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Does the United States still have a stock market? Not really. In a real market, when there are more sellers than buyers, prices decline. And vice versa of course. That is called "price discovery"; or used to be. Since January of 2010 investors have withdrawn a net total of 81 billion dollars from U.S. stocks and funds, this week marking the 33rd consecutive week of outflows, while stock prices have staged a missile launch upward that started in mid-July. Floyd Norris of the New York Times confirms that outflows have remained at record high levels over the last four years. Some of the funds withdrawn resulted from industry insider selling, and much of that was re-invested in commodities and emerging markets. But a substantial amount, according to Charles Biderman, CEO of Trimtabs, was withdrawn by middle-class Americans to pay monthly bills.
In an unprecedented interview on CNBC, Biderman stated that the Federal Reserve is no longer denying the fact that it has been rigging U.S. markets nor is the Fed making any effort to hide it. An unrelenting and counter-intuitive rally has ensued, with stock prices gapping up at 4:00 AM night after night and never looking back. Even before the Fed initiated its POMO (Permanent Open Market Operations) injections of outright treasury buys in a program euphemistically titled "Quantitative Easing 2" (a.k.a printing money out of thin air) the Fed's daily zero percent loans of taxpayer money to Goldman Sachs and J.P. Morgan were used almost exclusively to buy stocks - and then sell them again within minutes or even seconds. Investment banks use high frequency trading computers (HFTs) programmed to essentially steal money, one penny at a time, from any retail investor foolish enough to believe he could make money by trading or investing in stocks. Their computers, operating at speeds no human with a laptop could match, front-run orders, ensuring a profit on every trade. Wall Street investment banks have the right, unlike everyone else, to trade in increments of 1/1000 of a penny, allowing them to deny order fills by keeping the price 1/1000 of a penny below the bid. It is one of many questionable and even illegal practices engaged in by what the internet bears cartoons refer to as the "the Goldman Sack" and "the JP Morgue". The web cartoons have gone viral, as they say, and served to educate the uninitiated in the grand-theft-stock-market game being run by the Fed and the Wall Street gangs. The website ZeroHedge.com has, over the last year, published several articles by traders who have monitored ongoing price fixing and HFT computer games. Institutional broker, Gene Noser says that HFT trading systems threaten to destroy the entire capital market system. "[They] are unregulated, often under-capitalized, and provide no redeeming social function. As I see it, they exist to extract value from real investors one fraction of a penny at a time, over and over again."
The upshot of all of this is that while the economy has seen virtually no benefit from the Fed's massive liquidity injections, Wall Street's top bankers continue to enjoy annual bonus payments in amounts ranging from 24 to 111 million dollars. Trading records show that "the Sack" and "the Morgue" have earned profits in almost every single trading day in the last three quarters. How can that be? It can be because those two banks are the market makers, setting the prices, and then betting on the very prices they themselves set. Las Vegas casinos are pikers next to these guys, since casino profits are limited by law. Not so for the Wall Street gang. The big money players are not buying common stocks these days in any case. They make private equity deals and trade off-market and off-hours in something known as a "dark pool", a cyberspace location I have always pictured as a black hole in space. As George Carlin famously said, "It's a club, and you ain't in it".
From a technical point of view, traders expected a washout low in stocks last August. It never happened, as that was the moment when "the Ben Bernank" fired up his printing presses and digitally created billions of fictitious US dollars with which to buy stocks and bonds. The last time that a central bank in a western democracy printed money this wantonly was in Wiemar Germany. And most of us know how that ended: hyperinflation that produced the image of a wheelbarrow full of paper money required to buy a loaf of bread. In 2010 America, commodity price rises are showing up in higher grocery bills and gas prices, higher education costs and health-care costs, but so far nothing as dramatic as Zimbabwe's multi-thousand percent inflation. Could it still happen here? It could. There is a lag of 12 to 18 months for liquidity to show up in consumer prices, so we cannot know what prices will look like a year from now. Gold prices have risen steadily throughout the Bernanke liquidity rush, with silver showing parabolic gains over the last six months. Whether those price rises reflect a loss of faith in governments or a fear of inflation, the end result is the same. Our currency is being deliberately devalued, at a time when we are dealing with record job losses and wage depreciation.
For the moment, the dollar is holding up because of Moody's serial downgrades of some European government debt, most recently Portugal's bonds. Euro problems could cause the dollar to rise by default over the next two to three months. But at some point attention will turn back to the Fed's POMO operations, and the dollar could suffer a precipitous decline with little warning.
The POMOs are scheduled to continue with money printing of between one and 19 billion dollars - that is per day - through June of 2011. Where will the U.S. economy be when QE2 ends? It will be where it is now, as the Fed's money printing, while raising the costs of essential food and energy, has had no notable effect on job numbers or salaries. What it does do, with every uptick in the Dow Jones Industrial Average, is increase the wealth of those who are already wealthy.
It’s easy to lose perspective on where the global economy stands – to be confused by the daily deluge of information – so let’s look at the big-picture of where we are today. As an investor it can mean the difference between making and losing a lot of money. So let’s take a look and see where we are at and what events are unfolding - slowly but surely.
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited excerpts from the Bryan Rich’s (http://www.moneyandmarkets.com) original articles for the sake of clarity and brevity to ensure a fast and easy read. Rich goes on to say:
We have endured the sharpest fall in global economic activity since the Great Depression and one of the most threatening financial crises ever and, according to studies by the IMF, recoveries of past recessions with these dualities tend to be longer and slower than normal recoveries — typically around five years until economies sustainably resume trend growth. That means, if you mark the start of the recent crisis as late 2007, we’re less than three years in! Therefore, we should expect more bumps in the road ahead. Furthermore, history also shows us that financial crises are generally followed by sovereign debt crises, which is where we are now.
The 4 Stages of Sovereign Debt Crises:
Stage #1 - Burgeoning Deficits:
In a financial crisis government spending increases dramatically in attempts to stabilize the financial system and stimulate economic activity. Tax revenues fall, fiscal surpluses turn into deficits and economies with existing deficits keep piling it on – and that is just what is unfolding now.
The leading economies of the world have all seen their deficits shoot higher, some to record levels. In fact, the deficit spending that’s gone on in recent years can be summed up as follows: Over 40 percent of world GDP comes from countries that are running deficits in excess of 10 percent.
Stage #2 - Ballooning Debt:
When economies are contracting or even growing slowly, bringing these deficits back down to earth becomes an unenviable challenge. Governments have to make ends meet by turning to the markets. Then those burgeoned deficits turn into growing debt loads – and that is just what is unfolding now.
When debt reaches 80 percent of GDP threshold, the borrowing costs for governments starts ticking higher and so does the market scrutiny. The IMF says five of the top seven developed countries in the world will have debt levels exceeding 100 percent of GDP in the next four years.
Stage #3 - Credit Downgrades:
When deficits and debts rise and economic activity appears unlikely to curtail fiscal problems, the credit worthiness of the government falls under intense scrutiny. That’s when we see downgrades – and that is just what is unfolding now.
