals are lacking. The only thing this might do is to keep the situation from getting worse, or worse as quickly, but there are always costs associated with any government action, there are financial ones but the primary one is utter investor confusion. People cannot reconcile the discrepancy between data and news and how the market reacts, nor are the secretive actions of the government predictable. The only thing this serves, in the short term, are to prevent people's retirement accounts from declining so as to avert the 'crisis' of further financial stress on government budgets. And I cannot help but think that the justification for acting, beyond calling it 'averting a crisis' is rather to say 'I am not responsible for creating this mess, but I'm doing all I can to fix it', and so the President who said it would take only two years of stimulus to turn the economy around is now saying he needs an additional term. So his statement that 'a problem which grew over decades cannot be solved in a few years' seems to fly in the face of the plan he has pursued which has attempted to do just that. But by doing so he has boosted the stock market but failed to restore meaningful investment, largely because he attempted to drive up stocks too quickly and so the markets are far higher than the economy justifies, and many who feared further market turbulence have not even put their money back into the markets again, but from this point it is difficult to consider that the markets are going to be rocketing up, when they are already so over-valued. And even on Thursday as we had a slew of worstening economic data in the US, austerity in Spain, EU supporting extreme action, and need for stimulus in China, that what actually amounts to a pile very bad news actually caused the markets to pop. So yet again a piece of news is used to offset bad economic data, in this case the announcement that China was pumping a record amount of cash into its economy this week; but was this mere coincidence? Not likely. And when I saw the Chinese Shanghai index suddenly jump 3%, I figured this was done in preparation of our own market increase today. And here it is.
I have been considering this compared to where we were a year ago, when most were saying the US was not heading into Recession, that China wasn't slowing down, that he only problem with Europe was Greece, that there was a far greater sense then that there were only potential problems rather than threats of a global depression. Yet even though European leaders in conjunction with the US Executive Branch have worked like gangbusters to avert a crisis, or at least the perception of one, there is no doubt that the overall EU situation is far worse than it was a year ago, the US economy is also getting worse, and China is truly attempting to manage its own economic slow-down. So why are equity markets up 30% from the low last October? All I can say is what I have been saying since then, government manipulation of equity markets. The real data now clearly supports this conclusion. The market has proceeded up almost as a mirror image as it would have gone down if left to natural market forces. As a result it could be argued that the Presidents economic stimulus has left us with almost no real gains, despite the cheer conveyed at the Democratic Convention. What we have seen is a rash of stimulus and manipulation merely to preserve this impression. It is a simple conjuring trick. Their purpose is to prevent the Republicans from getting back into power and holding off economic collapse long enough that 'the stimulus effect has sufficient time to work'. In other words, they believe what has already been done will work its way through the economy and lead to growth, but we have to wait for this to occur. The Fed announcement of 'QE3' is really of little value, but what it does do is provide cover for further stock market manipulations, to seemingly justify why the market is up when it should be down. Just as for nearly a year the blind crickets have been chirping 'stimulus hopes' to justify this discrepancy. So continue the 'stimulus hopes' excuse and you can continue to manipulate, and it would appear that the Administration has drawn one simple conclusion: 'we cannot allow the stock market to fall because this would send us into a depression, therefore we must hold it up artificially until the economic situation improves by itself.' So this you might say amounts to their own 'stimulus hope', but in the meantime the markets have become entirely confusing, and this arises mostly from the way the market acts. However, I cannot help but think that their only concern is whether or not what they are doing will cause inflation, and that to refrain for any other reason would be merely ideological. Their view then is that the government should come in and fiddle with stock markets, but also thier view that economic disruptions are bad, and that a Utilitarian view that you act in a way which serves the interests of the most. In other words, the stock manipulation aids these goals: prevent loss of retirement funds, increase consumer confidence, and offset a recession. In addition, a large amount of money was sunk into the housing market to try to get home prices up and to get some employment growth. So where is all this money coming from? The US Treasury. They are printing money. And this is the only reason they can set forward plans which have no end date. They are essentially saying that we would go into a Depression if they didn't act and so they are going to run the presses endlessly until things improve. This also means it is highly unlikely they would allow stock markets to crash, but we just experienced a 17% decline about a year ago, and another larger decline in 2008. So the government believes that it can put in place secretive means to push up and hold up the stock market, but on the tail of a situation where the government did not do this. So they have only succeeded in creating massive uncertainty and confusion. The government not only did not prevent declines in the past, but they have made no statement that they are going to prevent crashes in the present, and it is possible they lack the means to do so. What they do do is to prevent the markets from going down any large amount any day. This is done because a lot of stock trades are done by computers, and so they have held in check both declines and increases. As I wrote before that after Burnake announced in December that market volatility was bad for the economy, market volatility disappeared, and intraday up and down days have not exceeded about 2%.
The other major influence has been that everyone attributes the market move to the Fed, but the data indicates otherwise. The meaningful Fed influence ended in June of 2011, yet the market has still continued to rise, and that this rise has also corresponded to the obvious intraday manipulation recorded in the many pages below. But likewise that there has not been a massive public outcry against this government interference. This is not surprising given that people are largely unaware of it, but also becaus most would not object to the government acting in a way which appears to be advantaging themselves. But also we can draw one further conclusion, that the situation a year ago was far worse than realized, because the government would not have decided to so blatantly manipulate the stock markets unless we were on the verge of a 'crisis'. To some extent they wished to remove the psychological response to a declining economy on the view that they could get the economy turned around and that it would recover if they could just prevent us from sinking into recession again. But the other issue is this, that it is not likely that now they have begun to do so that they are inclined to exert some self-control on their actions, and that the only way to end this government take-over of equity markets is to remove Obama from office. I am not advocating this, only to say that we cannot rely upon someone willing to do so suddenly waking up one day and concluding he ought not do so, especially when you consider that he appears to view there exist no meaningful limits to government power in relation to 'saving the economy'. Although I cannot help but think that this has just as much to do with his view that putting the Republicans back into office would be an economic disaster, and that he would wish to retain credit for keeping us out of a second Great Depression. But there is real question as to whether Obama has made the economic future brighter or more disastrous, for now we more than ever need even more growth to confront our ballooning debt. But what are we facing in an Obama second term, 5 trillion more in stimulus, or does he think that the first 5 trillion, plus the covert trillions pumped in more recently, will eventually turn things around?
So it presents to us the stark reality of to what extent the situation relating to the economy will swerve depending upon which party holds power, and thus investment plans need to take into consideration the ideological thinking of the reigning President, whether he supports a nominal 'free-market' or an ad hoc ad lib ad nauseum 'controlled economy'. We are facing the situation where we have two entirely divergent ideologies at work, and I am not inclined to do political commentary, but generally speaking, there is no reason to think that either of these are prefereable nor that a continual back-and-forth will do anything other than create immense confusion and troubles.
September 22, 2012
I am almost inclined to remove the '?' from the page title, given that I now have a clear way of determining the stock inflation is due to manipulation alone, and is not due to action by the Fed. And I will make this available at some point in the future. But it both seals the fate of stock manipulation and also makes it quite obvious that the market fall of August 2011 was not caused by anything that Obama opponents might have engineered to distrupt market activity. However this view, that it was Republican sponsors who were responsible which apparently justified his counter-reaction of driving the markets up. There's little more I can say that I haven't already said, except that this is entirely unjustified and corrupt, tinkering to threaten the integrity of the markets. In the future everyone's going to figure that whenever anything goes wrong the government will step in and fix everything, or else they wont, or else they will do it publicly, or else they will do it secretively. It will entirely disrupt one's ability to make investment decisions just as much as you can work hard to be the best person in your field only to see a job go to a woman or minority merely because they are a woman or minority. And then having eased out the best people in favor of 'political appointees', is it no wonder we struggle with progress and innovation? And do the Democrats blame themselves for hindering economic progress, they certainly blame the Republicans for blocking measures the President had hoped would increase employment figures, reduce unemployment, at least before the election. But one might ask whether the government is 'creating' jobs or merely 'financing' jobs. And this I say within the context of what is going on within the realm of govenrment action in relation to 'stimulus' and 'recession'. These are real issues and of immense importance, not things which should merely give way to frivilous and errant opinion.
This is not a poitical issue either, although people are always inclined to judge it as such merely because they disagree and view such matters as a mere difference of opinion, the winner to be determined within the arena of politics rather than through actual intelligence and sound judgement. When many speak of the economic crisis as leading to the potential rise of dictators it only makes me realize how far they must yet go to prove the case for democracy, and that it will not lead to our eventual collapse. We are truly beginning to see that the influence of what people ‘want’ and what they might like are actually becoming persuasive to politicians on both sides. And again I say this within the context of how well people understand how things actually work, and such things cannot be taken for granted, which they are merely because life has become too easy and people have become deluded by the allure of individualism and egalitarianism, and even the President holds a firm conviction in this regard. But when it comes to Americans who think, "I don't care as long as it advantages me", then America gets the Presidents it deserves. (And, although it is irrelevant, if you believe I might be biased against Democrats or Obama, I am a Democrat and still support Obama, albeit for fewer reasons. And I say this only to underscore that I do not write from an ideological bent nor to promote any political viewpoint.)
But before I stray away from this financial tangent into a full-blown political discourse, there is nothing to say about this week beyond the sure situation that the market was intent to remain entirely level at these highs, still explained as arising from the Fed having created a 'floor' for the markets. As though mortgage securities could influence the intraday direction of the market. Yet in fact this flat market has been going since the start of August, and if we look back to the Draghi announcement, we find that the market has not had a truly down day since July 24th, as we can see from the following chart.
September 15, 2012
It is becoming more evidently clear as to precisely the nature of the manipulation which is going on, as even Burnanke this week admitted that his policies lead to a higher stock market and that 'most people' either directly or indireclty own stocks, and that to see their assets rising would motivate people to spend more. It kind of underscores the attitude in the government, but likewise that they are for some reason intent upon a certain course of action. But let me make this clear, the rise in the stock market from October of last year until this month is not due to the Fed's Operation Twist, but due to a secretive infusion of money by the US Treasury deliberately designed to push the stock market wherever they wish it to go, in this case up. And the open-ended approach tends to lend support to the notion of a direct pipeline from the US Treasury into the equity markets. And I imagine the efficacy of this is all to tempting to them, as now they are no longer threatened by a jittery or unpredicable market, which caused an Obama-hated decline last August. Since then, and through a range of turmoil, decline, and uncertainty, which appears to be getting worse as time goes, the market has continued to defy gravity. It has been all attributed to the Fed, and the Fed has been blamed for it, but it is not, rather it is the Chief Executive who is responsible. What I am surprised by is now dim market analysts continue to be on the matter, although we expect most merely ask 'did the market go up?' if they own stocks and are satisfied enough to see that it did. But you wouldn't have known a year ago we'd be hitting new multi-year highs unless you were absolutely sure of what the government had been up to.
In addition, during this period of severe headwinds and increasing economic bad news stocks have already weathered the storm due to artificial injections of money to keep them on the rise. So the view is: send stocks up and prevent a crash > create the desired psychological effect on consumers > consumers more inclined to spend > economy picks up. But like many psychological effects, the effect arises due to an implication which relies upon a previous reality: as asset prices are higher it must be because there is greater economic security and prosperity, or merely because I feel like I have more money; but if they are artificially higher then the psychological response is likewise unwarranted, so in effect it achieves its aim, perhaps, by simulating what is absent. Though additionally they make it easier to borrow by keeping interest rates at 0%.
So here I go with another summary. What you appear to be having here is an artificial boost of the stock market indicies by the U.S. Treasury so as to give Europe time to sort out its troubles-or at least show progress-and for the US economy to turn around-or at least show progress. The difficulty is that this progress is likely to be short-lived. But we should expect that under our current ‘controlled economy’ circumstance, as this is what it has developed into: tthat we cannot take for granted anything which was not deemed to be the government’s business in the past. Essentially Burnanke said, without saying his actions were designed to drive up the stock market and thus improve consumer sentiment and encourage people to spend, he did say that this was a desirable side-effect. But here is the main thing about what Burnanke did today, first, if you recall he was outright charged to take whatever other action he could to aid the high unemployment problem by Senator Schumer just a few weeks ago. So in part they were acting because they were being criticized for not taking further action, but now that they have, there's little else they might do. Secondly, that the plan put foward of purchsing morgage backed securities is merely a replacement plan for Freddie Mac, which is being phased out by the government at this time. They are merely taking over that plan with a new plan, so don't expect it to be any more efficacious than what is already going on, but thus it explains why Burnanke said it would neither increase the Fed's balance sheet nor threaten inflation, but why he also seemed to imply that he also had the opinion it would lack efficacy. But this not only makes little sense of the idea that 'QE3' is anything like QE1 or QE2, yet everyone figures the market will go up again because the Fed took action.
I'm not so sure, in fact the day after the plan was announced the market was even heading down, and if not for Apple and Facebook all the indicies might have gone into negative terrotiry but for one thing: they weren't allowed to. In fact, on either side of the Fed announcement on Thursday, the markets were not allowed to even go into negative territory, as we can see here. This is what I call the 'anatomy of manipulation'. When they reach break-even I look for a little upward tick, and here it is, followed by the consequent surge upwards moments after.
But what this shows is not an intent to push markets up, but to prevent them from falling. The decline that occurred about 10 am was apparently due to the attacks in Libya, but you can see the result, markets rebound off break-even sharply and all end positive. I even predicted that they would end positive after seeing this reversal before 11 and wrote about it on CNBC.com at 11:30. That the markets end with only modest gaines is immaterial, they all end positive and the Fed announcement comes tomorrow (9/13). But if the markets had fallen 2% or more due to the attacks in Libya, then when the Fed announced the next day, it might merely have brought the market back to where it had been the day before, which would have been far less psychologically impressive. And we see the same sudden late surge in Apple stock, after the response to the iPhone 5 left the stock initially down at 3 pm. I look at all this and think to myself: it looks fishy. Even Apple stock too is being juiced!
The day after the Fed announcement we see precisely the same effect, with the markets not being allowed to go negative after 3, subsequent to the US credit rating downgrade by Egan-Jones. And we might ask why the US downgrade in August 2011 sent the markets down 5% but this downgrade didn't even send them down 0.5%, the reason it simple: at that time the President didn't control the markets, now he does.
