Friday, October 8, 2010

This May Be..."As Good As It Gets"

I loved the operative scene in the movie, "As Good As It Gets."

That's the one where Jack Nicholson, a neurotic and obsessive compulsive, steps out of his psychiatrist's office and into the waiting room. There in the waiting room are people waiting to see the shrink. It is as though Nicholson has just realized that he is never going to get well. As he looks around at the room full of mentally ill folks-he tells them this may be, "As good as it gets." He then departs.

A few months back, I wrote a blog about why we can't afford a recovery. We are in the midst of a perfect storm. Any recovery will cause the FED ultimately to raise interest rates. Of the approximately 20 trillion (I do count Fannie and Freddie) we owe, all but 550 billion, must be refinanced within 10 years. Shorter term debt. Therefore we will be in the rather nasty position of having to refinance 19.5 trillion into higher and higher yields at greater interest. At about that same time all of those Social Security obligations are due- thus adding to what must be financed.
The unfortunate demographic problem of the baby boomers.

We can't service that debt load or interest. To top it all off, no country will buy that debt. It is not rocket science, in fact- it is just simple math.

I want to mention two other things. Every thing I say here, I can back up with facts. This is not an opinion piece.

The last thing I want to mention is the stock market. It has no predictive value at this point. It has become a facade of health. A paper tiger. It is the last cookie jar that can be raided. As the FED conducts POMO or permanent open market operations each week, it buys treasuries from banks. Banks then take this money and buy stocks. Think Glass Steagall.

What has happened is that high frequency traders, computer algorithms, banks, and investment funds are all that trade on the exchange. They account for virtually all of the volume. Retail investors are fleeing in droves. So far this year, 75 billion has been withdrawn by small investors. Insiders, generally the officers of public corporations are selling stock at alarming rates. I saw one print put the figure beyond 4000-1. We are talking billions. Last month there were virtually no insider purchases.

You can't even short this market because of the FED's willingness to print money and keep giving it to banks to buy stock with. They have effectively frozen out the shorts out of fear that they will get squeezed. Shorting Apple would be like a swan dive off the Golden Gate.

The economic news is bad and the government continually tries to under report it and massage it. Every figure coming out of the Bureau of Labor Statistics is essentially bullshit.

Here's the good news. Ultimately, I think the FED will eat itself out of existence. The public outcry at future tax rates- an attempt to pay that impossible debt (interest and never principal) will cause drastic changes in America. Sooner or later, the FED is going to get exposed for the fraud that it has become. It will have to go away permanently in order to get our country back.

Until then, don't fall for this market bullshit and false rallies. Re-entry into this market will allow these banks to unload those worthless stocks- into weaker hands. Private investment funds are the last cookie jar. Short selling just enables the algorithms to pile into stocks with large positions to cover. So just stay out. It's a game you can win simply by not participating. Let the banks try to unload equities onto each other. For now, this may be as good as it gets.

1 comment:

Chuck Moon said...

Good piece.
My theory on the rising market is that they are trying to attract "dumb money" back into the stock market to bolster the illusion.
What is ironic is that many people now have a better understanding of how the economy as a whole is operating, and they don't need these so-called "experts" on CNBC and FOX Business to lie to their faces.
I have seen some good reporting out of Bloomberg, however. They seem to be a bit more honest than some of the other mainstream outlets as far as finance reporting goes.