Greece’s sovereign debt rating has been downgraded to junk status. Spain has lost its AAA rating and the UK could lose its AAA status if its deficit isn’t addressed. Japan’s outlook has been cut to negative and rating agencies have even warned the U.S.
Stage #4 - Sovereign Debt Defaults:
This is the final and most deadly stage because downgrades only make the vicious cycle of weak economic activity and growing dependence on debt worse. When investors see more risk, they require more return [and, as such,] the borrowing costs for these troubled countries rise. Then it becomes harder to finance spending needs and harder to finance existing debt and that’s when we see defaults – and that is on the verge of unfolding.
When S&P downgraded Greece to junk status, it warned debt holders [that they] should be prepared to receive just 30 cents on the dollar… [in spite of the] $1 trillion rescue package committed by the EU and IMF. [Then there is] Spain, an economy that represents 12 percent of GDP for the euro zone, [which is] rumored to be next in line for a massive funding request.
In sum, a sovereign debt crisis has arrived – the fuel for contagion is fear – and unless governments can demonstrate they’re willing to take tough steps to reign in debt this crisis can spread quickly.
Currenncy Crises Are Likely Next:
History shows us that financial crises tend to be followed by sovereign debt crises – and that sovereign debt crises tend to lead to currency crises, i.e. a loss of confidence in countries’ currencies which is something we’ve seen very clearly in recent months with the euro. A study from MIT on historical currency crises lays their progression out as follows:
The Three Stages of a Currency Crisis:
Stage #1 - Loss of Confidence:
The number one cause of a currency crisis is when investors flee a currency because they expect it to be devalued – and when the euro zone stepped in and threatened to cough up $1 trillion dollars in an attempt to save the euro monetary union, it was a conscious decision to devalue the euro.
Stage #2 - Herding Mentality:
When it’s thought that investors are moving out of a currency, others follow. [A case in point is the euro which] currently is being shorted [moreso than ever before in history] and when the market is heavily positioned one way — and the fundamentals support it and an intentional devaluation appears underway — big institutions have to react. Put simply, they have too much to lose by getting caught the wrong way. As such, for example, Iran’s central bank has announced they will be diversifying euro exposure by trading into gold and U.S. dollars while China and the UK have shown a significant increased interest in owning U.S. dollars as opposed to euros.
Stage #3 - Contagion:
Contagion is a phenomenon in which a currency crisis in one country triggers crisis in other countries with similar weaknesses. A crisis that started in Dubai now confronts Greece, Spain, Portugal … and will likely spread to the UK, Japan and even the U.S.
Conclusion:
The day-to-day ebb and flow of economic data and news can be distracting. That’s why it’s important, especially with all that is going on, to keep the big picture in perspective. History shows us that a global recession when combined with a financial crisis tends to stifle economic activity longer than normal recessions. History also shows us that financial crises tend to lead to sovereign debt crises, which tend to lead to currency crises so, with that in mind, it’s fair to say that a V-shaped economic recovery has always been very unlikely.
We are going to see more shocks to the global economy, more challenges and more investors fleeing risky investments in favor of safe havens. [Got gold?]
Commentary: Investors shouldn't be fooled by another breakout...
By Tomi Kilgore - July 15, 2010, 12:01 a.m. EDT
NEW YORK (MarketWatch) -- Being fooled twice is enough to shame any investor, but how about three, or even four times?
The current rally marks the fourth time since early May that the Dow Jones Industrial Average (DJIA 10,287, -80.22, -0.77%) has bounced more than 5%. Previous bounces have taken the Dow above key resistance levels, and yet subsequent declines have resulted in even lower lows. Essentially, the recent pattern surrounding key technical breakdowns and breakouts suggests the Dow is nearing yet another turning point.
It is easy for bulls to fall into another technical trap, since the Dow has climbed above the 50-day simple moving average, which has acted as resistance since the Dow first fell below it in early May, and is now peeking above a downward sloping line that started at the April 26 high and connects the June 21 high. But rather than embolden bulls, the apparent breakout should actually make them skeptical, especially following a six-session rally.
There have been several false breakdowns and breakouts since the correction started in late April.
The first bounce started after the Dow fell below the 200-day moving average, seen by many as a bull vs. bear market divider, for the first time in 10 months; that bounce ended the day after the Dow closed above the 50-day moving average; the next decline ended after the Dow fell below key support at the February low; another rally ended a few sessions after the Dow had broken above the 200-day moving average and traded above the 50-day in intraday trading.
The Dow started the latest rally right after hitting a new low for the year. The break below the June 8 low of 9,757 confirmed a head-and-shoulders pattern, which is a widely recognized longer-term bearish reversal pattern.
Basically, those reacting to technical breakdowns and breakouts have been fooled many times. And keep in mind that the Dow's last six-session winning streak ended on April 26, the day before the market correction began.
The current rally has extended in anticipation of a strong second-quarter earnings reporting season, or one that isn't as bad as the market seemed to be expecting earlier this month, rather than anything concrete. Economic data out of the U.S. and abroad, as well as the downgrade of Portugal's debt by Moody's Investors Service on Tuesday, indicate some of the conditions that started the market's correction--a slowing global economy and sovereign debt risk--still exist.
Even if strong second-quarter results become a reality, investors have already acted on it. The Dow faces tough resistance at the 10,400 to 10,450 level, which encompasses the 200-day moving average and the 50% retracement of the fall from the April 26 high of 11,258 to the July 5 low of 9,614. The June 21 high of 10,594 shouldn't give way without some good, concrete news on the economy. The Dow was up 175 points at 10,391 in afternoon trading.
For investors to feel safe betting on a breakout, the Dow needs to start the next bounce before it hits a new low. There should be some support at the 9,950 to 10,000 level, while drop below 9,757 would indicate another new low was coming. At least investors can then start expecting another false breakdown, and another 5%+ bounce.
Tomi Kilgore writes Taking Stock, a global column that gives insightful analysis about equity-related topics around the world. This column originally appeared on Dow Jones Newswires.
Stephen Bernard, AP Business Writer, On Tuesday July 13, 2010, 4:53 pm
NEW YORK (AP) -- The stock market got a shot of confidence and adrenaline from the start of second-quarter earnings season.
Investors were enthusiastic Tuesday about better-than-expected profits from aluminum maker Alcoa Inc. and railroad operator CSX Corp. The Dow Jones industrial average rose more than 145 points and the major indexes were up well over 1 percent.
There was more good news from Intel Corp. after the close of trading. The chip maker reported earnings and revenue that beat analysts' expectations, and it also raised its forecast for the year. Its stock shot up more than 5 percent in after-hours trading.
The companies, among the first to report second-quarter earnings, also issued upbeat forecasts for the rest of the year. That was heartening news for investors who have been concerned that the recovery was stalling, or that the economy might even fall back into recession.
