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Why 95% of Traders Fail

Predicting the Financial Markets in the Current Chaotic Environment

Stock-Markets / Financial Crash Aug 28, 2007 - 01:18 PM GMT

By: Richard_C_Cook

Stock-Markets No one can predict how deep the decline in Western economies that is underway will go, because there is so little transparent information. Within the U.S., the government is hiding the severity of the crisis in order to prevent a collapse of consumer confidence.

Realize that the problem does not lie on the side of production. Global industry has the capacity to produce a huge quantity of goods and services. There is even a glut in some sectors, such as automobiles, textiles, IT, and other consumer products.


Rather the problem, as with the Great Depression, is that purchasing power at the consumer level is lacking. In the U.S., purchasing power, as measured by M1, is already in a recession-level decline. The causes are the high level of consumer debt, high cumulative levels of taxation on the dwindling middle class, and the tragic erosion of wages and salaries from job outsourcing.

In the absence of purchasing power, the Federal Reserve has chosen the strategy of trying to outrun collapse by creating inflation. This is the meaning of the bail-outs that are going on. It's an attempt to devalue debt at the macro level. It's a hidden tax on everyone but the super-rich. Everyone else is poorer today than they were yesterday.

How long this can go on is unpredictable. It's another bubble following on the housing and asset bubbles that are already bursting on a daily basis before our eyes.

I don't see any responsible analyst who foresees any better outcome than a recession that would see the DJIA at a level of 8000-8500 within a few months. Again, maybe the Fed's printing presses can hold this level of decline at bay for a while longer, but I doubt it.

There are major players in the markets who see an even steeper decline coming even sooner. Some say as soon as a month.

There is also a real chance of an eventual depression-level contraction. How much of a chance, I don't know. This conceivably could lead to a total collapse of consumer markets, economic paralysis, and widespread homelessness and starvation. Yes, even in the U.S. Agribusiness, bio-fuel conversion, seedless mega-farming, the disappearance of family farming, and the recent disastrous weather conditions place everyone at risk.

At some point, the federal government, at a minimum, has to step in with New Deal-type relief measures. Whether the Bush administration has that capability is doubtful. Look at New Orleans. They may even try to cover everything up by starting a war against Iran. Are they that crazy? Who can say?

There are also rumors going around that there are plans to allow the markets to be crashed by a terrorist event so as to divert blame. I have gotten no reliable confirmation of these rumors, though there are parties placing what people in the markets are calling "bin Laden"-type bets similar to, but bigger than, the "puts" that were placed before the original 9/11.

These types of bets have been placed in the U.S., European, and Japanese markets that assume a stock market crash of fifty percent within the next five weeks. A report was just carried, I'm told, on CNBC.

Some have said the culprit may be China, but it makes no sense for the Chinese to crash the markets while holding U.S. dollars. Others say it is hedge funds at work to try to drive down the markets in a self-fulfilling prophecy.

But a fifty percent market decline? That's just not conceivable. Even the hedge funds do not have that much power. The federal plunge protection team—known as the "men in black" by floor traders—would never allow them to do something so disastrous. This has caused some to speculate that the "men in black" are parties to the bets.

These remarks probably give some indication of the chaos going on right now in the U.S. and world economies. The only real solution is a new world financial system based on the concept of credit as a public utility. This is what should be implemented to replace the present system of institutionalized usury.

 

By Richard C. Cook
http:// www.richardccook.com

Copyright 2007 Richard C. Cook
Richard C. Cook is a former federal government analyst who was one of the key figures in the investigation of the space shuttle Challenger disaster. He is author of the book - Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age is Richard C. Cook's personal story of how he disrupted the cover-ups surrounding the Challenger disaster.

Richard C. Cook Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments


28 Aug 07, 15:20
people will never get it

richard, good article

best points

the press is covering up the amount of trouble the economy is in to prevent a crash in consumer confidence

a plan to allow markets to be crashed by a terrorist event to divert blame. and blame will prob. be placed on syria or poss. iran.

public perception is key and support for wars IS ALWAYS dependent on lies/propoganda see gulf of tonkin, pearl harbor, reichstagg, 9/11

and most people are too ignorant and naive to figure out what' going on when it happens, thus history (that govt's get away with and profit from) repeats and power consolidates toward a NAU, then a chipped cashless society / world gov't. it is a good thing for gov'ts that men don't think


jim wilson
29 Aug 07, 09:17
We need a good economic depression

The U.S. universities have been teaching the wrong economic therories for the past 60 years to stimulate the growth through endless interventions. Now the bubbles are gathering storms. The market pricing collopased, the natural interest rate being replaced by Federal Reserve discount rate or other nonsense rate, disregard the risk. The market machenism is being distorted.

The worst, the intervention created excess consumption worldwide, now the environment is being affected big time. We may see global warming ruin our planet and drive human race to extinction within 1-2 hundred years. What a farce to see the idiots that run our central banking.


David Kendall
30 Aug 07, 01:21
50% Retracement

Sorry if I seem to be developing into a "groupy" of sorts. But I do tend to follow along with your articles, Mr Cook. An interesting observation comes to mind with regard to this one.

Have you ever heard of commodity futures trader, Ken Roberts? In terms of "technical analysis", Mr. Roberts claims that a "50-percent retracement" of the last major move in any distribution of events (particularly commodity prices) is a very likely probability. Assuming he's right, a closer look at the last "major move" in the Dow Jones Industrial might be worthwhile. I don't have the long-term charts, or I'd look for myself.

Meanwhile, the trouble I've always had with Roberts' theory is this: What exactly WAS the last "major move"? What time-period did it span? Six-months? 12-months? 5-years? 10-years? Or 20? In this regard, Roberts and many others have been tracking precious metals (particularly silver) since about 1980, waiting and hoping for the next big windfall for speculators, otherwise known as "economic crisis" for the rest of us.

Moreover, Roberts concurs with you that the next great crisis will most likely come as a result of artificial market manipulation -- just as the last one(s) did. Who'da thunk?


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Catching a Falling Financial Knife