So during this period of severe headwinds and increasing economic bad news stocks have already weathered the storm due to the artificial injections of money to keep them on the rise. So the view is: send stocks up and prevent a crash > create the desired psychological effect on consumers > consumers more inclined to spend > businesses hire > economy picks up.
But it also appears that we have been fed within just a few short weeks: the impression that the Euro-zone crisis is over or under control, that the Fed is going to be there dumping money into the economy as it pleases them from now on, and that China’s slow down is not a problem even as they too engaged in more aggressive stimulus. Thus a triple dose so as to say, 'now that stocks are at multi-year highs, you don’t have to worry any longer about the fear and uncertainty which drove them to these multi-year highs, because now we’ve got a positive outlook to drive them up even further'. This is why we have seen the markets go up and up and up, as I have been saying, to prevent a crash to provide suitable time to actually be able to impact the real economic data. But there still is a real question, as to what the real economy is like divorced from government spending. Because even as signs of economic improvement arise, however slight they might be, that if this is merely based upon further government spending then it likewise can do nothing more than to fulfill a psychological response of: the economic situation is improving and thus 'I have leeway to spend more', thus improving the economic situation. Everything being done is designed to create a false sense of security, but this is also what they are relying upon to increase job growth, but also to avert panic. And they are doing this because they are restricted from paying out money to create even more jobs through government spending, but while this might temporarily increase demand it cannot create new industries. Green Energy might produce jobs, but the government cannot select the next big industry and support it until it expands the way they might think. We cannot rely upon predictions made as to what will be the next big industry, and governments cannot choose what those industries might be. (This is not to say they have no capacity to bolster industries, but they merely cannot make them into the big success stories they might wish them to become.)
You can see the tremendous attempt to hold the markets stable and build on them, through August and September, so that the ECB and Fed announcements did not merely dig us out of a deep hole. Rather they pushed us to new multi-year highs, and adding into this China stimulus, the iPhone announcement, and a turn-around in Facebook stock, it seems that the very weeks which might have sent the market into a tail-spin were orchestrated to create optimism upon every front, at least superficially and immediately. You will not hear the President on the campaign trail, however, speak much of this market increase. Why? Because of the resentment the unemployed and underemployed and impoverished and homeless and desperate would feel as it would imply to them that the President was saying things were going well, which would only infuriate them.
As for where the market goes from here? If we are already up 30% on ‘stimulus hopes’, and that the Fed has now 'satisfied' those hopes, then it makes little sense that the market would go much further from here. But if the market is merely a boat-load of government money then anything which comes in would be added on top of this. Then the government would figure that it could then slowly start to remove this money as the market shows it can go it alone. (And so we are precisely opposite where we were a year ago, where the thought was that a large amount of money was just about to come out of the market, now they are suggesting lots of money could come back into it. Again I think the impact Fed action might be a bit over-rated.) But although I fully expect this move was made simply to give them time to get a EU ‘fix’ and to stimulate us out of a potential economic decline which began sometime last fall, that we are probably going to see a GDP for 3Q which is higher than GDP for 2Q. And with the election following you might well see they might give the first estimate as 2.5, then will reduce it to 2.0 or so only after the election. But then we are also inclined to hear the President speak of an economy which is not back to normal but heading in the right direction. But this is rather odd for someone to say when he knows that he himself is working so hard to make sure the economy doesn’t fall into recession, by propping it up wherever it falters; like putting out a hundred rising fires, always running with the bucket of water to the one which is growing now. Such attempts are then designed to produce the very effect he mentions is positive, but only because he is taking advantage of peoples’ ignorance and assumptions. Just as increasing retail sales will imply that people are buying more, but it could merely mean the government is buying more as we see when core spending is actually on the decline.
And as it is, the President admitted we are engaged in a situation which requires all the inventiveness and novelty of the programs used to combat the Great Depression. Buying is certainly one of them, but this can only be done when inflation is not a threat. However, they can put any amount of money into the stock market without risking inflation, except for stock inflation, because these are not consumer goods. But to act in ways without announcing the steps one is taking, merely to fool people into thinking something is occurring when it isn’t, seems to me to be mere deception. If they are taking steps to aid the economy or boost the stock market, they ought not to do so without making it clear that they are doing so. As I mentioned, it is difficult for people to reconcile the reality with the market direction, although also many merely do what they have in the past, ever sticking to the assumption that the market is still acting according to natural market forces. But what use has technical analysis been in the past year, once the government caused the market to move not only as the economy improved, but up under any circumstance, to avoid yet another unexpected crash as we had in August. The President must have insisted upon ‘no surprises’ until the election, but we might also consider it as merely the application of a new philosophy: act with indefinite and open-ended intent until one succeeds and never lose faith that it will.
Honestly, I figured that such manipulation must have a duration and a limit, figuring it had expired last November and then this May, but there’s no question the market up days far outnumber down days over the past year, with most threats to the market not bothering it in the least. Now that it is clear that their intentions were to manipulate the markets all the way through the election, will this continue? One must not understand the market forces involved but the mind of the President, and I am inclined to think his objective, now that he has grown used to feeding off of newly printed money to control every manner of circumstance, that he will wish to see the impact of this continue more than he would feel any reservation for doing so. But, and here’s the point, a declining markets are not really a bad thing because they are usually followed by markets which rise. And many had already re-allocated their money into bonds in expectation of a market downturn, so why not let the market turn down and then allow people to put their money back in, rather than doing what serves a political purpose? These are the things I cannot figure out, if they were inclined to go to such lengths, why not let the market balance itself out with the economy and then allow the economy to grow and the markets to catch up, as they normally do.
The first is, of course, the burden of high unemployment. But the trouble beyond this is that the governments of the US, states and federal, require a quick fix to deal with the reduction in tax receipts to support their expenses and debt levels. But one reason the states do not have worse trouble is that they have already received millions if not billions from the Federal government since the stimulus began. Recall too that California announced it would go bankrupt this year in March, then nothing happened. (The President's people call Jerry Brown and ask, 'We'll give you a low-interest loan, how much money do you need', and that's it.) Even the President declared that a problem which took decades to create cannot be solved in just a few years, yet this was precisely what the President pledged: that it would just take two years of stimulus to get us out of this recession and then he would cut back government afterwards, for two years, to pay for it. This has failed miserably, we are still stimulating the economy, we are still going into debt 1 trillion dollars every year. We might go on doing this if Obama serves a second term, or anyone else for that matter.
So what of the markets, everyone exlects them to climb, but as we saw Fed action made QE2 ineffectual, with markets ending about where they started. Yet even with all this too, from the end of October 2011 through to the end of July 2011, the S&P was nearly equal, hovering around 1300, from 1285 to 1338, a gain of only 4%. But this also means that between October 4th and 27th (when the manipulation first began) we had a dramatic climb of 17%, even before there was any chance for the ‘good news’ to start rolling. During this same time we have seen the VIX consistently beaten back below 20 whenever it rises, the last being when it was heading up to 18 before being pummeled back to 14.
It is only since July 24th that we have gained an additional 9.5%, starting with Draghi and then the German and French leaders making pledges to support the euro, followed by a stable August during the time they were all on vacation, followed by last week’s Draghi 2% increase and this week’s Burnanke 2% increase. Here we see a market which has not even been allowed to fall since the start of August, so why?
Well here is another interesting piece of evidence, that after the 50 day moving average crossed the 200 day moving average in February (Golden Cross), by late July the 50 day moving average was about to cross below the 200 day moving average again (Death Cross), yet just before this happened we got the two announcements starting with that of Draghi to thrust the market up again and push the 50 day average clear of the 200 day average. This timing and market response indicates knowledge of the theat of a coming 'Death Cross'. And likewise it was made clear in mid-July that the stock market was also heading towards an 'Ultimate Death Cross' which is when the 50 month moving average crosses the 200 month moving average. So there was perhaps a great incentive to get the markets moving up to avoid this ordinary Death Cross by having come out and announce what they intended to do rather than waiting for them to actually do it. But why do we get a surge of 2% on the news and 2% on the action? I think everything in pink is clearly the durations of absolute manipulation of the markets, but for the two brief durations in November and Decenber (see way below).
And I should make this clear too: I do not call these periods manipulated because they are going up. Rather it is based upon what I see in the intraday charts, but it merely happens that when there is manipulation it drives the markets upwards, when the manipulation ceases you suddenly see the markets fall. That has been the direct relationship I have seen between signs of manipulation and the direciton of the stock markets.
But here is the final word, it is possible that this Fed announcemnet will spell the end of direct manipulation of the markets. But if we see markets continue their climb and defy gravity and bad news, it can no longer be attributed to 'stimulus hopes' and it could only be attributed to the economy being 'not as bad as people had expected' and so the President now depends upon improving economic numbers. But he might always have this tool of market manipulation at his fingertips, so do not be surprised to see the market continue to show an unwillingness to drop. And on top of this, this year we haven't seen the market either gain or decline more than about 2% on any given day. And this too in response to an active attempt to restrict volatility. There is just so much manipulation going on, but it seems they justify it all on the grounds that this will serve to heal the economy. But then what are the long term effects of it. It is for the very reason why some would regard lying and deception to be justified because it might allay a situation or produce dividends, but then we suffer far greater from a prevalence of lying and deception than we do from some modest political or economic gains from their use. And though the New Deal was to have gotten us out of the Great Depression, the governmnet continued to be very engaged in spending projects afterwards and continues to do so. So we ought to be concerned about actions taken during a 'crisis', QE and direct manipulation. Markets might never be the same again.
September 8, 2012
Let me make one thing absolutely clear: the only reason the President and former President can claim that things are better off now than they were when Obama took office, that we are not in a recession, that the stock market is at multi-year highs rather than in a bear market, that there remains some job growth, etc., is that the President took the unpresidented step of having the federal government commondeer equity markets on October 4, just before the S&P hit 'bear market' territory. Since the manipulation began, which if you note below I recognized shortly after it started, it should not be surprising to find that the S&P has climbed from 1099 to 1437 (a gain of 30%), that the number of up days far outnumbers the number of down days, and that these Magic Markets have defied bad news and remained insanely buoyant. If you were sitting there with that knowledge, the equity markets seeming to conform to an entirely different set of rules, thriving on fear and uncertainty by showing stability and resiliance and not a single day where the markets have been allowed to fall (or climb) more than about 2%. As I have said, you only need to look at the period just prior to October 4th to find a market that would go up on positive news and down on negative news.
So you can consider these claims as effective but a mere conjuring trick used by the President to assure that he could not be accused of leaving us worse off or hardly better off than we were four years ago. And I estimate, although I have little to work from but results, that about 1 trillion was spent on driving up the equity markets and another trilllion or two on providing further stimulus to the economy starting in 4Q through the purchase of everything from homes to civilian aircraft to automobiles and even Apple products. This was a concerted multi-pronged endeavor designed to save the situation for Obama, and so yes when he comes out speaking confidently about the progress made, he also knows that it only exists becasuse he did what no other President has done before: to utilize executive power to assure that the stock market cannot fall and that it must rise. If he had not done so we would be in a Recession, we would be having job losses, we would be having increaing unemployment, but then does this mean we ought to give credit to the President for doing so? And yes you know how people tend to interpret written law to give them permission to do all sorts of things, but truly is it the government's job to assure that equity markets always rise? And are we now going to see this as the standard for the future, that now that it has been done that from now on sitting presidents will assure that during his term and especially the year he is elected that he will send us into further debt merely to take credit for the market rise during his term? Let us get an answer on this from the President himself: is it the job of government to asssure the stock markets rise and never fall? Of course you would not get a 'yes' or 'no' answer on this, but rather a justification for preventing a crisis, but what crisis, a Recession, or something worse than a Recession? But as this is so it not only means that this was an election year but that things were so dire, at least from the perception of the Chief Executive, that such extreme measures were taken, and we need not add the other $5 trillion put into the economy that was made public, or the FED holding interest rates to 0%, the US Treasury printing vast quantities of money, and every other step taken which has produced this teetering 1.5% GDP number. But it is not merely an issue of results but of justification. And this is not merely an issue for people to submit their opinion about, but clearly many make unilateral decisions, and I believe though without advisement, to take such unprecedented steps merely because it ultimately serves a political goal. Otherwise the S&P would be nowhere near 1400 but rather well below 1000 and this too would impact consumer spending, business investment, and other markets. And Obama might argue that he needs to keep office because if the Republicans retake the White House the country and world economies would be in worse shape, but I am not going to get into this sort of analysis, worthy through it may be. Bottom Line: the President concocted this artificial stock market rise to save his reputation as much as to keep us out of Recession, and this is proven too by how he, or rather his advocate, is inclined to speak well for his 'success' in making progress since the beginning of his term.
September 7, 2012
What more can I say, the entire month of August was held flat, precisely one year after the precipitous decline we saw last year. But it appears entirely due to giving Drahgi time to draw up his plan for EU sovereign bond purchases. So onward and upward the markets go, gaining this Thrusday about 2% and fractionally up on Friday, with the VIX being sent from about 18 down again below 15. Yes, this is fairly consistent play, and it appears to derive from the President figuring that he can prevent the Republicans from tipping the boat by creating a panic, or for that matter allowing what is going on in the EU to create a panic, or China, or anywhere, to derail the 'recovery' and send us back into recession. But I imagine the main thrust of it is, "we can do this and you can't stop us", as with anything else people do because they can rather than as they should, justifying it because they believe by doing so they frustrate their political opponents. Still, it appears to be based upon analysis of financial collapses, which begin with either negative news and panics or worstening economic data followed by a stock market fall which then snowballs the effect. By driving up the stock market they have effectively prevented the domino effect for the moment, but I cannot but imagine that there is an academic advisor justifying this activity. On the view that anything you do now to save the economy will be forgiven later, but I suppose we might take it for granted now that this President will do ANYTHING to get the economy rolling again. And so as far as election commentary, we are left with one party insisting upon huge tax breaks for the wealthy that do little to aid the economy and another party insisting upon huge stimulus that does little to aid the economy. But it is at least clear what the thinking is, the reason for doing this is to allow the President to claim some form of victory, win the election, and then hope that more stimulus programs can be put into effect, but more importantly that time will eventually bring what he has already done to fruition. He is banking on this in any case. To hope that what he has already done will work, but above all that if it does that it doesn't kick in when a Republican is President. And although I am not inclined to write political commentary, my reason for saying so is that I very much presume that provided he has access to money that some of that money will continue to go into boosting the stock market. And it is quite clear that he seems to show very little concern for the stock market anymore, whereas only a year ago he was attempting to give speeches to reassure markets, now he doesn't need to do so, given that he knows he has people there just to prevent unexpected market turmoil. And such a thing is not a political issue, but an attempt to merely comprehend the truth of the situation. Yet I have still not seen a single journalist ask the President to say whether or not the government is directly manipulating the stock market, and I am not so sure he would give an honest answer if he was. But he did admit in his acceptance speech that novel means must be used to overcome this crisis. Thus far the predictions I made before as to what the market would do, presuming it was still being manipulated have turned out correct, and if it continues to be you will see the market end higher than it started at by the end of the year. But I will not advise in any way on how peopel ought to invest based upon this information, nor can I predict how or whether continued manipulation will continue. But stock manipulation like tax breaks should be neither supported or decried merely based upon whether one is personally benefitting from them, but because they are legitimate and justified, and it is difficult to claim that the stock markets should be manipulated secretively, given that one's gains are losses become politically motivated and are no longer the outcome of chance, knowledge, or investment sense.