"When we go back to earnings and fundamentals, companies are delivering," said Tom Karsten, senior managing partner at Karsten Financial in Fort Worth, Texas.
Alcoa's earnings reports are closely watched because its varied customer base provides a snapshot of a broad range of other industries. It is also a component of the Dow Jones industrial average. CSX also provides insight into economic activity because it ships a wide range of products.
Alcoa said global consumption of aluminum will grow this year by more than it had forecast just three months ago. There have been concerns that the global economic recovery will end as many European nations face mounting government debt problems and high unemployment slows growth in the U.S.
CSX, meanwhile, said it sees its the economy's upward momentum continuing this year.
Intel's results are considered a good gauge of the health of the economy since its sales are driven by consumers and businesses buying computers.
Frank Ingarra, co-portfolio manager of Hennessy Funds in Stamford, Conn., said Alcoa and CSX's results lifted the market because they hit on the two themes that traders are looking for in earnings: revenue growth and optimistic outlooks.
"That's why the earnings were so good," Ingarra said. "You saw that top-line growth and good guidance."
During the recession, companies that made money often did so by cutting costs rather than bringing in sales. So sales growth is a sign that business is indeed picking up.
The Commerce Department reported Tuesday that the U.S. trade deficit increased to its widest level in 18 months as an increase in exports was outpaced by rising imports. A jump in both imports and exports is a sign that the economy is growing.
Earnings will likely continue to dictate trading over the next few weeks as hundreds of companies release results.
According to preliminary calculations, the Dow rose 146.75, or 1.4 percent, to 10,363.02. The Standard & Poor's 500 index rose 16.59, or 1.5 percent, to 1,095.34, while the Nasdaq composite index rose 43.67, or 2 percent, to 2,242.03.
Stocks leap after traders snap up banks, materials shares; Dow gains 275. to top 10,000 again.
Tim Paradis, AP Business Writer, On Wednesday July 7, 2010, 5:54 pm
NEW YORK (AP) -- The Dow Jones industrials climbed back above 10,000 Wednesday after investors had second thoughts about the heavy selling in the stock market during the last two weeks.
Stocks soared and the Dow rose 275 points after a modest gain Tuesday. It was the market's first back-to-back advance since mid-June and the first close above psychological benchmark of 10,000 since June 28. But analysts warn that the buying doesn't mean that investors are more optimistic. They said there wasn't a single catalyst behind the move and that it looked like a case of investors scooping up stocks that had become cheaper after heavy losses. The Dow had fallen 7.3 percent over two weeks.
"It's just more of a reaction to a little bit too much negativity," said Marc Harris, co-head of global research for RBC Capital Markets in New York.
The Dow and broader indexes gained more than 2 percent. Trading volume was light, however, signaling that many skeptical investors were staying out of the market. Interest rates rose as some investors dumped Treasurys in favor of riskier assets like stocks.
Financial stocks rose on an upbeat profit forecast from State Street Corp. The stock gained 9.9 percent. Materials stocks rose after having logged steep drops over worries about the economy. Aluminum producer Alcoa Inc. climbed 3.3 percent, while U.S. Steel rose 5.7 percent
Wednesday's big gain fit into a pattern of volatility that began in late April, when the Dow began tumbling from its 2010 high of 11,205.03. The Dow had fallen 13 percent since then, and the long slide included many triple-digit moves.
The protracted drop began on concerns that debt problems in Greece and other European countries would stifle the continent's recovery and eventually the recovery in the U.S. But in the past few weeks, stocks have been tumbling on signs that the domestic rebound is slowing. Some traders were selling on fears that the country is headed back into recession. They were also buying Treasurys so they could put their money into a safe place.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said that what's called a "double-dip" is unlikely, but the idea of one is scary because the government wouldn't have many options to revive the economy a second time.
"When you're driving around on a spare tire you're on the lookout for nails," he said.
There were no economic reports to influence the market on Wednesday. Traders were getting a series of reports Thursday likely to give some insight into consumers' behavior. The government's weekly report on jobless claims is due out, and retailers will report June sales results. Investors will be looking for any signs that layoffs are slowing, and that consumers are feeling better about spending.
The market's other big concern is upcoming earnings reports. Investors want to know if companies are also seeing business slow, and if they're changing their forecasts for the coming quarters.
Ablin said the forecast from State Street bolstered confidence ahead of earnings for the April-June period. However, Ablin said he didn't expect the bounce to continue because investors are anxious about the hundreds of company reports still to come.
"I don't think any investor wants to commit one way or another with the whole string of earnings announcements" ahead, Ablin said.
The Dow rose 274.66, or 2.8 percent, to 10,018.28. The Dow rose 57 points Tuesday. The index hasn't risen two straight days since June 17-18.
The Standard & Poor's 500 index rose 32.21, or 3.1 percent, to 1,060.27, and the Nasdaq composite index rose 65.59, or 3.1 percent, 2,159.47.
Bond prices fell, driving up interest rates. The yield on the 10-year Treasury note rose to 2.99 percent from 2.94 percent late Tuesday. The yield fell below 3 percent last week for the first time since April 2009. The 10-year yield is used as a benchmark for interest rates on consumer loans and mortgages.
The dollar fell against other major currencies, including the euro.
Crude oil rose $2.09 to $74.07 per barrel on the New York Mercantile Exchange. Gold rose.
State Street rose $3.29, or 9.9 percent, to $36.63. Alcoa advanced 34 cents, or 3.3 percent, to $10.55, while U.S. Steel rose $2.17, or 5.7 percent, to $40.39.
About six stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 5.1 billion shares, compared with 4.7 billion Tuesday.
The Russell 2000 index of smaller companies rose 21.63, or 3.7 percent, to 611.66.
Overseas markets closed higher after sliding in early trading. Investors awaited a Thursday meeting of the European Central Bank. Traders are expecting the bank to keep interest rates unchanged, but will want to get details on the European Union's "stress tests" of bank balance sheets. The notion that the examination could be more rigorous than first thought helped U.S. stocks and drove the euro higher. Similar tests of U.S. banks in May last year helped bolster confidence in the financial system by reassuring investors that big banks likely would survive a deeper slide in the economy.
Britain's FTSE 100 rose 1 percent, Germany's DAX index rose 0.9 percent, and France's CAC-40 climbed 1.8 percent. Japan's Nikkei stock average fell 0.6 percent.
As you can see from this first chart, all major Sectors are DOWN year to date, but the 12 month chart under it still shows all major Sectors are UP...And the third chart down shows that it's been a ROUGH past three months...For the BULLS anyway...The BEARS have been LOVING IT during the 2nd Quarter...
It makes me wonder how the rest of the year will play out...Will the normal seasonality cycle be restored again?...What usually happens is: the market falls during the low volume days of summer, and finally reaches the lows of the year in late October or early November...Then, the Santa Claus Rally begins at about that time and lasts until tax selling time around the end of the year...
