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5 "Tells" that the Stock Markets Are About to Reverse

Obama's Economic Recovery Hits a Snag

Economics / Economic Recovery Aug 23, 2010 - 03:14 AM GMT

By: Mike_Whitney

Economics

Best Financial Markets Analysis ArticleBarack Obama's "Recovery Summer" tour has turned into a public relations disaster.  The whole idea of claiming "mission accomplished" over the recession was wacky from the very beginning. It just shows how out of touch with reality Obama's economics team really is. These guys need to stop pouring over their own rosy projections and get out more. The recovery hasn't reached "escape velocity" as economics czar, Lawrence Summers boasted earlier in the year. That's baloney. The economy is headed for the shi**er and the prospects of a another slump loom larger than ever.


Obama's woefully-undersized $787 fiscal stimulus package (ARRA) may have slowed the rate of decline, but the economy's going to need another trillion-dollar jolt before it shows any sign of life. In the meantime, jobless claims are rising, manufacturing is slowing, housing sales have fallen off a cliff, and GDP is shrinking. That's why the "Recovery Summer" meme has been shelved and Obama has been packed off to Martha's Vineyard with his golf clubs for another photo op. Because the brainiacs at the White House are beginning to grasp how bad things really are. But the damage has been done. Now everyone knows that Obama is out-to-lunch and that his chief advisor is a blowhard who doesn't know how to read the data. The whole P.R. debacle just proves that Obama needs to bust-out of his executive bubbleworld and that Summers needs to be fired.

This is from the New York Times:

   "Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds  in the first seven months of this year, according to the Investment Company Institute,  the mutual fund industry trade group...If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked....

On Friday, Fidelity Investments reported that a record number of people took so-called hardship withdrawals from their retirement accounts in the second quarter. These are early withdrawals intended to pay for needs like medical expenses." ("In Striking Shift, Small Investors Flee Stock Market Graham Bowley, New york Times)

Retail investors are saying "enough" and heading for the exits. The market-flight has gone on for some time, but it's gained momentum since the May 6, "Flash Crash" when the Dow Jones plunged nearly 1,000 in less than an hour. That really put the stampede in motion. A late-day rebound did nothing to allay investor fears or convince traders that the problems had been fixed. The trust is gone.  Investors feel that the new architecture of the markets has fundamentally changed and that innovations like high-frequency trading, dark pools and complex derivatives have stacked the odds against them making it impossible for them to succeed. That's why they continue to leave in droves. They've lost confidence in the markets.

Economist John Maynard Keynes examined the issue of confidence in his masterpiece "The General Theory of Employment, Interest and Money". He said:

    "The state of long-term expectation, upon which our decisions are based, does not solely depend, therefore, on the most probable forecast we can make. It also depends on the confidence with which we make this forecast — on how highly we rate the likelihood of our best forecast turning out quite wrong....The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention."

  Who has confidence in these markets? Who believes that a well-informed investor that has reasonable expectations of future performance can compete with high-speed speculators who get a peak at every trade before the transaction is even consummated? No one. When the system is deregulated to accommodate cheaters, then cheating flourishes. It's as simple as that. That's why confidence is eroding. That's why more money is being stuffed in mattresses than stock funds.

THE CENTRAL BANK: Chief facilitator of fraud

The Fed's task is to perpetuate the fraud for as long as possible. To that end, it has pushed for "regulatory forbearance" so that insolvent, capital-starved banks can conceal their losses from the public. The Fed has transferred $1.7 trillion in toxic securities and non-performing loans from the banks balance sheets onto its own to preserve the illusion that "all is well" and that asset prices will eventually return to precrisis levels. What a joke. Market analyst Max Keiser explains how the Fed's charade effects the US middle class in a recent posting titled, "America: A walking dead zombie country":

   "...The banking system works on the basis of loans used as the collateral for more loans. That means that the origination of all the fractional reserve lending that is going on is just more debt. There are no retail deposit reserves or wholesale deposit reserves, just original issue dollar based junk debt. And when you understand that debt is at the bottom of the pyramid and that there’s no equity at all, or capital as this term is usually understood, then you understand that the banks and the policy makers are continuing a programme at the behest of Wall Street to commit a Financial Holocaust to eliminate the majority in America, which is the middle-class. Wall Street banks with their CDS's, High Frequency Trading and bogus market making are injecting the equivalent of financial Zyklon B into the American and world economy." ("America: A walking dead zombie country", Max Keiser, On The Edge with Max Keiser)

Repeat: "There’s no equity at all." Zero. It's a mug's game run by charlatans in Brooks Brothers suits.

Securitization, derivatives trading, and repo market activity are all based on the same principle, which is, to give the financial giants the ability to generate windfall profits on microscopic morsels capital that have been leveraged into monstrous, hulking debt-balloons. The banking system is not funded on loans derived from deposits, but through the exchange of high-risk securities with shadow banks in the repo market. This is the system that crashed after Lehman Brothers collapsed in September 2008. The Fed and Treasury have committed trillions in public funds to stitch this inherently crisis-prone system back together to preserve the profit-centers of their primary constituents--the big banks and Wall Street. The very system itself is a fraud and a cheat designed to shift wealth from the middle class to under-capitalized financial predators who've wrapped their tentacles around the congress, the media, the courts and the White House.

 Is it any wonder that confidence is at an all-time low?

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

David Dzidzikashvili
28 Sep 10, 13:55
Economic Recovery Summer Party

Some “economic experts” or politicians (wonder where they got their knowledge from…) claim that data (one or two positive economic facts that could be manipulated for political reasons, or as these “experts” call - reliable economic data that supports their views) shows that we are in the phase of economic recovery.

First three facts that come to mind put the aforementioned assumption/hypothesis in question: what data are you talking about when we are amassing massive debt that we have no idea how to pay and the American middle class is in deep trouble, the middle class (backbone of the US economy) is shrinking!

We are still being lied to. Very bad start.

Add to that market fears & instability and then lets start talking what’s recovery, how do we define it and the ultimate question – are we in recovery mode yet?

"The Fed has transferred $1.7 trillion in toxic securities and non-performing loans from the banks balance sheets onto its own..." - Great fact - the FED does not have any resources in dealing with today's economic problems.

"The very system itself is a fraud and a cheat designed to shift wealth from the middle class to under-capitalized financial predators who've wrapped their tentacles around the congress, the media, the courts and the White House."

100% VERY WELL SAID!


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