But in order to look at it from a question of expectations, I have never more seen so many market commentators being surprised by a market that continues to rise on bad news, and stocks that rise after failing to meet earnings expectations. Especially high-profile stocks seem to get the attention, such as Apple, which fell immediately after missing on earnings, but has turned around and zoomed up at an even faster place than it did before. Alcoa is also an instance, as aluminum and copper prices have fallen but somewhat stabilized, the old adage that the economy goes with copper prices may be valid to some extent, but the equity markets still continue to defy gravity and confound investment advisors.
There is one thing worth mentioning beyond this, relating to the price of oil per barrel, which was reaching a high in early May, since it was just at this time that the Republicans began a campaign with Mike Huckabee which said that the President was concerned about $5 to $6 gasoline this summer. Just days after this the stock markets were declining, and oil prices remained lower during the summer than where they had been in the spring, just when the President wished for gasoline prices to drop, so they did. But the equity markets were right back up in time to boost consumer sentiment for the August Back-to-School season. We have had a year full of uncertainty and turmoil, confusion and fear, yet the stock market continues to bounce happily higher in the face of all this, until just this week we started getting a wave of 'solutions', from the Fed saying (yet again) it will do more if needed, the ECB will buy European sovereign bonds (as the US did last year) to drive down interest rates, and China apparently boosted its domestic stimulus program. All seemingly to put forth a collective "We'll do anything it takes to prevent recessions". But it is still difficult to fathom why, as we have gone through many recessions in the past and it has normally been expected, but the lengths to which they have gone, throwing in everything AND the kitchen sink, such as directly manipulating equity markets, only reveals how far of a danger we are in. And the main incentive over the past year has been to prevent a panic that might cause a stock sell-off and lead us into economic decline. So thus the psychotic market and perhaps a psychotic President, in the sense that 'hope' makes one psychotic, which I suppose it does to some extent. But we are not climbing out of a second Great Depression, efforts are still ongoing to keep us from falling into one, and those efforts have been both relentless and expensive, by my estimations costing anywhere from $5 to $8 trillion dollars, and we are by no means out of the woods yet. But I think both the reputation of Obama and the idea that sinking money into the economy will cure it are on the line. There is no doubt that monetary stimulus and fiscal stimulus have been already at work, but more recently we have seen a sudden and unexplained pick-up in new home construction, aircraft and automobiles. If you read back to my earlier entries you will see I was speaking of a Strategy Meeting designd to address the crisis and among those were to prevent the stock market from crashing and to boost the housing market. Both of these have been done, in addition to seeing sudden about-faces in some retail and manufacturing numbers. But alas, building a Big Mac is counted as manufacturing, and being employed as a person who builds a Big Mac is deemed just as much a job as a person who builds aircraft engines. And I am not so sure there is reason to be optimistic about all of these jobs created by 'small businesses' which we keep hearing of, because none of them seem to have burgeoned into new industries.
So my conclusion is simple, the global economy is still getting worse, the ECB action might prevent the apperance of a financial crisis for the time being, and stabilize the economies of Europe a bit, but it is not sufficient to prevent recession. I imagine the President's hope is that once the things he did start having a positive impact on the economy that Europe will then recover, but this could only happen by assuring that there was nothing left to chance about what the equity markets might do, so they merely took them over, along with another wave of undisclosed goods and real estate purchases. Sad but true, and stock markets might never be the same again as a result.
August 4, 2012
I will continue updating as long as manipulation of the markets continues, but it could go on for quite a while, so it ends up being more of the same. My goal is to uncover the truth, but at the same time I only have limited knowledge of market analysis. But everything that I'm seeing continues to be suspicious, but analysists who have other ways to explain market dynamics do not need to look further. This is a typical problem in the way people think: pre-existing explanations are accepted withotu the need to substantiate them with proof and often are beleived even when proof is contrary. It has to do with how ordinary people are inclined to understand things through the conceptions they hold. The very same which makes people accept things such as "The reason young people can't get jobs is because they are lazy", in other words the proof is in the observation that young people can't get jobs, automatically implies a cuase, the cause for people not getting jobs is that they are lazy, thus it all is accepted on reasonable terms. Although those in a position to say so also are not required to actually provide evidence to prove such a thing is true, it is more or less accepted because it is a pre-existing explanation of an effect implying the cause, which gives them a sense that they understand the world and it also makes them feel good about themselves. But I use this merely as an example.
So, to begin with, all the predictions I had made on Tuesday came to pass: no action from the Fed but no significant losses on the market, the ECB takes some form of action, the number of jobs created significantly breached 100,000 (at 163,000 for July) and that the markets rallied significantly. The one thing I missed was the fall on Thursday, after the ECB’s ‘mega-plan’ was nothing more than a puff, but perhaps this is part of a plan that will unfold a puff at a time so as to put-put our way to a higher market. Yet losses were held in check on Thursday and the slow recovery later in the day drove the VIX down substantially, from near 19 down below 17, then to be driven down again into the basement below 16 with an unfaltering 2% gain on Friday.
What we are seeing here is not a positive response to better-than-expected economic news, but a significant market upswing designed to counter-balance what is really negative news, after all notice how anemic the improvement truly is and that unemployment actually rose to 8.3%, just as we had last week when the GDP of 1.5% was counter-balanced by a market surge due to European pledges. The goal here is to prevent a sentiment of gloom and doom to develop, and this is precisely why the markets have been driven up since October, so that ‘bad news’ always has the silver lining of producing further market gains and no significant declines. People might otherwise be driven into a panic by a faltering market, creating a feedback loop, but only because people trust the market movement means something real. One must truly wonder how much of the economic activity is likewise merely concocted by government spending. And the continuing upward markets seem to be telling us, “if the markets going up things couldn’t be all that bad”, and thus no wonder even though things are far more grim now than in the fall of 2011, that the perception of the situation is still grim and getting worse, but that the market continues to surge to new near-term highs.
We can figure that this market rise on Friday in both the US and Europe, in an attempt continue the upward momentum in European stocks (after they had already fallen back to where they had been before the EU deal was made), was something worked out with the ECB by Geithner on his trip there earlier this week. Last week the markets surged on pledges of financial action, today they surged on something else, although explanations range from the better-than-expected jobs created, to decreasing Spanish short-term bond yields, to the Spanish considering a complete bailout. In other words, whatever happened that day is used to explain the market. And the analysts say “the markets interpreted this news as positive”. I don't know what the real reason for the market rising might be, apart from that it was predictable that the market woudl rise late in the week. What happened doesn't matter much, since if the number of new jobs created had been 80,000 the market would have risen anyway, with the explanation that it was rising on 'stimulus hopes' or news out of Europe or because things weren't as bad as they could have been. But look at the macro-trend and ignore the headlines: direct manipulation began at the start of October, and look at the market behavior since then.
And again look at the VIX-meter. Yet again it was rising close to 20, yet again it was beaten back to below 16. The only time the VIX wasn't kept below 20 was the single month when manipulation was less apparent, shown highlighted in red. I still haven't quite been able to explain why manipulation was suspended during the month of May, but there are a few plausable ones which I have been offering. Another one might be that during May the US Treasury was paying back tax refunds that month and did not have extra funds available for stock manipulation. (The other two being that they peaked-early and wished to peak for the election, or that the Facebook IPO would restore market optimism.) I have not gone back to figure what circumstnaces are associated with each of these rises and drops, except as we know the latter two were due to claims to an improving situation in Europe (essentially our market is being driven to multi-year highs on hopes the EU isn't going to disintegrate!)
I expect that what is going on here is that by pushing up the markets and holding up GDP that the President can claim the economy is improving and that what he has done has worked to keep us out of recession (a master illusionist), upon the hopes that with a presidential win and a re-taking of the House that they can then vote on further stimulus to ‘improve the economy’, or perhaps he knows something we don’t about what’s coming down the pipeline. Thus his statement that the economy will face ‘headwinds’ over the next few months means “until they can vote to pass further stimulus measures”. (I want to get off this bus at the next stop.) In any case, the markets continue to be on steroids and as clandestine manipulation continues we suffer from two potential problems: lack of trust and an essential undermining of fair operations (that people know what the rules are and that all operate according to the same ones).
So this is what we have seen before: attempts to hold back the downside and increase the upside, causing us to be nearer now than ever to the highs hit earlier this year, and you can see that this market, which has done nothing but gone up since Obama took office continues to climb and climb as it did when it was being bolstered by the government. Thus why not presume that this is precisely what is driving it now? It makes perfect sense that a market that goes up and up without any lasting declines is a market deemed too large to fail.
But notice too how two days in a row the Facebook stock has not been allowed to fall below 20, rising just above before yesterday’s close and then today shooting up before 11 am after falling prior to this. In other words, on neither day was it allowed to close below 20.
July 31, 2012
Because 3Q is the final quarter before election, we can expect that the July employment data will be improved over May and June, and even perhaps surpassing 100,000 jobs created and that this number will continue to rise through October, slowly but steadily, to create the impression of an economy coming out of a 'soft patch' in 2Q. What we should see if the Adminstration continues to manipulate data and the markets would simply be to see things improving steadily through November, with number of new jobs slowly rising, unemployment claims falling, the market reaching new highs, and the GDP for 3Q being above 1.5 at least and perhaps near 2.0. But given this scenario it does not mean by any stretch that these numbers might be replied upon, and at the same time if numbers do not follow this improving trend then it will reveal that even the best efforts of the Executive Branch are unable to overcome the mounting economic troubles. But given the market being manipulted since October it is no surprise that when estimates of GDP for 1Q was reported to have slipped from 2.2 to 1.9 and unemployment rose from 8.1 to 8.2 that the marekts have risen from there, to end up surging on the news that GDP for 2Q was only 1.5. But there has likewise been a breakdown in the last few quarters of the inverse relationship between GDP growth and the Unemployment Rate, so that as the GDP has fallen the Unemployment Rate has not risen, which suggests unemployment is much different than that which is being quoted.
Although I am not inclined to predict the market, as a sign of continued manipulation here is what I would expect, something very like last week. Nothing new from the Fed, which might drive the markets down a bit on Wednesday but the losses will be held in check. Then some form of ECB action and perhaps lower jobless claims leading to a burst on Thursday followed on Friday by claims of a not insignificant breach over 100,000 jobs created for July leading to yet another market climb perhaps driving the indicies to new highs for the year. This would arise from pressure put on the EU by the US to come out with a proposal, in addition to government efforts to boost the economy during the summer. You have to realize that the President was largely pleased with the progress in the economy until last summer, and he has wanted to claim this progress for the election this year. Though this has also required further stimulus and deception. But I imagine that it is viewed as a way of overcoming the impact of ratings agencies (ever since the US downgrade last August, ratings downgrades have had zero negative impact on the markets), so it is perhaps viewed by them as being a way to balance this out rather than to strip fairness (transparency) from the markets. Even as the President speaks of headwinds in the next few months, but it does seem that he firmly beleives that the world economy will rebound after that, and that we are still on an ultimate path to recovery. I suppose it all depends upon whether you are a person with a job or not, and you have conviction that a mountain of stimulus will eventually have the desired effect.
But what continues to make little sense is that the equity markets rising on stimulus hopes since October will then be encouraged to continue to rise in increasingly optimistic economic news which undermines the very idea of stimulus. I expect that this is essentially what will follow for the rest of the summer as far as they can: make the EU problems irrelevant, show improvement in the US, improvement in China before the election. All I am saying is keep your eyes open for anything which looks suspicious and beware of 'Santa Claus', the 'Pied Piper', and the 'Sandman'.
July 28, 2012
So what did we see this week, Apple missed on earnings Tuesday, Facebook plunged, some notable earnings misses but others exceeding a bit, June’s bad housing data, somewhat lower unemployment claims for the week (a slight positive), consumer sentiment down to new yearly lows, GDP falling to 1.5% in 2Q. And almost telegraphing the bad data that was coming on Friday came the announcement on Thursday by Draghi to pledge to do all he can to defend the euro, and this was followed on Friday by Merkel and Hollande (you can guess a call came through from our President saying to them ‘the data is going to be bad, say something positive’).
Politicians were truly in a panic this week, and the surge which came this week in the face of it is proof of intent to change the sentiment, to counteract worsening economic data with a higher and higher equity market to inspire confidence. Can we otherwise explain why these markets are riding high as things get worse, but for the fact that they are being driven by governments? Yet again pledges by politicians trump bad news, so that it almost seems to disappear in a wave of upward momentum on ‘stimulus hopes’. When the intentions of politicians rule the day, we can almost be certain that the politicians control the markets.
This week too the VIX did briefly hit 20 until Thursday and Friday when it was swiftly beaten back down below 17. So again we find that if the economic news is not entirely bleak the markets rise, but if economic news falters we get pledges from European leaders or something else as a counteractive to give a jolt in the markets. However based upon prior actions, this increasing panic would lead to two predictions: some sort of “mega-proposal” coming out of the EU and perhaps some form of trumpeted pseudo-stimulus plan to come out of the Fed. Mostly smoke and mirrors to allay panic, but they will sell it as something which should finally put an end to financial risk and return the world economy to a growth path, probably followed by a somewhat significant market rally to try to get things going (yet again).