This recent downturn in the market hasn't bothered me one bit...As my banner at the top of this blog clearly states:
"I can show you how to make money if the market goes up OR down"...
If you've been following the videos I post here every weekend, my call of the top in April was right on the money, and I warned it was coming at least a month before it happened...Now stay tuned for my next major prediction of when the market is about to BOTTOM again...
By the way...The chart at the bottom of this post is a Year To Date chart of the $SPX, which closed at a new low for the year to close out the second quarter...
Happy Trading in the second half of this year, and Good Luck To ALL!, from the zigzagman
It’s because investors around the world are finally waking up to some shocking realities:
Shock #1 is that these countries are canaries in the coal mine — the first of many that could suffer the wrath of investors fed up with runaway deficits.
Shock #2 is that, in the UK and the US, federal deficits and total debts, as a percent of GDP, are similar to — or even larger than —those of Greece, Spain, Portugal, or Hungary.
Shock #3 is the recurring revelations of official deceptions. Investors suddenly discover that unemployed were counted as employed … that government debts were disguised as capital … that far bigger federal deficits were camouflaged. And it is these revelations that trigger the biggest selling panics, that are the final nail in the coffin for companies and entire countries.
But Shock #4 is the biggest and most dangerous of all — not just random deceptions by a few companies or a few countries, but a global deception in the credit ratings that investors rely on for nearly ALL companies and countries!
With gathering momentum right now, investors are beginning to realize they can’t trust the ratings issued by established agencies like Moody’s, Standard and Poor’s, and Fitch.
But this is not merely bad news for the agencies themselves. It’s also a powerful force that can drive global stock and bond markets into a nosedive.
When companies are downgraded, their share and bond prices automatically fall.
So think about what it means when the grading system itself, encompassing thousands of ratings on trillions of dollars in securities, crumbles!
It implies, in effect, a collective downgrade of nearly ALL the securities in the world — every rated corporate bond, municipal bond, and even government bond in existence!
Needless to say, this transformation is too massive to happen overnight; it will progress in three phases...
Phase 1: Widespread Loss of Confidence in The Leading Rating Agencies...
In the first phase, regulators, analysts, and investors begin to raise serious questions about the validity of ratings:
Is a bond really triple-A? Or is the rating agency just maintaining the high grade because it wants to protect a good client that’s paying fat fees for its ratings?
Beyond triple-As, what about the hundreds of thousands of corporate, municipal, and sovereign bonds that currently boast other “investment grade” ratings? How many are really speculative grade — junk — in disguise?
Right now, Congress is asking these questions daily, attacking the rating agencies and getting ready to take action against them as part of the upcoming regulatory reform.
And the assaults on the rating agencies by independent commentators are even more strident …
In “Answers on Credit Ratings Long Overdue,” Andrew Sorkin of the New York Times puts it this way:
“Raise your hand if you can explain why anyone still believes in credit ratings. … How could century-old institutions like Moody’s Investor Service give their triple-A blessings to subprime junk? … How can we prevent these institutions and their sometimes cockamamie judgments from endangering our financial system again?”
In his testimony before Congress on Wednesday, Warren Buffett (a major shareholder in Moody’s) said the agencies ought to be forgiven for their sins — particularly for giving junk mortgages triple-A ratings.
But that same evening, on a Kudlow Report segment, “The Future of the Credit Rating ‘Cartel‘,” both the CNBC host and commentator said flatly that …
The ratings issued by Moody’s and S&P are “garbage.”
CNBC commentator Don Luskin added:
“Shame, shame, shame on Warren Buffett for saying the rating agencies are to be forgiven. … We’ve got the Obama administration talking about bringing criminal charges against BP. Why don’t we bring criminal charges against the rating agencies …?”
On the same CNBC segment, I was asked for my solution, which I’ll get to in a moment. But first, let me tell you my forecast regarding the next phase …
Phase 2: Massive Investor Selling...
Here’s what I see happening …
* Until and unless the rating agencies abandon their conflicted business model, extreme doubts about credit ratings will spread like wild fire.
* Investors will scramble to reassess the risk in the trillions of dollars of rated securities they own.
* They will decide, independently, what the true ratings should be, effectively issuing their own downgrades on thousands of securities.
* And, they will SELL.
This forecast takes no particular foresight. As illustrated by the recent barrage of attacks on the rating agencies, the global risk reassessment has already begun. And as illustrated by recent sharp price declines — in sovereign bonds, corporate bonds, derivatives, and common stocks — the selling has also already begun.
Phase 3: Capitulation by the Rating Agencies...
My next forecast, however, does require looking further ahead:
The day will come when, due to overwhelming pressure from regulators, investors, and even some debt issuers themselves, the leading rating agencies will have no choice but to cave in.
Moody’s, S&P and Fitch will announce downgrades for hundreds of major debt issuers in one fell swoop. Or they will seek to wipe the slate clean by revamping their rating scales, effectively downgrading nearly ALL of the bonds they rate.
I have no doubt this will happen. The only major uncertainty is: when?
* Will it be before millions of investors each make up their own minds about what every rating should be?
* Or will it be after investors make up their own minds — when there is such a sorry state of confusion and panic that the rating agencies are FORCED to act to restore a semblance of credibility for themselves and the companies they rate?
Either way, we can now see the makings of an all-out selling panic — first in corporate bonds, then in the most vulnerable common stocks. It is the natural outcome of the global downgrading of ratings and rating agencies themselves. It’s coming very soon. And it’s going to hit hard.
Too Late for Easy Solutions...
At Weiss Ratings we don’t take a dime from the companies we rate. We’re not even beholden to the companies for the supplemental data we request. If they choose not to give us the information, we rate them based exclusively on publicly available data.
However, we also believe that no one should tell our competitors what business model to use. Rather, as we proposed to the SEC more than seven years ago — and as we proposed again to Congress last week — the U.S. government must cease blessing these conflicted rating agencies and stop requiring investors to rely on them.
If this solution had been implemented years ago, the rating agencies might have had time to adjust, the mortgage ratings fiasco might never have happened, and the market debacle I am forecasting would be far less likely.
Today, however, it’s too late for moderate or easy solutions. If the government does not act as proposed, the markets will. There really is no choice.
The Next Big Question…
If even a company’s supposedly “investment grade” bonds are suspect, how can anyone trust their shares?
The answer to this question is about to come very soon. So if you haven’t done so already, be sure to batten down the hatches.
Heed “Our Sixth Warning: Dow in Danger!” Move swiftly. Do not procrastinate.
(Reuters) - A big mystery seller of futures contracts during the market meltdown last week was not a hedge fund or a high frequency trader as many have suspected, but money manager Waddell & Reed Financial Inc, according to a document obtained by Reuters.
Waddell sold on May 6 a large order of e-mini contracts during a 20-minute span in which U.S. equity markets plunged, briefly wiping out nearly $1 trillion in market capital, the internal document from CME Group Inc said.
