"The problem with movies and books is they make evil look glamorous, exciting, when it's no such thing. It's boring and it's depressing and it's stupid. Criminals are all after cheap thrills and easy money, and when they get them, all they want is more of the same, over and over. They're shallow, empty, boring people who couldn't give you five minutes of interesting conversation. Maybe some can be monkey-clever, some of the time, but they aren't hardly ever smart."
Dean Koontz
We have not seen much profit taking yet into year end despite a spectacular rally from the market bottom.
Wait for it. This may be a nascent asset bubble being created to offset the coming writedowns in Commercial Real Estate and the bad debt remaining on the books of the banks.
We have given quite a bit of coverage to the somewhat 'thin' veneer of recovery being spun by misleading government econmic statistics in the US.
And we have certainly noted the almost blatant manipulation in many US markets, including stocks and commodities where the banks and hedge funds have been pushing prices around, sometimes with the help of the government, in a disgraceful repudiation of any notion of reform.
Thanks to the Tylers at ZeroHedge we have two very nice charts to present the case that the recent continuation of the US stock market rally is attributable to price manipulation largely in the after hours markets when trading is thin.
After Hours Verus Prime Hours Cumulative Trading Gains from September 2009
After Hours Versus Prime Hours Cumulative Trading Gains from March 2009
And a Ballooning Price-to-Earnings Ratio as a Result
Its pretty much a Ponzi scheme, and not all that well hidden. This is probably why insiders continue to sell in large numbers.
If the US market breaks it will go badly for many average people who do not understand how their government has failed to protect them.
But do not underestimate the power of the Bernanke Fed and its enablers in the central banks to continue printing enormous amounts of unfunded dollars and hiding the effects. This may buoy the US markets for longer than we might think, as it did in 2003 to 2007.
But at some point the payments will come due, value will be revealed, price discovery will assert itself, the US dollar and the bond will fail, and then comes the deluge.
Watch what India and China do with their reserves. They know full well what is coming and unlike the US are seeking to protect their people.
Much is being made of Bernanke's program of quantitative easing, which is nothing more than an extreme form of artificially low rates of interest with direct monetization of debt in the aftermath of a financial crisis.
The current program of quantitative easing is not only no miracle cure, it will not work at all, will not 'fix' the problems that are plaguing the American economy in any substantial manner. It is a misguided subsidy and reinforcement of reckless behaviour, and a corrupt distribution of wealth.
Quantitative easing would only be a cure if the crisis had been caused by an exogenous credit shock, a sudden withdrawal of liquidity due to an event unrelated to the workings of the domestic economy like a war or an act of nature.
But this is clearly not the case. For the cause of the financial crisis was in fact a lengthy period of artificially low interest rates under the chairmanship of Alan Greenspan, which allowed all manner of financial excess and malinvestment and even fraud to fester in the real economy for a protracted period of time until it became embedded, and one might even say a dominant force, in the economy. It warped and distorted the productive economy.
Applying quantitative easing may relieve the symptoms of the credit crisis but it is merely a palliative, not a cure. It is similar to the case of a debilitated addict who, being denied his marcotics, goes into shock and suffers a heart attack. Yes, a 'fix' of the drug of choice will relieve the short term symptoms perhaps, but will do nothing for the underlying state of health which will continue to worsen.
The very low rates of interest have 'cured' the short term credit seizure in the financial markets, thereby providing time and opportunity to engage in genuine systemic reform and rebalancing to repair the distortions that caused the crisis in the first place: an outsized and corrupt financial sector, and a system of global trade that is freakishly imbalanced and manipulated by command economies and multinational corporations. That, and a lapse of western governance overcome by greed.
Until those reforms are made, the US economy will experience a series of bubbles and crises that, through the US dollar reserve currency system, will shake the governments of the world to their foundations.