This will also be their final major and desperate push in the face of the faltering world economy to attempt a break through to save it from going into recession by attempting to restore ‘investor confidence’ before the election, but by no means their last. They at least will not come out saying, “sorry, nothing more we can do”. It may have been far better to let the markets self-correct last fall, and then by now we might be on a real road to recovery, rather than upon this continuing narcotic binge and continuing anxiety. But politicians decided to go down the road of preventing a market crash and thus they are now attempting to counteract the affects of the resultant ‘investor anxiety’. But truthfully, they do not really know what they are doing.
So if you were expecting that the market would have to recover this week, given that we have had a slip before, right on cue the markets rallied just above the previous low, climbing to highs above the previous highs; and the VIX was punished for rising again to 20, just kissing it a while before the two-day rally drove it back into the depths. But on Friday it actually was holding a stability pattern, even in the face of a 200 point gain on the Dow, but enough to hold it to a position where it lost its relevance. Politicians are keen to present all external signs of improving economic health despite not much to work with, but all they can do now is prevent panic and inspire optimism. But whatever the equity markets are doing, holding them up is not going to turn-around the economy, it can only buy them time on the expectation that something might be done after the elections, on the President’s hopes that the Democrats might re-take the House. But time is also running out. Financial strains in the US and Europe and the rest of the world are taking their toll on the entire socio-political structure (rising unemployment, consumer and public debt, poverty, and lower tax receipts).
The perspective of, “utilize debt now to save us from a crisis” is still in effect. But even if things were not so bad as they are, the market would be much lower and the natural stock market direction would be down, until signs of improvement emerged. But we will see an attempted rebound in 3Q here in the US, with everything being done to increase employment and attain something higher than 1.5 for the third quarter, so the President can suggest that things are at least improving after a ‘soft spot’ in 2Q; but when you look at a 4.1 drop to a 2.0 drop to a 1.5, that’s a pretty severe plunge trend, and its probably worse than it seems, as this is riding on the back of clandestine stimulus. If they are able to get things back up to 2.0 they might claim, were on the rebound implying “it’s all up from here”, “the recovery is real”, and I expect too they are aiming for an unemployment rate being pushed to 8.0 or below before November, and which will probably also be backed by a short-term rebound in China from its own stimulus, to feed the view that the world economy is on the upswing again. It’s difficult to believe them no matter what, but at least we might expect they won’t allow the markets to falter until then, even if what the markets do no longer makes any sense.
Here are the week’s charts. Notice how even on ‘down’ days that the markets did not end upon their lows, especially on Monday when we see a significant ‘recovery’ off of lows. An upswing to cut lossses on Tuesday, a turn-around on Wednesday, and huge gains Thursday and Friday on worstening data and outlook. Markets continue to be entirely psychotic.
Here is the macro pattern showing the higher lows. While we might wonder at it, it appears to be not so much based upon reality and seems a bit too regular, as do the intraday rallies that never fade. And politicians are waiting and ready to deliver on whatever investors appear to require and if investors do not come forward they put in the money themselves. But it seems like the amount the President has to work with is already limited.
Consider the market decline starting in May and the establishment in June of this oscillation pattern. If this oscillation continues until the beginning of November the S&P will end edging up to 1430 (assuming about 10 points of gain at every new 20-day peak), and the other markets too will also be entering new year and multi-year highs just in time for the election. This also means that the available money to boost the market not only ran out in April after having no positive effect on returning money into the stock markets, so you could consider they took money from the market in May to commence pushing it up again in June, because they peaked too early, and would rather peak in early November. So they are doing this not only drive the markets up but to create this oscillation with higher lows and higher highs to inspire optimism, provided they can hold off any significant bad news which might send the market into a tailspin. Yet nothing in the last year has forced a market plunge. What I am saying is to keep an eye on this happening as a sign of continued manipulation: higher highs from now until November, with new multi-year highs achieved just in time for the election, and a VIX being consistently beaten back below 20. Also on top of this some artificially improved 3Q data mixed in with a lot of bad data, and likewise that this ‘good news’ will suddenly be viewed as a reason for the market to go higher even though bad news was not allowed to cause the markets to go lower. The goal then is to turn the economy around this year or else leave it to collapse under a Republican president. The reality is still that we are already plunging into a recession, and the question is only whether there will be more stimulus, but without much to think that even more stimulus will be enough to prevent a recession. So what we are seeing is politicians doing something because other than this they would be doing nothing, because they know they would be politically crucified for doing nothing, and on top of this that the Democrats do not wish to be personally or ideologically blamed if we slip into a depression.
This is the new pattern for the summer so far but I will only put it forward on the view that the government continues to hold equity markets up on the hope that: economies might turn around on stimulus already done or the Democrats can capture the congress and White House and then vote on even more stimulus. Otherwise they would just be sitting by idle, and these Democrats are far more belligerent and devious than previous ones, as they engage in a back-street political brawl with the Republicans.
July 23, 2012
This is an update for last week. Skip down for charts because I've written a bit.
If we see the manipulation of the stock market by the federal government continue, we should expect a rise to occur in August, so as to not jeopardize ‘back-to-school’ sales, so keep an eye out for whether or not the markets rally for no apparent reason into August. Recall that a similar turn-around in the market occurred prior to the Christmas season last year.
But these months are truly critical, which is presumably why we have seen the upward market momentum being pushed since economic news has gotten more bleak, but the explanation that this upward trend is in expectation of further stimulus by the Fed appears to be entirely unfounded, yet political pressure being placed upon the Fed prior to this year’s election. And despite everything the markets have remained unusually high, and stood up against an awful lot of increasingly worrisome indicators. The government still speaks, however, in terms of saving the ‘recovery’, but thus far there is nothing to indicate that the recovery is nothing more than government induced, and as long as there is gas in the tank the government can press down the accelerator to get the economy to move, but only until the tank runs dry. Absolutely everything has been done to stimulate growth, yet we are still probably treading close to 1.5% real GDP growth.
But we can already see the intent to try to disguise the continuing European recession by putting on the appearance that the financial crisis, at least, has ended. But declining US growth and Chinese growth have done nothing to dampen the markets, which have risen consistently since the start of June when such weakness became entirely clear; not like last fall and winter when most were doubting the economic decline or expected further stimulus. Now policymakers are merely speaking out the side of their mouths and crossing their fingers. If we could trust the numbers we see it might give us something to go by, but nothing truly seems to be reliable, as people might do anything on the justification that they are forgiven for attempting to ‘avert a crisis’. Nonetheless it is inexplicable that professionals should be taken in when they take all numbers and market moves at face value and without a second thought as to whether they are genuine. But I suppose trust is retained until it is shattered, and then it becomes difficult to regain.
But you surely comprehend what Senator Schumer was saying to Burnanke: that with unemployment continuing to be high, that if you have additional tools to use to stimulate growth, then why delay any longer. Until now Burnanke has been playing the “There’s more we can do” card often enough to avert the sense that there was nothing the Fed could do. But election pressure has now caused them to play their last cards and it would be fairly meaningless if Burnanke came out again to say “There’s more we can do”, but I expect he might. After all it is an election year and politicians are inclined to go on the campaign trail taking credit for victories rather than to have to explain for failures.
The Democrats appear to be banking on re-taking the House, thinking that the ‘obstructionist’ Republicans are shooting themselves in the foot. And that once they retake the house they might be able to then vote on further stimulus. But what is surprising is the view held among politicians that the economy can be forced into growth at all times. But when Schumer speaks of growth stimulus now for a year or two followed by a longer 10-year horizon to bring down the federal debt, just consider that Obama had pledged to 2 years of growth stimulus followed by 2 years of government cut-backs. Yet here nearly 4 years later we are still involved in stimulus, and as this has failed to do anything more than keep us from sinking into another recession, for now, politicians believe that if we just sunk another couple trillion over a couple years that this would get the economy ‘back on track’. Do they truly believe that this stimulus money is going to restore growth? The only thing that has kept growth up during the past dozen years is rising debt levels, now measuring about 16 trillion.
We have become dependent on this debt to create growth because politicians have come to view consistent growth as a political necessity. But now monetary policy is essentially being used to sacrifice the limbs of the body in order to direct limited blood to the vital organs to prevent death. It is just a way of simulating growth through how money is utilized, but if you are only monitoring heart-beat you might think all is well, but if you are considering the overall health of the patient, your perspective would be far more grim. So we should not be surprised that trillions in additional debt, money printing, and low interest rates will cause the economy to respond favorably for a time, but it is done on the view that once growth takes off on its own everything can be fixed later. But if another couple trillion does nothing but postpone the problem until the next election cycle, and we stimulate immediate numerical growth but make no economic progress, then we have merely amassed more debt we haven’t the slightest chance of paying back.
And we have already been sacrificing the engine of growth and progress via ideological priorities to increase diversity and equality, on the view that such politically motivated changes could be accommodated on the assumption that they will not create any harm to the society or economy, merely because people wished them to be adopted? Now you see why Europe should never become a United States of Europe. Yet now we find the Democrats seeming to stigmatize their opponents for opposing ‘growth’ measures, when they have constituents who demand instead the lowering of the debt now. And is the demand for this any more illegitimate because it is political in nature than damaging Liberal legislation passed by the Democrats because it is popularly supported but done without regard for any of its devastating social and economic consequences? And we should not be surprised to find politics at the center of it.
But this is the mentality behind stimulus: get things going now, pay back later. But as we have already gone 2 years beyond the proposed duration of stimulus, are we now in an era of permanent stimulus to keep the economy from slipping into contraction? And how long can this continue? And thus we also must ask whether there is any sense in the desire to have the economy do what politicians wish it to do: always grow and never shrink. And thus to what lengths do the monetary and fiscal mechanisms available help towards this goal, and should they be allowed to be used indefinitely, and when will they no longer function. Interest rates. We have already seen this in terms of interest rates, which being lowered for more than 20 years to stimulate growth are already about 0%. We are already seeing this in terms of debt, for increased debt has kept growth going but when it gets too high then it becomes counter-productive, as now when it equals GDP, and then that lever no longer works so well. Then we have money printing, and this too can work for a time, but it also has to be used in limited quantity, and likewise, inflation is truly a relative thing, for the deflation of prices due to decreased spending might ‘open the door’ to more money printing, but this does not necessarily do anything to aid the economy, if money is already plentiful, and money shortages are not the problem.
Then there is the final thing left, direct government spending, infusions of money into various markets, and this appears to be precisely what has been going on in housing, and thus the plan to stimulate housing has had an impact for now, but apparently everything done to aid small businesses has done little. For years politicians have been saying that small businesses are now creating the most new jobs, so they believe that by aiding small businesses that they can also aid employment. But how much do we know about the potential of these small businesses and what they do. Are we speaking of potential new industries, or are we speaking of unemployed people moving into self-employment? And then too the other thing, that the government commandeers the equity and bond markets, so that we see them now moving according to where the executive branch wishes it to go.
So take a look at equity markets since 2008 and we see three distinct rises, the first two corresponding to QE1 and QE2, but the third looks just the same, but without QE3, so does it arise from mere QE3 hopes? Or does it not look like a third wave of government stimulus, and if so then from where, and why has it been confined to the equity markets alone, while we have been in a period of recessions in Europe, declining growth in China and stagnant growth in the US? Yes it looks like more government stimulus, but from where? It is not surprising that direct intervention in the markets is the cause, and this also can be understood in terms of the president’s seeming inaction. In truth there has been no inaction, rather they have merely become secretive in an effort to attempt to reveal the ‘recovery’ as real, and this included a move not only to drive markets up and the volatility index down (still true), but to stimulate in 4Q of last year and 1Q this year, to try to keep things going up, and now the talk is of more stimulus to get things going?
It seems we have been doing nothing else, but still we have reached a tipping point into another recession, and since last summer, when the president was fully willing to take credit for the seeming economic recovery, now they are attempting to reclaim the ‘acceptable’ market levels artificially. You did not hear Bernanke say that we were going into another recession, but then he is basing this on extrapolation not prediction, so it does not constitute what he actually thinks will happen. But how often do Capitalistic economies stall and hover? Rather they are notorious for going through periods of boom and bust, without government intervention that is. So what we are seeing is the attempt to moderate the bust, and to do everything to disguise the economic decline so that it does not grow deeper. But could only be to prevent a bad situation from getting worse, and only in the short term, for if real growth does not return we are heading for a US debt default within a few years. And then no longer will the federal government be able to bankroll individual US states and ‘bail out’ the rest of the word. So we should not be surprised to see a real push to prevent this from occurring, and they know it too, and there is probably nothing they will refrain from doing to act.
Remember that the current administration does not hold the ‘free-market’ sacred, or rather does not believe it holds any validity on its own so as to escape government intervention. To take action merely means to have a ‘just motive’ and to be courageous, at least we might presume so, since to hold the power to act would imply a justification to act, and that nothing but counter-forces will prevail against it. Although I am not attempting to espouse any particular view, only to show that one who believes the government rules over all aspects of the society and economy holds no conviction to refrain from directly manipulating anything, as one who lacking morals will not refrain unless the power resides from without. It is only surprising to me that those on the other ideological side are not inclined to think the administration is still beholden to allowing the ‘free market’ to operate freely.
For some reason we entered a brief period of non-intervention starting in May, but this ended on May 19th, the precise day after the Facebook IPO. And I cannot help but think that the sudden stabilization of the market at this point arose from one of two things, that someone had concluded that the Facebook IPO would alone restore investor confidence, or that the Dow upon this day struck its year-opening price before reversing. It was only shortly thereafter that the announced 1Q growth was diminished from 2.2 to 1.9%, but this marked the low, and stocks reversed direction the following week and haven’t looked back really. Even the Greek vote and lack of QE3 failed to dent the market; in fact we have seen what is perhaps a well engineered upward momentum from that point. And again we face the situation where bad news is good and good news is good, entirely without rationality, but this appears to me to arise from attempting to hold the market flat during days where bad news prevails but allowing it to rise when good news prevails, even when the good news isn’t all that good, or is misleading, as much of it has been.