The e-minis are one of the most liquid futures contracts in the world, providing holders exposure to the benchmark Standard & Poors 500 Index. The contracts can act as a directional indicator for the underlying stock index.
Regulators and exchange officials quickly focused on Waddell's sale of 75,000 e-mini contracts, which the document said "superficially appeared to be anomalous activity."
Gary Gensler, chairman of the Commodity Futures Trading Commission, said in congressional testimony on Tuesday that it had found one sale was responsible for about 9 percent of the volume in e-minis during the sell-off in the U.S. markets.
Gensler said there was no suggestion that the trader, who he did not identify, did anything wrong in only entering orders to sell. Gensler said data shows that the trades appeared to be a bona fide hedging strategy.
The CME document shows that during the sell-off and subsequent rally, other active traders in e-minis included Jump Trading, Goldman Sachs, Interactive Brokers, JPMorgan Chase and Citadel Group.
During the 20-minute period, 842,514 contracts in e-minis were traded while Waddell from 2 p.m. to 3 p.m. traded its contracts, CME said. The CME document did not provide a break-out of Waddell's trading during the crucial 20 minutes.
Overland Park, Kansas-based Waddell did not comment. CFTC also declined to comment.
A CME spokesman, who declined to comment on the document, said the Chicago-based futures exchange operator never discusses customer activity.
"We found no evidence of improper trading activity or erroneous trades by CME Globex customers," said CME spokesman Allan Schoenberg.
Waddell's contracts were executed at Barclays Capital and later given up to Morgan Stanley, according to the document.
CME said it spoke to representatives from both banks on May 6 and planned to speak to Waddell representatives the following day. The firm oversaw $74.2 billion in assets as of March 31.
Morgan Stanley told CME that it "did not have concerns regarding the activity," the document said, because Waddell "would typically use equity index futures to hedge macro market risk associated with the substantial long exposure of its clients."
'QUITE A SHOCK TO THE MARKET'
Gensler said the contracts were sold between 2:32 p.m. and 2:51 p.m., the height of the meltdown.
The market for e-minis on May 6 fell more than 5 percent in a little more than 5 minutes starting at 2:40 p.m. -- the height of the crash, the document said. The e-minis began to recover before stock prices turned higher.
An order the size of the Waddell contract would be a big trade to execute on a normal day, said a trader whose firm is active in S&P 500 futures market. About 50,000 contracts are typically traded in an hour, the trader said.
"To get rid of 75,000 contracts, that's a lot of trading even if the market is healthy," the trader said. "But when suddenly the market changes and there's not as many bids there to trade with, 75,000 is going to cause quite a shock to the market."
"That's an enormous position for anybody, whether it's a hedge or whether it's a trade. It's a big position, no doubt about it," the trader said.
(Additional reporting Matthew Goldstein)
(Reporting by Herbert Lash and Jonathan Spicer. Editing by Robert MacMillan)
ARROYO GRANDE, Calif. (MarketWatch) -- Warning: Bears taking over. Time to short Buffett's new "Baby Berkshires," short Goldman, short Moody's and other favorites of Uncle Warren.
Why? Behind the façade, the lovable, good ol' Uncle Warren strumming his cute little ukulele, ostensibly supporting reform, there's a dark force that's part of the toxic Goldman Conspiracy fighting to keep alive everything that's wrong with Wall Street, everything that got us into this mess, everything that will trigger another meltdown that even Uncle Warren says: "I can guarantee it."
Buffett belongs to the past while the news screams of a new world order ... Riots in Greece, more coming when the other PIIGS demand EU bailouts ... conservatives regain Britain ... unregulated BP's greed is spilling millions of gallons of oil destroying Gulf states, confirming Foreign Policy magazine warning of the "End of the Age of Oil" ... the Dow's techno-fear-driven irrational 1,000-point plunge as technicians turn bearish, ending the year-long bull rally ... even Hank Paulson's changing his tune, warning the Financial Crisis Commission that we need stronger reforms than Dobb's Senate bill.
Meanwhile, out there, seemingly oblivious of the gathering storm is an aging Woodstock hippy, good Ol' Uncle Warren strumming away on his ukulele, an over-the-hill rock star basking in the adulation of 40,000 adoring shareholders at their annual meeting in Omaha's Qwest Center ... a scene reminding us of Nero fiddling as Rome burns ... of the string quartet playing on the deck of the sinking Titanic ... of a Shakespearean tragedy with a raging, blind King Lear trapped, in denial of his role in America's collapsing empire.
Yes, folks, Uncle Warren has a bad case of denial. Remember, not too long ago Buffett was calling derivatives "weapons of financial mass destruction." And yet, there he was on stage at his love fest last week defending Wall Street's most toxic companies, trapped in denial, defending the greedy culture that got America into its current mess:
Praising Moody's "business mode," and by inference all rating agencies that blindly rubberstamped Wall Street's toxic debt, setting up the last meltdown
Defending Goldman Sachs bad behavior despite the fraud suit and a possible criminal indictment (while hiding his own conflicts of interest as a big investor in both Moody's and Goldman)
Praising Goldman's CEO Lloyd Blankfein ... by far Wall Street's greediest fat-cat banker who paid himself $68 million of his stockholders profits last year
Defending Goldman with a bizarre argument that Goldman is no more guilty than the other Wall Street banks, a tacit approval of the bad behavior of all Wall Street banks in the Goldman Conspiracy
Worse, ol' Uncle Warren also tried deflecting attention from Wall Street's corrupt business model by blaming government regulators for the meltdown, another example of Uncle Warren's blind denial, ignoring the fact that in the past year Wall Street spent over $400 million on lobbyists and campaign cash to make absolutely certain regulators, Congress and the Obama team all played along with Buffett's songs that guarantee Wall Street controls Washington regulators
Ironically, all this comes from a man who once lectured Congress on "Moral Integrity: I want employees to ask themselves whether they are willing to have any contemplated act appear on the front page of their local paper the next day, read by their spouses, children, and friends ... Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless"
Yes, Buffett's in denial ... just like his banker buddies ... so short Buffett, short Baby Berkshire, short Goldman, short Moody's. Why? They are all "shorting America," piling on debt that's pushed our debt-to-GDP ratio to 92%, past the IMF's 90% danger zone.
Main Street's also in denial ... forget hedger John Paulson's crooked subprime deals that made him and Goldman billions ... forget the hedgers in Michael Lewis' new "The Big Short" ... it's not the hedgers shorting America, it's the bosses inside Wall Street banks, their greedy co-conspirators inside Washington and now Uncle Warren, a nice guy who once thought derivatives were evil "weapons of financial mass destruction," but who's now defending every weapon Wall Street will use to stay in "business as usual," beating Main Street's 95 million investors, a corrupt business model destroying from within.
Wall Street's denial is blinding: Buffett and his merry band can no longer see how blind they are. They just keep strumming the same ol' tunes. Well folks, until they stop shorting America, we'll just keep reminding you of the debt their business model is creating.
So here are my best estimates, mostly from reported resources, of the huge debts Wall Street is dumping on America, the big bubble they're already blowing, driving the global economy headlong into another meltdown that will trigger the Great Depression II. And likely, with all this debt, soon you can bet taxpayers will stage a revolution making Main Street American streets far worse than Athens:
1. Federal government debt ... $14.3 trillion
Federal debt limit doubled since 2005 to $14.3 trillion limit. Bush/Cheney wars pushed U.S. deep into a debt hole. Military kills 54% of budget. Expect 4% deficits through 2020.
2. Treasury and Fed cheap-money policies ... $23.7 trillion
The Fed's shadowy printing presses have created an estimated but unaudited $23.7 trillion in credits, grants, loans and guarantees, backed by taxpayers. Pure profit.
3. Social Security's rising debt ... $40 trillion
Soon we must either cut benefits or raise taxes 40%. Delays worsen solutions. By 2035 Social Security and Medicare will eat up the entire federal budget, other than defense.
4. Medicare's unfunded debt ... $60 trillion
Going broke faster than Social Security. Prescription-drug benefit added an unfunded $8.1 trillion. In 5 years estimates rose from about $35 trillion to over $60 trillion now.
5. Annual health-care costs ... $2.5 trillion
Costs rising faster than inflation. Burden increasingly shifted to employees. Recent Obamacare plan would have cost $90 billion annually, paid to Big Pharma and insurers.
6. Secretive global derivatives trading ... $604 trillion
Wall Street resists all regulation of their gambling casino that leverages the combined $50 trillion GDP of all nations by a 12:1 ratio. Warning: Less than 2% of Wall Street's derivative bets triggered the last meltdown. Buffett "guarantees" it will happen again.
7. Population growth of 50% vs. Peak Oil demands ... $30 trillion
United Nations says global population is increasing from 6 billion to 9 billion by 2050. China and India need 500 new cities each. Billions more humans want autos, using up limited resources, shifting more costs to America, as commodity price increases and new resource wars.
8. U.S. dollar losing as reserve currency ... $20 trillion
As China's economy rockets past America's, the dollar will be replaced as the chief foreign reserves. The shift will devalue the relative worth of all America's assets.
9. Global real estate losses ... $15 trillion
Commercial real estate is bloating 25% of U.S. bank balance sheets. Dubai Tower, world's tallest, is empty. China collapse will upstage, further depress America's market.
10. Foreign trade and ownership ... $5 trillion
Foreigners own more than $2.5 trillion of America. China holds over $1 trillion Treasury debt. $40 billion new deficits added monthly. Total climbing at $400 billion annually.
11. State and local budget and pension shortfalls ... $3.5 trillion
Shortfalls of $110 billion in 2010, $178 billion in 2011. On top of more than $450 billion in annual shortfalls in local government employee pension funds. L.A.'s near bankruptcy.
12. Corporate pensions plus 401(k) plans ... $3.2 trillion
Only 30% of Americans have enough to retire. There's $2.7 trillion in 401(k) plans. And 92% of corporate pension plans are underfunded, with defaults guaranteed by taxpayers.
13. Consumer card debt ... $2.5 trillion
Americans are still living beyond their means. Even with a downturn, consumer debt rose from about $2.3 trillion to $2.5 trillion. Fat Cat Bankers love it, yes, love making matters worse by gouging cardholders and mortgagees, blocking help in foreclosures and bankruptcies.
14. Lobbyists annual costs ... $1.4 trillion
Wall Street bankers, Corporate CEOs and Forbes 400 Richest spend billions to influence elected officials, regulators and bureaucrats with lobbyists and campaign donations to exercise power over government. Voters are easily manipulated, but it takes lots of cash.
The total of all 14 categories of debt is a mind-blowing $825 trillion that includes "apples and oranges," jet fighters, derivatives and insurance fees, credit cards, autos and mortgages. There are more, and of course these are just estimates. Given the lack of transparency on Wall Street and in Washington, our debt is likely over $1,000 trillion.
What must you do? Wake up, drop your denial, get active, demand guys like Uncle Warren, his fat-cat buddies and Obama's team snap out of their denial, fight a return to the old greedy, toxic, destructive culture ... demand that your elected reps in Washington pass 1930's-style financial reforms ... or America will soon trigger a bigger meltdown, a new Great Depression II and no longer be the world's leading superpower.
Here is the end of the week Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...
This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman's only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman's Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It's an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed without limits. – UK Guardian/Matt Taibbi
Dominant Social Theme: Goldman bad. Very bad.
Free-Market Analysis: We always have to start these articles off with the requisite nod to the fierce Gods of Ancient (and Modern) Days. So let's get it out of the way. Here goes ... Goldman is a horrible, smug, abusive institution with obvious ties to the power elite. It may indeed be the heart of darkness on Wall Street, the instrument through which the elite maneuvers as it plies its mercantalistic trade.
But the key word here is mercantilism. More than almost any other firm, Goldman sits at the intersection between government and private industry in America. That's how it makes its money. By using and abusing the laws of the land to line its own pockets. However, apparently, that is not a conversation that Americans can have anymore. Thomas Jefferson would have it – and often did have it both privately and in the presence of others.
American Founding Fathers generally understood (maybe with the exception of Alexander Hamilton) that the best government is the government that governs least. Matt Taibbi, who is a very talented journalist and writer, seems only to understand that government should act as a "boot stamping on the face of Goldman Sachs – forever." (Apologies to George Orwell.) This article appeared in the UK Guardian late April, but given all that is happening on Wall Street these days (and Taibbi's general relevance), an analysis seems fairly timely to us.
One of the problems from our point of view is that even if one grants that government can find the right face to stamp, there is no guarantee that ten years from now government will not be stamping on YOUR face. You may derive a great deal of satisfaction from using the regulatory levers of government to pry triumphant justice – dripping with gore – from the chest cavity of Goldman Sachs, but maybe (just maybe) you are fooling yourself or setting yourself, your family and your country up for an abusive situation. Here's some more from this brilliantly polemical piece:
Will Goldman Sachs prove greed is God? ... The investment bank's cult of self-interest is on trial against the whole idea of civilisation – the collective decision by all of us not to screw each other over even if we can ... So, the world's greatest and smuggest investment bank, has been sued for fraud by the American Securities and Exchange Commission. Legally, the case hangs on a technicality. Morally, however, the Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s – and in the years since has aped other horrifying American trends such as boybands and reality shows in spreading across the western world like a venereal disease.
When Britain and other countries were engulfed in the flood of defaults and derivative losses that emerged from the collapse of the American housing bubble two years ago, few people understood that the crash had its roots in the lunatic greed-centered objectivist religion, fostered back in the 50s and 60s by ponderous emigre novelist Ayn Rand ... Here in the States, her ideas are roundly worshipped even by people who've never read her books or even heard of her. The rightwing "Tea Party" movement is just one example of an entire demographic that has been inspired to mass protest by Rand without even knowing it.