The only thing is that things have been held fairly stable since government intervention first began in October, we have seen no real collapses, and as anything falters it seems to then regain itself almost miraculously. But of course we cannot attribute this to miracles. The only thing which has shown consistent downward momentum is Asia, while Europe has remained stable and the US markets have continued to climb. But for how much longer? It is unfortunate since back in October they were saying that if the market went up then it would be the worst thing that could happen, and the reason for this is that investor sentiment hasn’t changed merely because the market has risen, and because the market did not fall there has remained the persistent expectation that it soon will, so better to stay out rather than risk losing big-time. So more and more has been done to appeal to investor sentiment and restore investor confidence, but to no avail. The politicians are frustrated, but who has ever before been able to restore market confidence by artificially boosting them? Why in the world would they believe that their perceptions and actions would lead to the outcome they desired? Once they act they become committed, being committed they take greater risks, taking grater risks they become irrational, and so on. Yes, and there are limits to control, even if you believe it to be justified.
And those who carry out these plans do so because there is a financial incentive (doing my job), that they are obeying authority (following orders), or that they are a believer (fanatical devotee). This we might regard as one of the underlying problems with our society, if not our civilization: the failure to take responsibility.
So the reason we are seeing this upswing is simple, that nothing else positive will be coming out of Europe, they have agreed to do as much as they might do, and if the momentum loses steam at this point then there is very little that might revive it. Yet some help has been gained from ok earnings, but then we are still seeing the effects of stimulus coming through in 4Q and 1Q and whatever else continued into 2Q to boost the economy. It is difficult to make anything of economic data when the government is in there doing what it can to alter them, through spending and lending I mean. We are at a ‘make or break’ moment for the global economy, as to whether the actions already taken are going to sustain a slow decline or whether thinks are sinking fast, but for the meantime things are being propped up with government spending. So the trouble is, even if economic strength emerges on its own, it is very difficult to distinguish it from government intervention, so then is one of the prices of intervention, just like the problem with lying: no one then believes you when you tell the truth.
So here are some of the charts from this week. Again keep an eye on two things as indicators of manipulation: whether the markets are not allowed to fall below their starting prices for 2012 and the Vix continues to be kept below 20.
The first of these is a 'checkmark' curve, typical of manipulation, the following day has a market climbing and again not falling, on Thursday the markets bounced off of their 'break-even' lines. It should be mentioned that the economic news that came out on Thursday was all sour, and yet the markets were not allowed to traverse their 'break-even' lines and ended the day higher. But notedly Friday was a unquestioned fall, but this followed after a very strange phenomenon which manifested itself on Thrusday, as shown in these charts of Apple and McDonalds.
So far I have not heard that this has been explaonied, but occurred in a few individual stocks. These 'sawtooth' patterns occurred precisely upon the hour, every hour of the day, but just for this one day. I am waiting for Bob Pisani (CNBC) to come back with an explanation for them. But the real question is, even as the markets did fall on Friday and today, we still find that the two indicators still hold: the markets are still above their year-opening value and the VIX fell back below 20 as the market rose, though still ending in negative territory, an incredible reversal nonetheless, to end well off the lows. Let us see what transpires for the remainder of the week and I will be back.
July 14, 2012
So are we seeing here 'move and counter-move' again, as at the last downgrade of banks where the day after bank stocks rose rather than fell, and on Friday after the Italian downgrade, bond yields pushed down rather than rose, just as earlier in the year when the European countries were downgraded the stock market rose all week. No news is bad news, and if you consider that the perception of the world economy is much worse than in the fall and winter when many were denying any sort of slow down or recession. But even the now evident slow-down in China, which appears to be far worse than is being reported, is not enough to dampen this market. And with far more analysists speaking of how surprised they are that the markets are remaining so high, despite the plentitude of causes which would normally bring about its decline, are attributing it to expectation of stimulus. Peculiar, yes, but again if you know that market movements are being set by government then the continued stability and increase of markets becomes far more explicable, and look at the market's reaction to a week of lackluster earnings. And we might regard that governments are expecting that this market 'buoyed up by stimulus hopes' will eventually go up on its own once their stimulus measures start to have an effect. And if there is going to be an effect we might expect one in the next three months, which is the final quarter before the elections. So do not be surprised to see a slight pick-up in GDP for 3Q, as the government increases its spending on construction projects (as it always does, mind you). So here's the week, again not convinsingly free from signs of intrusion. We can see on M-W a decline on all three days, surprisingly stable, and a quick pick-up after the troubling Fed report on Wednesday.
But now look at Thursday, when we are speaking of an operation which is attempting to moderate market movements (especially downward) re-attaining the prior day's break-even point has been the common characteristic, and perceive the situation by comparing the three indicies. As we see that the Dow reaches its break-even at about 1:30 and then stabilizes there, while the other two continue to rise, and would have reached close to break even had not a end-of-day sell-off intervened. Again, curious. But, then after we see a market where on each day losses were cut and the market never finished at their lows, Friday saw a stellar increase, which might have had something to do with JPM's earnings or the moon's phases, as Art Cashin said, but also consider the Dow YTD chart, because if there are two indications that there is intent behind these market moves it is the Dow being held above its 2012 starting price and the VIX being held below 20. And as Stewart Smalley used to say, "I am not a licensed therapist", so I would say that although experts will explain these things persuming no direct manipulation is occuring, all of these things should give them cause to be suspicious and hopefully at least examine the matter.
July 6, 2012
...............On Monday what did we have but bad news, manufacturing had contracted for the month of June. Yet the fall did not cause any permanent damage, ascribed here to 'Fed Hopes', but I am very doubtful. The NASDAQ is up here over half a percent for the day. And you can see the impact too upon the European stock markets, after an initial fall (3 pm), somehow the markets rallied to end higher than before. This probably had more to do with maintaining the momentum of Friday's increase than anything to do with optimism over more easing. Just a slight downtick on the DJI. But at the same time construction spending was up, but here is the key piece of information:
Spending on public sector construction dipped 0.4 percent to $269.6 billion, down for the fifth month. However, outlays on federal government projects jumped 5.6 percent, the largest gain since December, almost reversing the prior month's drop.
So the increase in construction spending was due to an increase in government construction spending.
Tuesday was a half-day and thus also the last day prior to Thursday's weekly jobs data. But also showed a significant increase in factory orders. And after a slight rise due to this it looked as though the markets might be heading down again, until about 10:30 when they beegan to rise again. But would this indicate a change of direction for the markets which would continue through the day, certainly it did. But if yesterday's increase was due to 'Fed hopes' due to bad economic data, then why would we see increases today on good economic data? Also given what we saw yesterday, these factory orders are likely due to government spending rahter than any increase in real demand. But there is no consistency, bad news - markets go up, good news - markets go up.
Now for Thursday. Here again, markets down, but does the sudden uptick at 10 indicate that the markets are about to reverse, climb to break even and hang there for the rest of the day. It only takes the NASDAQ about half an hour to reach break-even. It remains and the others eventually do reach break-even around 2, although the Dow and S&P falter towards the end, but still end off their lows.
So now let's look at Friday, the market was down and the NASDAQ almost 2% on the jobs report for June. Are we actually going to see the markets in a downard trend that continues without a late-surge. Alas after 3 pm the market suddenly reverses course and trend up, but it doesn't reverse the entire trend. But then on a day like this the VIX must have surged 10% or so, but no, it was actually dropping and held beneath 18 for the entire day. Until the very last increase at the day's end, which caused the VIX to plummet to below where it had been at open, approaching 17, a drop of over 2% which was greater than the market's themselves. Yes the market was down for the week, but a surprising contrary performance for the contrarian VIX. Either these markets are totally screwball or they are showing distinct signs that they are driven by the goal of high market and low volatility index (VIX). Certainly the market has dropped far less than the VIX, which a month ago was up as high as 25 before reversing course, and has fallen ever since (-32%) despite everything, while the market is still up from the arising of worse and worse economic news. This strange behavior was absent for the first couple weeks of May, but the market seems intent on retaining an upward momentum and the VIX to be endlessly defeated into remaining below 20. (Perhaps CNBC should announce that a low VIX is actually bad for the stock markets, then you would likely suddenly see it surge upwards.) So what would cause economic and earnings data which should be driving the market down and uncertainty which should be driving volatility up actually having precisely the opposite impact upon markets?
June 30, 2012
It might not seem odd that realizing the Euro zone was not going to break into pieces would cause the stock markets to rally, but it is difficult to comrphend how the possiblity of the Euro zone breaking to pieces would not send the stock market plunging, especially with economic activity slowing. So we might ask, as no one was anticipating such things last summer, why it is that now the stock market ends up being higher than it was last August. But so the market does not follow expectations, but odd nonetheless. If you were assuming this entire time that governments were propping up markets with cash, its levitation and resiliance over the past nine months makes far more sense.
I apologize, but I am getting tired of writing about these things, but was anyone really surprised that the EU would announce some sort of plan out of their summit? Of course they had to, no matter how feeble, to give something to build a market rise upon. And is anyone surprised to find that the markets reacted with a swift and optimistic upswing over 2% on the stock indices? Entirely predictable too (you could have bet money on both in my opinion).
But something bothers me about Friday's rise, that if it was really based upon optimism over the European plan, why was the market actually falling until consumer confidence numbers were announced at having fallen in June, then suddenly the market climbed up and continued to rise. It can be seen most clearly here.
And one could anticipate that it would not let up, and surge again before close, again predictable. All these things occurred, we have seen it before, as just prior to the Greek vote, when signs of market manipulation were absolutely clear. The goal here among politicians is to be convincing that this was really good news, to give the impression that the Euro crisis has ended and that optimism and ‘risk-on’ have returned. But what is the reason that the stock market is booming at a rate not seen since the internet boom of over a decade ago? Hope? Optimism? Or simply a lot of political finagling? Just another unfortunate coincidence which prevents anyone from suggesting this rally cannot be anything but entirely natural. (Naturally, if these gains extend next week on a 'wave of optimism' we can presume the manipulation continues.) A relief rally, maybe, but then why wasn't the market sinking like a stone in anticipation that the EU might not save itself. And how is it they came to an agreement so quickly unless they already knew precisely what they were going to agree to beforehand? (I would like to see the press grill these people about what is truly going on behind the scenes.)
Likewise, again the market goes up whenever the politicians make a pledge or statement, no matter how trivial, or whenever Burnanke ‘winks’. But isn’t this commitment to recapitalize Europe’s banks the very thing they had pledged in October which was supposed to explain the sudden multi-day rally off the October 4th low? Are they relying upon the fact that people merely have such short memories they cannot remember that the market already reacted positively to this pledge and so now they are merely going to pledge the same again. So are we going to see the markets skyrocket now like they did then, building upon the artificial gains which might be continued because relying upon the market to go up by itself, ‘just didn’t work’ in May?
The EU as the Fed will never come out and make the statement that there’s nothing more they can do, or they can’t decide on what to do, or that they are committed to austerity and debt reduction. But what they call ‘growth’ they really mean ‘stimulus’, and stimulus under these circumstances is just like pouring water into a leaky bucket (yes, everyone is saying it now). There hold few little prospects for growth, but what is astonishing is that the equity markets have continued to ‘dismiss’ and ‘shrug off’ negative data when the market goes up when most experts would expect it to react down. You can tell that as soon as European leaders act, they want to see what they did to boost markets and reassure investors, first and foremost, just as they tend to look at poll data after making some sort of statement.
It is difficult to believe that these short-term desires are in any way good for the economy. But now that this is over we will probably hear statements that the Euro crisis has ended, and that with stimulus on the way that everyone can relax (and go back to buying and investing). So is the European situation sorted out, is this going to keep them out of a prolonged recession?
Yes, if May was down then June undoubtedly has been up, despite the even clearer signs than we had last fall that the world economic situation is in decline, even the US, and yet the stock market is higher than it was at the start of the year. In fact, conspicuously so, for just look at the Dow chart for the year-to-date, and see how it has turned around to keep it just above, while at the same time the VIX has kept conspicuously low, rising up to 25 but now down again below 20, pounded down again a few notches today. And did the markets even know there was a Greek election in the middle of June? If we look at the chart, we see a week’s worth of rising, and an entirely smooth market upon either side of the ‘decisive’ vote. Again, conspicuously calm and optimistic.
We might expect the VIX to climb until the Greek election, then to fall after, but the VIX was falling and the market rising well before the election. Why? But then, I was wondering how the US and EU governments could consider those Greek politicians who backed the Greek bailout to be better for the EU than those who wished to negotiate for a new bailout without austerity, when those very governments had changed their view from austerity to ‘growth’ following pressure from the US President for the EU to change its course. So we were all led to believe that if the Liberal candidate won that the EU would be thrown into chaos for rejecting the original bailout terms, but then on Tuesday they offer to renegotiate to the winners for a new bailout because the former was outdated (relied upon demands for austerity)!
It is not surprising too, it seems to me, that all numbers are being held just below ‘danger levels’, such as the weekly job claims figures which have never this year breached 400,000 though they have come close, European bond yields are hovering just shy of 7% and will now undoubtedly fall, the VIX was pushed again below 20 and might fall too, as markets are being kept from falling below their closing level of last year, and are perhaps due to rise with further infusions from the US government - we shall soon have our answer.
It doesn’t seem to me that the June rally, which has come after clear indications of the US economy slipping and the Greek situation worsening to crisis point is suddenly due to stimulus hopes. Except when people attribute the incredible rise in the market from October through April as also being due to stimulus hopes. Thus it certainly does give cover for artificial boosting, and look at how much the market was boosted in 4Q 2011 and 1Q 2012, seeming to change its mood almost to align up to the commencements of months (beginning of October through beginning of April, decline starting beginning of May, rise starting beginning of June).
But there has been a stark change in the markets from August and September which went down on bad news and up on good news, to those from October through April which have perpetually gone up on good news and up on bad news, sometimes even up more on bad news than good. And have we seen a return to this in June? While those who seek reassurance that the economy is so bad that stimulus will follow as a reason to think stocks will rise, to then see that the economy being ‘not so bad’ is also reason for stocks to rise! But it also shows what sort of a mess arises when the government believes it should step in to assure nothing ever fails or sinks. Bad news stocks are up, good news stocks are up.