Last summer I wrote a brutally negative article about Goldman Sachs for Rolling Stone magazine (I called the bank a "great vampire squid wrapped around the face of humanity") that unexpectedly sparked a heated national debate. On one side of the debate were people like me, who believed that Goldman is little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams.
On the other side of the debate were the people who argued Goldman wasn't guilty of anything except being "too smart" and really, really good at making money. This side of the argument was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealised heroes, the saviours of society.
In the Randian ethos, called objectivism, the only real morality is self-interest, and society is divided into groups who are efficiently self-interested (ie. the rich) and the "parasites" and "moochers" who wish to take their earnings through taxes, which are an unjust use of force in Randian politics. Rand believed government had virtually no natural role in society. She conceded that police were necessary, but was such a fervent believer in laissez-faire capitalism she refused to accept any need for economic regulation – which is a fancy way of saying we only need law enforcement for unsophisticated criminals. Rand's fingerprints are all over the recent Goldman story.
For us, Matt Taibbi (despite his polemics) ends up in such articles being an apologist for the system as it is. He apparently supports the SEC prosecution of Goldman Sachs for various civil crimes as part of what he perceives as elemental fairness. But does Taibbi know what the SEC really is? Has he studied it? Does he understand that Wall Streeters smirk that the SEC is part and parcel of a larger "regulatory capture" by the Street and that many of the SEC's ambitious staffers dream of going to work on Wall Street for fat paychecks. The insanely elaborate regulatory system in America NEVER does what it is supposed to. It is not only dysfunctional but actually organized so as to raise barriers of entry to the securities business. The ONLY thing that SEC prosecution of Goldman will really end up doing is raising more barriers, which will further empower Wall Street's largest banks.
And how can someone as bright as Taibbi not understand that Wall Street itself is a creature of central banking. Without central banks money flows and economic euphorias brought on by the over-printing of money, Wall Street would likely not exist as such an attractive money magnet. Add in regulation, beginning in the 1930s after the great depression, and you have monstrous mish-mash that empowers the powerful, concentrates capital in certain investment entities and generally works to strip Americans of their wealth and hopes once every business cycle (every 10-20 years). The regulatory structure of America, when combined with mercantilist central banking itself, is the prime facilitator of this horrid system.
Taibbi might have a point about Rand if it weren't for the central banking and regulatory structure that surrounds Wall Street and empowers it. Wall Street is actually as far from Rand's idea of independent, laissez-faire self interest as it could possibly be. Every part of Goldman's business is based to one degree or another on federal laws and regulations. We would bet at this point in the history of US "free-markets" that you could not find a SINGLE transaction in which Goldman participates in that does not have some sort of regulatory color.
Taibbi is just like Simon Johnson in our book (see other article, this issue of the Bell) – blasting Wall Street and Goldman in particular without any regard to the larger frame of reference in which Goldman functions. Such analysis at this point in time is beyond naïve in our opinion. It verges on the manipulative. Does Taibbi really believe that the US government retains some sort of collective moral purity that is absent on Wall Street? No, Washington DC and Goldman Sachs are two sides of the same coin.
Because the mainstream media is the way it is, if there is a legal battle between Goldman and the SEC, the mainstream media shall probably partake of some of the positioning that Taibbi has already presented. The young lawyers at the SEC (yearning to work on Wall Street) will be presented as warriors for the aggrieved middle class and the young traders and bankers at Goldman shall be presented as Godless, greedy sociopaths.
Conclusion: Go on YouTube these days and watch videos of American civil and military authorities busting down doors and shooting family mutts while in search of dollar bags of marijuana, or throwing Canadian tourists in jail for not being polite enough when crossing the border, or tasering fans running across baseball fields. Read about the debates in the American congress over additional taxes for Americans and how the IRS is going to be equipped with shotguns, apparently to help with collections. Read about how Homeland Security is targeting American military veterans as potential terrorists, and those who participate in Tea Party protests, too. Go online and try to understand the ramifications and results of America's serial wars in the Mideast – the radiation poisoning from depleted-uranium weapons and the endless civilian killings. We understand that Goldman is a "great vampire squid" but what has the US government become? Taibbi defines civilization as "a collective decision by all of us not to screw each other over even when we can." What mirror is he looking in?
America stays afloat selling billions of American dollars and Treasuries to our Chinese sugar daddy to keep our faltering consumer economy alive.
On May 1, China popped the cork on Expo 2010 in Shanghai, a months-long international celebration signifying the ascension of the city, and thereby its parent nation, as a global economic and cultural powerhouse. Meanwhile, in the United States, China's economic and cultural power has come under mounting fire.
Short-happy hedge funder Jim Chanos, who prophesied the fall of Enron, argued in April that the country's heated property market was on a "treadmill to hell." Foreign Policy followed suit by more or less blaming China's alleged currency manipulation, rather than America's own corporate and economic malfeasance, for exporting unemployment to the United States. Even our President Barack Obama jumped on the dogpile, expressing concern that China has not moved its currency to a "more market-oriented exchange rate," during an April meeting with Chinese President Hu Jintao in Washington. His administration stopped short, however, of releasing an April 15 report to Congress expressing this disapproval in concrete terms, choosing instead to trot out the disgraced deregulationist Larry Summers to soothe the Chinese that such matters will be taken up at future gatherings.
For its part, China has responded to the finger-pointing by the United States with its own middle digit.
"We oppose the practice of finger-pointing among countries or strong-arm measures to force other countries to appreciate currencies," Chinese Premier Wen Jiabao said in March, before restating his well-publicized 2009 worries that U.S. Treasuries are in trouble. "In the press conference last year, I said I was a bit concerned about it. This year, I make the same remark. I am still concerned. I hope the U.S. will take concrete measures to assure its investors."
Good luck with that, China. From resilient wage and unemployment stagnation to revelations of investment banks like Goldman Sachs selling "shitty" bundles of toxic mortgages to national and international suckers with one hand while clandestinely shorting them with the other, the United States is in no position to assure investors of anything. Which is why they've taken lately to crowing about China, rather than settling their own business at home. That business includes, of course, selling billions of American dollars and Treasuries to our Chinese sugar daddy to keep our faltering consumer economy alive.
"China holds about $820 billion U.S. dollars, and about $480 billion is in U.S. Treasuries," Stefan Halper, senior fellow at the Cambridge Centre of International Studies and author of the new book The Beijing Consensus, told AlterNet by phone. "China would not take steps to decrease the value of the dollar, because that would decrease the value of its own holdings. China doesn't want to bring the dollar down or the U.S. economy down, but it is benefiting from American consumers, who buy its exports. which represents about 60 percent of its economy per year."
Halper is firmly in the camp of those who are tagging China as a currency manipulator. In The Beijing Consensus, he argues that the rising 21st century superpower is suppressing the yuan, exporting unemployment and even standing in the way of America's lagging recovery from the global recession. In the process, Halper writes, China is also exporting its overall philosophy of economics and governance at the expense, pardon the pun, of our own.