And what did we see the day after bank stocks were downgraded, but that bank stocks were up 1%. Although there have been three significant down days in June, but the market has recovered ground on them all, the Dow is now over 6% higher than after the announcement that the US GDP growth had slipped to 1.9% and unemployment was up to 8.2%. So the key is to look at whether the equity markets are going up and the VIX is being beaten down, for this is clearly their goal, so when this occurs, despite what might be put forth to explain why they are moving as they are, we cannot but conclude that it is because this is what the politicians are aiming for.
And then of course we have to question why there have been many days where the market has been up, but once going up never seem to falter, they just continue through the close, and we have had several days when the market is down and then just at the end of the day we see the market recover on some trivial statement by some Euro leader, or for no reason at all.
This is precisely the sort of cover they were using for their market manipulations in the fall. Meanwhile everyone is ignoring earnings and GDP growth and debt levels; and when political accomplishments carry the most weight, who would wish it to be so more than the politicians themselves.
Of course we must presume that the US government was all ready with a boatload of cash to sink into the market if the Greek election did not turn out as they had wished. So we must figure they have several billion on the sidelines for ‘emergency’ purposes, because ‘we cannot allow equity markets to fall, that would be bad.’ So we have the government right there to assure that equity markets will never fall ever again, which is too important to be left to the ups and downs of investor sentiment and economic reality.
So the big question is, more than should they, is has the government ever been able to prevent a recession through a huge influx of money? This appears to be what they are aiming for, but normally recessions are considered to be part of a natural cycle of the economy. So what is the incentive to potentially risk fiscal crisis later by taking every step possible to prevent an economic slow down now? We have had numerous recessions over the years, so why is it so critical that this one be halted by any means? The answer is there are two: it is politically motivated (Obama wishes to run this year by claiming he brought us out of recession), and the other is that the consequences of falling into recession truly mean the collapse into a depression, with soup lines and unemployment exceeding 25%. I imagine this is how the US president has gotten European leaders motivated, by scaring them with images of a Great Depression even worse than that of the 1930’s with the potential for political instability and war, and of course Obama losing the election. I cannot think of anything else, but I imagine today they were popping the champagne corks.
June 16, 2012
These markets are thriving off of fear and uncertainty…there must be something wrong with these markets.
Is there any reason to think that worsening US economic data, a slipping global economy, and European uncertainty should cause the equity markets to rise? (At least they have stabilized, and this week they did rise.) But here I would mention that there are things which are difficult to make sense of, though we are probably seeing less of a drive to propel markets higher but rather what might be termed market crash prevention. Thus it would not be surprising to find that in a week which might cause people to flee the market in panic from fear or uncertainty that it has actually been rising through the week. And on days when European markets were sinking fast, once the US market opened and rose these would then cut their losses before close. And this hardly seems accidental, for it would rather seem as though a negative European market might actually influence the US markets to open down, not to see US markets acting as a pep coach for European markets, but as we see no markets have collapsed.
So what does this mean? It could mean that things have gotten so bad that the psychological impression is that governments cannot help but lower interest rates further (not in the US) and to engage in more stimulus activities. This is the only thing which could explain the sudden rise in the market last week following the pathetic and dismal though not disastrous US economic data and a rising unemployment rate. But there are other things to look at which would indicate if the markets were still being tinkered with. (And saying this, of course they are being tinkered with, they are always being tinkered with, but here the issue is direct versus indirect manipulation. Direct would be driving the market up with infusions of money to buy equities or bonds directly, in the US or Europe or anywhere else. The other would be the usual method of lowering interest rates, quantitative easing, and creating ‘positive’ headlines to induce rallies. This latter has obviously been going on in recent weeks, but what of direct manipulation?)
Although when we look at the markets going up contrary to what you might expect, many might say it is impossible to predict what the market will do. The main reason for this is not because we do not know what will influence the market, but that we cannot predict the future. However it is odd to find things that what normally would cause the market to fall are no longer having this effect: fear and uncertainty, which has led to the impression that the equity markets are robust. But when have the equity markets been the thing which stands against developing fear and uncertainty? If it is only upon the view that more government stimulus must be in the pipeline and everyone wants to get in before the resultant market surge occurs, that may be. It seems that most often bad news drives the market down, and that the rise in the market from October through May and the recent rise of the markets might otherwise not make much sense (unless it is merely part of the normal market ups and downs, but there may be more to it).
So what do the charts tell us? This week we saw two down days and three up days. But the aggregate movement was up. And despite the view that the news from the Central Banks is what drove the markets up on Thursday, the markets were already up on Thursday, and we find that the market was actually not going up after open, but then after they climbed they held fairly steady, and then the Central Bank announcement came slightly after the NASDAQ fell into negative territory again. Then when the market surged this was followed by an almost equal decline, then suddenly the market went up again, reclaiming these highs. So does this mean there was an immediate ‘knee-jerk’ reaction followed by a delayed response? And if this was based upon the sense that things won’t turn out as badly as people had thought, why was the market already up so much beforehand? Or is it merely that a person judging what the market does must reflect what they want, that the rise in the markets likewise pushed a VIX, which had hardly fallen despite the market rise from near 24 to below 22. That there emerges a view, when the high of the day is ‘reclaimed’ that once such highs are gained this is deemed ‘satisfactory’ but when they are lost then the view is to get them back to where they were when they were ‘satisfactory’.
In addition, we still have not seen either drops or gains exceeding about 1% in this market, which is strange given the uncertainty and fear is so much greater now than it even was in August and September. Of last year Part of this is that despite such uncertainty and fear, the markets have gained tremendously and failed to collapse on bad news. This has given the impression that the markets are strong and stable, and are ‘shrugging off’ bad news out of Europe, although they seem to respond favorably to ‘good news’ out of Europe, at lest what positive headlines or announcements might be concocted by the politicians. In other words, the markets only zoom for the things which the politicians have worked hard for and also tend to ‘discount’ troubling economic news and uncertainty, or quickly rebound from the initial ‘sell’ response. (Friday was a perfect example of this – that the Central Bank statement from Thursday was supposedly what caused the market to continue its upward direction on Friday, but in order to do so it had to ignore the bank downgrades and weak economic data.) So, as Arsenio Hall used to say, these are things that make you go ‘hmmmmmm’.
The politician want the things they do to drive the markets up, so we must be prepared to consider that if they have the means and the will to cause the markets to act the way they ‘should’ to ‘positive news’, that they will make it so. And while we might assume that some positive news should drive the markets up somewhat, if news were truly driving these markets they would be much lower than they currently are, so the upside has been enhanced and the downside minimized. So you can very well assume that everything the politicians will do is based upon averting a crisis or removing the sense of panic, which does not often mean the pursuit of sound policy. Rather what they are engaging in is ‘crisis management’ and doing so with the typical goal of returning things to ‘business as usual’, which usually means to have things chugging along like they used to. Unfortunately this also means ‘business as usual’ in terms of how states operate, which has not been good, though in politics what is not objected to by the public hardly seems to exist at all in political reality, and political pulling in opposite directions tends to neutralize itself. (But I am not here going to say what I think they should be doing.)
So let’s look at the charts for this week, as I have them. Monday was a steady market hovering under break even with a decline at the end of the day, and this was overcome on Tuesday by a market which reclaimed these losses.
But markets straying into negative territory were not there for long. Not only this, but after the initial surge markets slowly faltered before continuing their upward push after 1 pm, just after another Treasury bond sale. Hmmmmmmmm. Then on Wednesday drops in retail sales initially caused the markets to slump, but if we were looking at manipulation we should expect to see this slump overcome, and the markets were all in the green within half an hour. Hmmmmmmm. Though after stabilizing around break-even for a time, they did decline in the afternoon and finished down.
Then on Thursday the market again, like Tuesday was about to head into negative territory then suddenly jumped and remained up and sustained until the declaration by the Central Banks that they were going to support the credit market with cash, just when the Nasdaq was about to turn negative. Hmmmmmmm. Then when the initial gain faltered and the Nasdaq again looked like it was going negative, a sustained upswing brought the markets back close to the highs of the day.
And finally on Friday, markets were looking up in pre-open supposedly due to the Central Bank statements made late Thursday, but then poor economic news pushed markets down soon after opening, only to be pushed immediately up again. Even consumer sentiment data quite lower than expectations did nothing to halt the upward surge ‘caused by’ the Central Bank statements from the day before. Hmmmmmmm. And all this the week before a Greek vote which might cause chaos for world markets next week. And whenever these markets went up did they ever then come down again and go negative. We have seen this three days this week, early surges and remaining above, pushing higher and higher, until closing.
But if these are goal-oriented moves, we might be able to perceive it in the market trends. The most telling is that the markets are where they are, holding steady despite everything, but just above where they were at the start of the year.
In fact the S&P had just hit its year-opening price when it suddenly changed direction. And Meanwhile the VIX, which recently was gaining back up to 25 has since been driven again (loaded term) closer to 20, even after Friday’s 23 start it was quickly knocked back down to near 21.
So we are seeing some attempt here to keep things steady, to engage in ‘crash prevention’ and to avoid any sense of investor panic? In some ways this sense that the equity markets defy gravity is actually convincing to some investors, who see this as a sign of robustness and a reason to be optimistic, which is precisely the psychological effect that would be sought by such moves. ‘You can’t keep this market down’ would then lead to the view ‘The market is ready to surge on any good news’. (People wouldn’t be saying this if the Dow was down at 6000.) You would think that the uncertainty would rather favor a market which was in moderate decline, ever since October with a few rises. But what better way to prevent a panic-selloff on Thursday and Friday than to drive the markets up higher and higher; and such a move was entirely predictable when you assume the markets are being manipulated by governments.
So I could predict beforehand that if the markets were to soar on Friday there was far more reason to be suspicious, and so they did soar, and I could tell after 10 minutes of trading that this market was going to be propelled up. It is difficult to determine if when we see rises and falls if the falls would have been sharper without manipulation (we have not had any falls of 5% in a day like last year), and the rises higher if manipulations did not have to overcome lots of selling. And this is precisely the sort of surge you expect to see (on Friday), rising higher and higher with a final big manic burst at the very end. But in addition to this I was keeping an eye on the VIX as it hovered in positive territory even as the markets rose, until finally it was driven down into negative territory by the end of the day as it had been on Thursday by the late-day surge. And that this was the very reason for causing the markets to surge so much in the late day. So are they back to their old tricks, it seems that if they were going to do something they would do it now, at such a pivotal moment, wouldn’t they?
In addition, this entire week was up, as we saw the markets surge to a one-month high.
So was this based merely on the hope that with all the worsening data things are seen as getting bad enough that we are guaranteed to see another round of stimulus? I don’t think stimulus hopes were pushing this market up, I believe it is desperate action to avoid a crisis. And this is precisely what they would do and why they would do it. That they were saving up most of their eggs for this weekend, to support it prior and after. But no matter how you look at it, the US economic news is faltering, Europe isn’t improving, and debt levels continue to rise; we are either facing one of two things: more stimulus or global depression. It is difficult to know why the markets would be surging based upon small scraps of good news, especially on ones invented merely to do so, but if the government is continuing to boost the markets artificially then we should expect on Monday to see a further significant gains regardless of who wins in the Greek elections. Since we might presume the goal of driving up the markets is to create the impression that the outcome was not bad at all, and certainly not something to worry about, if the market was to rise so feverishly on what might have, at first glance, appeared to be bad news, or what had seemed to be worthy to make us feel fear or uncertainty. Surely such impressions must have been unfounded if the markets reacted with such a stunning vote of approval of 200 points higher on the Dow? So you can see why it can be effective and why Monday and next week the market would show an upward push no matter what. You can also understand the incentive: prevent a sense of crisis, avert a panic, generate optimism, restore market confidence. But to manipulate the equality markets to this extent also reveals an underlying desperation and behind it a great deal of uncertainty and fear, we should imagine. But print money, borrow, boost the markets, drive down the VIX, is about all they can do now.
June 8, 2012
As the façade has crumbled the politicians have been engaged in filling in the cracks with spackle paste (money) to create the illusion that things are going back to normal, and thus to inspire a return to ‘business as usual’, which means consumer buying, economic growth, and investment. This is what happens in the US as the federal government offers money and low-interest loans to states to save them from bankruptcy, and now the same is occurring in Europe, although the process is more greatly encumbered. The plan, largely directed out of the White House, is to get the façade in shape first and then, hopefully, make progress on bolstering the structure which lies behind it, which had been responsible for the façade crumbling.
But if the US is presuming that the stimulus was successful to put the economy back on track, and that Europe must follow our example, from the President’s statements we seem to be getting a sense of this mentality: that the current economic decline in the US is not due to the failure of his own plans to rebuild the economy, but it is due to the problems in Europe. The mentality thus is still that the current situation developing is merely a stumble rather than a decline, and this stumble, as they say would ‘derail the recovery’. But it seems that the most recent methods used to stimulate the economy to ‘buy time for Europe’ to sort out its problems, might cause us to wonder whether the downturn is truly a European phenomenon, or whether the decline in the US arose merely from pulling the plug on federal government stimulus.
As the President laid out in his first SOTU address, the stimulus would continue for two years followed by two years of government cost-cutting, but where has been the government cost-cutting? Apparently it has been ‘delayed’ due to the ‘necessity’ of further stimulus to avoid an economic pull-back at this fragile moment in the global economy. But is this truly a matter of waiting for the European situation to be sorted out so that we can get back to ‘growth’ and ‘business as usual’? While the Europeans themselves, under pressure, are being driven by changes of policy in a mammoth display of crisis management, in which case we must not only question whether their proposals continue to be soundly formulated, but whether they realize that a stronger economic and political union will only cause Europe to suffer from the same problems the United States suffers from. And again, it is only executive power which is keeping us from looking as bad or worse than Europe right now, but this is only in the short-term: a more efficient means of getting the façade in good shape more quickly.
The developing plan here is to get through this ‘European crisis’ quickly and to get our wheels back on the pavement, so to speak. And part of this plan is to prevent panic and the sense of crisis, and one of the means to do this is to eliminate bad headlines from Europe, and also to prevent the markets from crashing. And we are not merely seeing the market responding to headlines coming out of Europe, but we are seeing headlines specifically designed to cause the market to rise, if they are not merely a cover for pushing more federal money into the market. As we have seen in the past few weeks late-day rallies from presumably positive statements from politicians, seemingly on the view that giving the Europeans more options for pushing the problem down the road, as we do here in the US, can only be good for the world economy: the ‘get things moving now, and pay for it later’ mentality.
One could speak of this as a matter of ideological belief, as to whether we spur growth or cut spending, but the reality of huge deficits is coming back to haunt us as growth sputters. But there is the simple matter of how tolerable it is to exist with these constructed illusions and facades, although this is what people will do, in creating them and causing others to believe in them, but should we be persuaded to return again, as the politicians always wish, to put our heads in the sand, which to them is ‘business as usual’. Get people’s attention off of things and get them back to spending their money and accepting the usual illusions as real, including the political ones that bolster both parties. Thus this is far more than a mere policy concern, it is a concern for the politicians seeing a return to ‘business as usual’ as the very goal they are striving for.
But the huge accumulating debts can only be maintained if the economies of the US and Europe are growing (and you might say cannot keep growing without the debt), and thus the push for growth, apparently. And this is not an attempt to dictate correct policy, only to underscore the sort of mess we are facing if the economy actually does falter. Thus too we can appreciate the largely unexpressed desperation which is brewing and these illusionary methods being used to obscure it from the public, typically achieved by the usual button pushing of interest rates and money printing. But in this case too by preventing anything which might trigger a panic and thus this largely explains the situation as it has been unfolding for the past eight months. But there are signs too the wheels are beginning to fall off, and after the worse than expected news coming out of the US economy last week, we appear to be facing only two scenarios: depression or stimulus. So we might explain the rise in the stock market this week as emerging from the view that stimulus will soon be on its way, but will it? And are we not again merely being persuaded into thinking more stimulus is anything more right now than a means to postpone the inevitable? This is not something I am inclined to answer, but it is merely the pattern which is emerging. And my focus here is merely to speak of the motives behind manipulating the stock market, rather than to comment upon policy or to formulate a sound policy. Only that we are seeing scrambling into what appears to be imprudent action.
For to offer the solution of stimulating growth through government spending at this time is rather like someone who has an investment portfolio, financed by debt, which is collapsing, so to save the situation he ‘maxes’ out his credit cards hoping the new investments will make up for the former losses. Worst than this it is like the financial manager doing so for a business but without telling them the truth about the financial situation. Worse than this it has become the policy of much of the developed world. This is the difficulty with a ‘failure is not an option’ stance which appears to have developed, and the push the buttons for ‘growth’ now and take the ‘recuperations’ later, because debt and liquidity have solved many a short-term problem in the past.
The other explanation for the market rise this week is that it is merely the result of more artificial money-pumping. Because if the motive before was to drive the market up now it appears that the only thing left is to avert a crash. Whether it is or it isn’t really depends upon what the market does from here: if it continues its rise on news, good or bad, or if it is allowed to falter and fall at all.
May 18, 2012
So as the G8 plan to meet presumably to give the President a chance to push for growth-which we must presume to mean stimulus rather than austerity-there is no question that with debt to GDP levels at what they are that austerity will have to come sooner or later, but given the option they always prefer it to be later. But what is the cause for all this biding for time? Do they know something we don't? Or is it merely blind hope that something will happen. But the week in the markets was simple enough, no sign of manipulation, and they simply slid all week. And while I am not going to make any market predictions, if government manipulation caused the market to go up despite everything we may have entered the phase of the market going down despite everything. In other words, sinking like a stone. So far in May it seems to be happening, and with the VIX up over 20 all week it looks like their intentions have been put on hold at least. But this hardly means that they are not still intending to stimulate the economy, and if they had their way I imagine they would wish Q2 for 2012 to be something above 2.2, to give the impression of economic improvement. But given the deteriorating situation, and really it is not so much worse now than it was in October, there is little they can do, but no doubt they will do something rather than do nothing. While the FED, meanwhile, has been maintaining their pledge, as they have been teasing us with since October, that if the economy falters they will come in with more stimulus. But it would seem that if they could do anything they would be doing it already. And one more thing, as I have constantly observed over the past seven months, that whenever some indicator falters in a given month, somehow miraculously it leaps up the month following, almost by magic, which I find very suspicious.
Then there was the Facebook fizzle today, but what I thought was peculiar was that the price was never allowed to drop below 38, and I found this to be kind of curious. At the end of the trading day for many minutes you could see the stock going along, alternating every few seconds between 38.00 and 38.01, but never going to 37.99. (Apparently this was the work of the stock's underwriters.) But it ended at 38.23, as it was driven up slightly just in the last minute of trading. But here is what the week on the market looked like.
May 11, 2012
What to make of this week? It seems to me the only thing that is keeping us from being in the same recession Europe has entered is simple: executive power. Any country now which has a firmer control over the economy can better control the situation, and this is less true of Europe than it is of the US or China. So it is not surprising to see executive power being used, although others have come to the conclusion that what is keeping us out of recession is credit cards (Bernstein). And now that the Executive Branch of the US has done all they can to drive up the stock markets (artificially) and to drive down the VIX (artificially), we find a democratic pundit (Larry Summers) now coming out to reinforce the view that these alone indicate that the recovery is well on its way and 'ahead of schedule'! Either he was never told why these things were up or he is merely being the voice to emphasize the only sure result the President's policy has accomplished. But it is all window dressing, which fools most of the people some of the time.
I wished to wait until today to secure the view that manipulation is not yet over, even if they may have changed from an IV drip to regular injections. However, we could see on Tuesday that after a CNBC analyst said he was keeping his eye on whether the S&P breached 1360 to predict whether the market would continue up or continue down, low and behold after 1 pm the market began to swing up, and climbed just above the requisite 1360 and remained there to close.
The news has been far from good out of Europe and China and the US, and yet the more this creates a panic at headquarters (the White House) the more of an attempt is made to assure things look more favorable than they are. Here we can see three days of market turn-arounds, one at about 10:30 am on Monday, one about 1 pm on Tuesday, and one at about 10 am on Wednesday, all early and all off the lows of the day. Yet not clearly perhaps smacking of manipulation, just coincidences worth looking into, if anyone would do so. So how about yesterday.
Here we see yet another reversal at noon, with the NASDAQ holding just above its break even, though dipping at the end. The gain on the Dow is suspiciously coming off of a negative low at the very last moment, as though someone wished to be sure to produce a positive result for the day, breaking the Dow's downward trend. But knowing what the government has been up to, it is impossible to believe this wasn't concocted.
But as I write this now it is only just past noon on Friday, and here is what the market is doing,
If you notice the S&P is still running about 1360, and it has established this base throughout the week. So what is so special about 1360 on the S&P? It becomes obvious when you take a look at the VIX.
1360 on the S&P holds the VIX at a level of about 19, because they must have determined that when the VIX breaches 20 it tends to be indicative of a situation worthy of investor concern and perhaps panic. And everything that has been done since October has been to avoid headlines like Bear Market! and Default! and Recession! through huge infusions of money into the economy, and this includes anything else which could induce a panic. Thus we see that this has been the strategy for the entire year thus far.
Notice here that whenever the VIX reaches 20 it is yet again driven down. And thus it could be someone is under orders to prevent the VIX from rising above 20. So we might consider that markets which are permitted to fall so that the VIX exceeds 20 by a significant amount, would be indicitive that the market manipulation has ceased. But if they have carried on now for over seven months, it is difficult to think they are not prepared to carry their plans out for another six months until the election, though the evidence is that they might have gotten close to their 'fiscally responsible' limit, but this is difficult to determine. This, of course, presumes they have luck on their side and are able to manage the rate of global economic deterioration and to avoid any headlines which would cause the impression of 'panic' and lead to a 'crisis'. Thus we can imagine that they will all be crossing their fingers this summer.
May 5, 2012
We have perhaps turned a corner, because this week, markets up or down, I did not see any clear signs of the markets being manipulated. On top of this we had the first day when the markets fell more than 1% in quite a while, being as it was the greatest decline so far for the calendar year.
April 27, 2012
Mo' money, Mo' money, Mo' money! From where comes all the money which is inflating these markets? Today we would think with yesterday's Spanish downgrade and today's announcement that the US economy grew at a paltry first-reading value of 2.2% that the markets might take this as bad news. There was an initial slide but by the time the markets opened they were up, and although they fell again, once more before those pesky markets might be allowed to go negative they suddenly surged up again and we enjoyed another buoyant day on the markets. In fact, but not surprisingly, the Dow has recovered all it had lost in the last dip, which might be attributed to earnings, but the news has been, at best, rather mixed.
While it would appear that April might have been the month they kicked the habit, as we saw before things went into such a deep slide they have brought them back again. This economy, however, is on life-support, and for some reason the government is committed to see that the markets do not fall, even while econoimc strength dwindles, but this might have an even more unpredictable side-effect, since the stock market falls prior to the point when the economic flaws begin to show in earnest. But if the market is artificially held up and these economic flaws become evident, what occurs when everyone then is 100% certain of a market crash?; it is rather like placing a bet on something in which you know you could not lose.
But in addition to pumping funds into the stock market they have also been into the economy, turning around the 1.8% Q3 number to 3% in Q4 nd now 2.2% in Q1, but the statements by the Treasury and Federal Reserve that the economy is on the road to recovery seems much more like a coach trying to instill optimism more than it is a reflection of reality, so it merely becomes difficult to know how far they might be trusted. And given that after all the many (mostly hidden from the public) frantic manouvers that have been applied to save the global economy from falling into a world depression, they come out with almost a calm assurance that all is well, or at least improving. But this is really open to interpretation, for at this point one could collect evidence to prove a slow recovery or a slow decline, but if this is so, even the titanic effort they have put forth has only produced the most modest growth, and only in the US, and even 2.2% might be an optimistic measure of first-quarter economic growth.
So here are the charts from yesterday and today. Yesterday the market was likely thought to continue on the optimism of the Apple earnings story and the statements by the Fed that the economy was improving, but when it sputtered at about 11 am the government took full hold of them and so it is not suprising that they then rose up nicely and were forced up in the afternoon, which was repeated again today. So don't delude yourself about the markets, they are proceeding according to the government plan, according to what they want the markets to do. The red arrow indicates the point at which the markets were distracted from their natural movement.
It would not be surprising that other upward movements this week were also due to infusions of government money, but these prove to be the most obvious. For the markets over two days an increase of about 1%. Pat yourselves on the back, a job well done, and have a nice carefree weekend.
April 17. 2012
Yes, Virginia, there IS a Santa Claus! If the White House guiding the US Treasury and Federal Reserve had thought that after six months of pushing up the stock market to simulate a bull market that it was time to allow the markets to now continue on their own, today proved that they had abandoned this and taken the driver's seat again. Everything that had begun to fail in April suddenly reversed again, the US stock indicies were up between 1.5% and 2.0% without faltering after they reversed course in the early morning. In addition to that they went back to buying Spanish debt to drive down rising yields, they drove up Apple which mounted an incredible turn-about recovery of 5 %, and the volatility index was driven down by 6 %. Yes, you can have everything you want for Christmas, even if it's in April. (Isn't debt wonderful!) So here are two charts indicating the influence to save the markets from the skids. The analysis are still convinced this is all part of normal market activity, or else they know about it and are keeping their mouths closed. After all, many professionals just apply mechanistically what they have learned, rather than to be requried to think and judge for themselevs. But the very fact that they would think that these heroin infused markets would falter according to their market models, does go to prove that they are ignorant or in denial about what has been driving the markets up. Perhaps they would just rather not know.
April 12, 2012
No trace of stock market manipulation this week, including yesterday's gain, until today. Attempting to offset the continuing gloom brought on by a market in decline, so they put in a day to brighten the faces of Wall Street at least for now. Anything relating to GDP for China and the US are undoubtedly going to be either artificially gained or falsely claimed, as the US in the Q3 announced 2.5% growth, in line with expectations, only to have to revise it down to 1.8%, but they did delay a sell-off long enough for their liquidity-fuelled stimulus to give the economy a boost in Q4 and seemingly for Q1 this year. Although it might make sense that improving economic figures should lift the markets, it has been mostly bad news which has been responsible for the market levitation this year. Thus governments are scrambling to actually stimulate economies to keep up with this artificially boosted market. So as long as the government liquidity stimulus continues we are not likely to have slower growth, but how long can it continue? As the growth is gained at the cost of higher inflation, one really must wonder if it is, as it must ultimately be, a wash for the economy at best. Anyway, here are the charts which reveal that direct stock manipulation isn't dead yet.
I would be curious to know statistically since October 4th what proprotion of the time the markets have finished at their lows of the day. I would anticipate it to be both an extremely low and unusually low number.
March 30, 2012
Does this harmless uptick mean that we might predict a market turn-around, where the market will rise to or above its break-even and stay there for the rest of the day?
Not truly a surprise. See the Dow bouncing off its previous-day's break even before exceeding the previous maximum. To a best market performance in first quarter since 1998! And the market overvalued by 50%! There it is, the government is now behind the wheel and driving these markets.
March 29, 2012
The government is showing us that you can drive the market up if you have a few hundreds of billions of dollars to spare, but if this is the strategy to bring money back into the market it hasn't worked, in fact it might have been better to allow the market to fall if this is your goal. It only goes to show that what one wishes to achieve might be achieved but if it disserves its purpose then what is the point, but worse, that it prevents what might have actually been a better means to those ends. So now calculations have shown that stock inflation has put stock values 50% above what they should be, though the article attributed it to corporate 'buy-backs'. In addition the economic reality hasn't improved despite the manipulations going on, and thus public sentiments are not driven by the market, nor is the economy. I have included here only a few charts, starting with todays, where again we find an exceptional market turn-around, driving it back to break-even. And as has occurred severeal times before, when Europe drops yet the American markets, which used to be tied to the European markets, are now still proving their insane buoyancy.
Today we see early spiking and then the inevitable turn-around leading to an unexplained and inexplicable surge to near break-even. Yesterday we also saw a late-day recovery which reduced the losses to only about 0.5%. Though it seems the manipulation is only being done when the market begins to fall, and since it began its application has grown more and more subtle, yet the intent is still apparent. There have been some recent declines in the market, but they are always followed by rises, typically exceeding previous highs, both intraday and day-to-day. Here are four charts which show the same patterns indicative of manipulation. Two show a rise and levelling, one shows a fall followed by a recovery, the other a rise which pushes up to regain the maximum for the day. All of this indicates a planned intention for the markets.
March 12, 2012
This appears to be an often-used method: push up the markets and then drive down the VIX. This has been their essential strategy for the US markets. So although the markets were nearly unchanged today, the VIX went down over 8% in one day. The only reason this is significant is psychological, so as to convince people that the market is stable. So when it fails to reassure people then they figure they can drive it down even more, assuming (it seems) that eventually things will improve and investor confidence will be restored.
February 28, 2012
So far this week we have two very familiar patterns, the first on Monday is a market that rises and then hovers most of the day right above its break-even for the previous day, the second today where the market rises and then falters, skips off of its break-even and then rises to reclaim its prior highs. This indicates to me that once it is determined that such a gain is sought once it is lost it is gained back again. In doing so they also fought hard to assure the Dow closed above 13,000 after some noticed it had missed a couple times, and it looks like the next numerical goal for them is a 3,000 on the NASDAQ. And this is in the face of more economic bad news coming in today, with durable goods orders plunging 4% in January and home prices still on the slide.
Watching this market is like watching a magic trick, to dazzle and amaze, and give people just what they want: a market which always goes up and never falls. But in another way this entire thing reminds me of the life of a star, which at first burns Hyrdogen when the sun is bright and stable, then when the Hydrogen has all been converted to Helium this then becomes the fuel, then after Helium then Carbon is burned, etc. And in this case to have a growing economy first we have the creation of wealth (industry), which is the best situation, then when this falters we begin to revive it through debt (borrowing), and this keeps things shining for a while, when this has run out then we have liquidity (printing money), and this keeps the fire going a bit longer until it runs out until we must rely upon deception (lying). And this is where we are now it seems folks. Although you know the collapse of a star happens suddenly and without warning, and I dread to think what the outcome of our current circumstances might be. No one really knows, although debt and liquidity and deception are tools to boost a faltering economy, it is still a matter of uncertainty as to how well such things might really be controlled. Just look at Apple stock since the economy began to turn sour. This doesn't seem at all natural to me.
February 25, 2012
It makes me wonder when we have both Geithner and Obama making statements that there is no 'quick fix' for rising oil prices, whether they believe there are quick fixes for a declining stock market. So as to say, we would do something if we could, as we have before, but we can't this time. In any case, now people are beginning to notice more than just the market gains that the US markets are clearly detached from other world markets, and that no bad news perturbs the market. But it is not merely that the market is going up that is the key, it is the intraday market reversals, its tendency to turn any decline into a gain or at least a break-even, and its predictability. So we are faced with the question of whom are we going to believe, for if the infusion of money is designed to offset a depression, it might merely be like taking aspirin: it makes the pain goes away but provides no cure. Thus here is the week in review.
We should not be surprised that the SP is attempting to regain its high from 2011. Although on Wednesday we see that there was a decline, even so a decline of less than 0.5% as usual, this has happened before, because it is made up on Thursday, even though the unemployment claims were only steady, and on Friday gains continued, though dropped back, though were halted and ended near break-even on the Dow. So despite everything yet again a modest gain for the week. Though most still appear to be finding ways to explain away this behavior according to conventional (non-manipulative) reasons. Though even the decline on Tuesday may have been more severe if there weren't attempts made to boost it. It was about the middle of the market day on Thursday that the Treasury had another bond auction, right about 1:30 when the market went from a slow downward decline to a slight upward increase.
February 17, 2012
Another day of market reversals, here the S&P shows the same characteristic downward move followed by a morning rally that continues in positive territory for the remainder of the day, but far more interesting is the forcing down of the VIX, which was beginning a slow climb again above 20 before it was rapidly forced down again partly by large fall on Friday, which we might compare to December, where here a modest 0.24% gain on the S&P is matched by a tremenous 7.5% decline in the VIX. But this would be explicable if we realized that having the VIX trending up can be viewed as just as bad as having it too high, thus as the Dow is forced up to 13000 and the S&P to its 2011 highs, in two days the VIX was forced back down to its prior lows. Perhaps merely to change the lingering gloomy sentiments about the global economy, and we might add that this perception remains despite the recent and inexplicable 25% gain since the October lows because apart from the markets moving up the actual world economic news has gotten increasingly bad, especially since August. For many have been persuaded merely by the gains themselves, such a stellar rise though has not come with anything but expectations, but what we have here is a market that is changing people's attitudes, which is one of the reasons that it would be driven up in the first place. But here are the charts to look at for today. I have seen nothing yet to convince me that these marekts are moving by their own forces. But it also is based upon a 'more of the same' approach: if the markets might falter than drive them even higher, drive the VIX even lower, until the situation might be improved for real. Politics is often about managing headlines, and winning wars through strategies of deception, and here we see no exception to being persuasive through influencing not what is occuring but how people perceive it.
February 16, 2012
If you buy into the idea that the Federal government started tampering with the US stock markets in October 2011, and perhaps with some comparable attempt made in Europe by the EU, that this was merely part of a wider plan to 'jump start' the world economy. Conning investors with a growing stock market would not be sufficient, because eventually it would fall in any case. So it is not surprising that we have seen at the same time a sudden, dramatic, and consistent drop in the US unemployment figures, from their stagnation in summer, and likewise certain improvements in housing starts and manufacturing, but not in housing sales and retail sales. The reason for this is simple, that if the government recognizes the failure of the housing market and manufacturing contraction as being indicative of recession (this is an interventionist administration folks) that they are going to do what they can to give the impression of an improving situation through government purchasing. Although most people do not remeber the Great Depression first hand, this is precisely what FDR did to help to raise us out of the Depression. The motive for such a move is that if the economy falls into another recession it would undoubtedly be on the scale of the Great Depression of the 1930's and such a thing is perhaps the justificaiton used for direct manipulation of the markets of the world. The difficulty is, in order to prevent a financial panic, employment numbers do not only need to be down but trending down, thus we are not likely to see an uptick perhaps until after this year's election, because any such change would indicate the trend might be reversing, thus weekly claims and monthly unemployment are likely to show a declining trend through the election.
Also PMI numbers in the US are likely to be improving due to an infusion of hundreds of billions by the US Treasury or Federal Reserve that started in the 4th quarter of last year. But if people knew these improving numbers was government-driven, they would be far less optimistic and far less 'Bullish' about the stock market. The trouble is, any time it is made known that something is required to get the markets moving again (low VIX, improvement in housing, settlement of EU debt crisis), we suddenly find it arises (they read the papers too, so to speak). So they are keeping the enitre operation secret, but you can identify it in any case. These sudden improvements only began as the economic situation grew more dire and perceptions were becoming pessimistic, in the 3rd quarter last year, and this theatened the 'economic recovery' that they were already taking credit for. Meaning you can predict that at some strategy meeting in September, when it became clear we were potentially going to fall into a global depression and perhaps a finaicial abyss, that several things needed to be done: the US stock market needed to be brought up to prevent the headline "Bear Market", prevent a crash, and restore optimism; the European debt crisis had to be accomodated by the purchase of EU bonds and some sort of 'bazooka' plan; the unemployment numbers had to be lowered; the PMI numbers needed to be raised to avoid contraction as they headed down to 50; the housing market had to show signs of improvement; and in addition they had the payroll tax and unemployment insurance to deal with. Recall that no bad news has prevented these things from transpiring, and things recently have suddenly started to seem better and brighter, despite everything else.
It should not be surprising then, that everything that we might have hoped for to reverse the worsening situation has suddenly arisen, almost made to order, a minor miracle perhaps to the unwary, a market up 25% from its lows in early October. But if we recognize they are at least accomplishing a few of these, then we must also presume that this is a multipronged attack. If this is so we also will see a consistent and steady decline in unemployment figures month after month, because this gets a lot of attention despite the fact that the Federal Receipts (how much income tax the federal government is bringing in) have apparently not been increasing with these lower unemployment numbers and higher job creation numbers. In addition retail sales have taken a hit, even the Holiday shopping season was weaker than expected, but the government cannot pump money into retail purchases without threatening a rise in price inflation, it must only put its money into things that will not cause immediate price inflation. (Perhaps what we are perceiving in the stock markets is merely stock price inflation, when the price of a thing far exceeds the value of a thing.) But it must also rely upon future economic growth which is the only thing that would allow them to make up for the stimulus spending and money printing they are partaking in now as a 'short term' operation to get things moving again. The other thing that the government cannot have a direct impact upon is company earnings (although companies can by buying back their own shares, as was happening in the Q3), which were not actually so good for the fourth quarter (Q4), with more than half missing their targets. So what is driving this economic recovery if it is real?
Also we will see a consistent decline in new unemployment claims from month to month. The reason for this is that any uptick could trigger a market crash, which would indicate that the situation has turned a corner and might worsten, although by pumping money into the stock market they can drive it up even when the sentiment is that things are bad, as when January new unemployment claims bounced back up to nearly 400,000. The administration is hoping for a Break Out, they are putting all their bets on the European situation improving and the US economy strengthening, and merely upon the hope that this would arise, our markets have rebounded to above where they were when the economic situation was showing signs of faltering. But this attempt to infuse new money from the printing presses and from bond sales into the economy does not offer any guarantee of success, it is a gamble and a con. It could merely be a Battle of the Bulge, where there is no Break Out and the trends reverse. But for the moment we must recognize that an apparent improving situation is what they are relying upon, even if they have to fudge the numbers to perpetuate a downward trend. It would be very surprising if we did not see February unemployment numbers below 8.3, at 8.2 or 8.1. Because they know that if they announced it up to only 8.4, this would indicate a reversal that would go against the sentiment being held up now that 'at least things are heading in the right direction'. In addition by putting the markets on a steady upward trend for six months they can then reverse the declining 200-day average trend until this catches a headline too. Our economic system is based upon optimism, and this is the only thing which is keeping optimism alive folks. I just thought you should know.
So after the noticeable but not significant declines yesterday and the start of a precipitous fall in Apple stock, it is not surprising that we find both new unemployment claims falling (just a bit) and some PMI indicators showing signs of improvement. But as we see market losses can easily be made back, and on any day when remotely positive news might disguise another upward burst in the market. And today's increase accomplished three goals, to make up for yesterdays losses and then some, bringing two of the markets to new multi-year highs, and we should not be surprised to see an intent to breach the 1350 technical level on the S&P just to prove this market can deliver the requisites. But if the market cannot be allowed to go down then it only must either stay flat (which often creates an anticipation of collapse) or to keep rising, to prove that nothing can stop this market. And as we see that when earnings are not as bad as expected, as we saw after the 3rd quarter we might manage a slight market smile, when we see that many earnings are depressed with the occasional exception, this might not reduce us to tears, but it is difficult to recognize what could be sending these markets to new multi-year highs but for three things: hope that the economic situation is at least improving, expectation that stimulus will drive up the stock markets, and the direct intervention of the government into these markets to keep them up and rising.
Notice today's 1% gains, and such gains have not been absent even as we see an increasing divergence between the economic numbers the government cannot control and those it can, but we have to go back to early December to find a loss in the markets greater than 1%. The maket movement today was up but anemic following the announcements of the decrease in new unemployment claims, but what transpired later in the day can only be described as 'building a stairway to heaven'. Sorry, but I do not see a natural climb based on optimism here. All we would need is one headline in the newspapers that there was an investigation underway to examine trading irregularities in the market since October, and that would be enough to put it down, but the media are apparently dazzled by the lights or asleep at their posts.
February 14, 2012
Apparently when it comes to the direction of the market, a worstening situation in Europe is secondary to the strengthening US economy, no wait, apparently the weakening of the US economy is secondary to minor progress in Europe. It all depends on how they determine to characterize why the market might be going up. Suddenly after European downgrades and worse than expected US economic data, suddenly the situation in Greece goes from being 'irrelevant' to suddenly warranting a late day rally. Today the market slipped until the very end when in the final half-hour it recouped all its losses, just enough to bring it back to its break-even point. While everyone seems to be asleep at the wheel someone is sure good at hitting his targets.
February 13, 2012
Despite a pause and actually a decline on Friday (though markets still did not fall more than 1%), today the same pattern was apparent, a market that started down and then reversed and went up and stayed up (day after day folks). In this case, however, the goal was not to maintian maket integrity but to engender optimism, and thus it is almost identical to the sort of reaction we saw to the EU deal last November 10th (compare the charts). In other words, to assure a positive response from the Greek bailout. But it also illustrates that once one begins manipulating markets it becomes very difficult thereafter to not jump back in when one wishes to regain the lost highs of the day as much as to prevent the indices from gonig negative.
February 9, 2012
Now having driven the markets up they cannot be allowed to fall, so it is no surprise that we see either break-even or slight gains on a day to day basis, for any fall could be the start of a crash, so as long as the money lasts, upon this reasoning, there is no reason to think the markets would be allowed to sink. It hardly needs mention, another day like every other day, down followed by up, all three indexes ending the day positive. They are convinced that by keeping this up eventually the markets will take off on their own, but such a thing has never been done before, how can any of us know what the consequences are of having the Federal government sinking billions into the stock market? What can they do now but keep pressing on, hoping things will get better.
The infusion of money into the economy through the fourth quarter might be the explanation for the sudden surge in Apple sales, leading to one of the biggest one-month rises in apple stock ever. Peculiar under the circumstances, but not if your assumption that technology is the engine of economic growth and that Apple is an innovative company that might help generate an economic recovery. Not to mention merely creating something to be optimistic about, or to merely offset the despair that would be caused if even Apple was suffering losses. What a surprising thing however to see just when things are looking bleak that we have a sudden turn around in the 4th quarter, yes Washington politicians are aware of what people are using to gauge the economy too. It is the same sort of thing people do who cheat to boost their GPA, because they know people will use this as a reliable measure to judge them. So are we convinced that we have been in an economic boom since July that would raise Apple's share price from about 300 to nearly 500 in just six months? Wow, pray for a sluggish economy!
February 8, 2012
Was it a surprise that today we find the stock market reverses its trend, gains at or above its break-even point, and then fails to go back down again? Certainly not if you are aware that the market is being driven. Notice the same 'check-mark' shape we have seen day after day since the start of the year: market heading down and then reversing in mid-day and going up and then staying up. Again, another negative day turned into a day when all three indices end positive.