"Beyond everything else that China sells to the world, it functions as the world's largest billboard for the new alternative of 'going capitalist and staying autocratic,'" Halper explains in The Beijing Consensus. "Beijing has provided the world's most compelling, high-speed demonstration of how to liberalize economically without surrendering to liberal politics."
Of course, he admitted, China couldn't have done it alone. America was more than happy, drunk on deregulation and war, to dig its own grave.
"The disastrous involvement in Iraq and Afghanistan have just depreciated the American story and the American example," Halper told AlterNet. "You can look at the Pew data: There has been rising disapproval of the U.S. since Bush put us into those two wars. Plus, the Washington Consensus proved not to be a good form of Third World development, which opened the door to Chinese offers of low-interest loans and non-interference. So yeah, we've done things poorly. We've had a recession, and an inability to regulate our markets. We're certainly not perfect."
That's probably the understatement of the new millennium. Viewed through that prism, the argument that our preeminent funder is somehow partially responsible for our own extensive economic troubles is disingenuous, even if esteemed economists like Paul Krugman have been sipping the blame-China Kool-Aid. What's gets lost in the financial wonkery -- or wankery, if you will -- is the fact that, through our own corruption and greed, we have willingly pushed nations into the arms of China rather than earn their trust. Through the misguided Washington Consensus, we and others tried and succeeded at establishing a rapacious list of interventionist measures -- concretized as "stabilize, privatize, and liberalize" by Harvard professor of international political economy Dani Rodrik -- since the 1990s that has ultimately culminated in our current lunacy. To argue at this late stage of the game that China is partially to blame for this is playing the kind of crappy defense that loses championships in pro sports. It shows, above all, that we have no game.
"China will make decisions in its own interests, just as the U.S. does," Rachel Ziemba, senior analyst for China and oil-exploring countries at Roubini Global Economics, told AlterNet. "It's actually in China's interest in the mid-term to have a more flexible exchange rate as it increases their monetary policy autonomy and could boost domestic purchasing power, helping domestic consumption. It also could help control domestic inflation. But domestic dictates, not U.S. pressure, will determine Chinese policy moves in this area. Chinese authorities are balancing different economic pressures, and an appreciation of the currency would increase the price of Chinese exports."
Like Halper, Krugman and more, Ziemba thinks that China is indeed a currency manipulator. "The pace of foreign-exchange reserve accumulation implies that the Chinese central bank is intervening heavily in the foreign-exchange market, implying that, yes, it is manipulating its currency."
In that, it's not very different than anyone else playing the currency game, including the United States. Except that it's deftly playing the pegging game -- to the dollar, then to a managed float in 2005, then back again to the dollar during the crisis -- for the benefit of its nation, rather than a select few banks, funds and other entities. It's in it to win it. For everyone, depending on who you ask.
"The bulk of China's foreign exchange reserves are recycled into dollar-based assets, which helps fund the massive U.S. savings shortfall," Morgan Stanley Asia's Stephen Roach wrote in a Council on Foreign Relations roundup called "Is China a Currency Manipulator?" "Who might deficit-prone Washington turn to if it shuts off the Chinese funding spigot? At a minimum, reduced buying by America's largest foreign lender would spell sharp downward pressures on the dollar and/or higher long-term U.S. interest rates -- developments that could well trigger the dreaded double dip in the U.S. economy."
In other words, China is keeping its eye on the prize -- its own economic and political survival -- while the rest of the world, from the United States to the European Union treads water. And why not? A modest accounting argues that China's economy expanded at over 10 percent in the first quarter of 2010. Meanwhile, U.S. real gross domestic product probably grew around 3 percent in the same period.
"We believe consumer spending is being buoyed by a variety factors that will not be maintained over the long term," Ethan Harris, chief North American economist for Merrill Lynch, told MarketWatch in late April. "Even with the recovery in net worth, households have essentially lost 15 years of saving."
"Many countries have imbalanced economic systems," Ziemba told AlterNet. "China's economy has low external debt, which is a big plus, but the contingent liabilities of the government have increased as bank loans have increased. Yet with deposits having climbed as much as loans, China's banking system is well capitalized."
In the final analysis, complaints about China's financial practices should be properly contextualized, especially when those lodging the complaints have done more to disrupt global financial practices than anyone else. Perhaps when those complainers have settled their own accounts -- with vampire squids like Goldman Sachs and JP Morgan Chase, or the print-happy Federal Reserve Bank, or the Supreme Court that recently ruled that corporations possess the same rights as people -- then their whining about China's currency manipulation should be taken a bit more seriously. But not sooner.
"To the question of American excess and inability to regulate our financial markets, you're right," agreed Halper. "We have fallen down on that, and the Chinese have taken the opportunity to extol their model. But you've got compare China over time. What you see is two things: A rising middle class with a strong commercial material culture, and a highly repressive iron hand on the part of the central government. And that really is the most fascinating thing we see today. It's not classical communism. It's in business to perpetuate its own power, and we have to come to grips with it."
Sure, no problem. But only after we come to grips with the business of perpetuating our own power first. Change begins, after all, at home.
Every so often a philosophical dilemma becomes real. So it is today. For two thousand years, the message of Christ Jesus influenced and informed the West, if not in deed, then in word. Today, that is no longer so. Today, godless capitalism is threatening to supplant the two millennia reign of Christ's message of brotherly love - if not in word, then, certainly, in deed.
In times of great change, art reflects social and philosophical undercurrents. The movie, Avatar, is an example of this phenomenon as was the movie, Wall Street, in 1987. Gordon Gekko, Oliver Stone's protagonist in Wall Street probably didn't read much; but, if he did, a book such as A Utopia of Greed: Ayn Rand's Moral Defense of Capitalism could have been on his reading list.
One of Gordon Gekko's more memorable lines is Greed, for want of a better word, is good. Greed is good is also one of Ayn Rand's fundamental beliefs; and, if Karl Marx is the father of godless communism, Ayn Rand, America's premier doyenne of selfishness, is the patron saint of its antagonist, godless capitalism.
Alisa Rosenbaum was born in Russia in 1905 where she would later change her name to Ayn Rand. In her youth, she would become an atheist, a belief she would hold for the rest of her life. No other self-proclaimed atheist would achieve such a large following - except perhaps Karl Marx; additionally, no other writer would be as responsible for giving philosophical cover to the selfishness and greed that would later characterize American-style "laissez-faire" capitalism.
Ayn Rand saw selfishness and greed as virtues; and, to their later disgrace, so, too, did many others.
Ba'al: the Golden Calf of Capitalism Grows Up:
When Ayn Rand died in 1982, a six foot floral wreath in the shape of a US dollar was laid by her casket; a symbol that was to be ironically appropriate as Ayn Rand's death would precede the demise of the US dollar by only a few short decades.
Nothing exemplified the effect that Ayn Rand's philosophy would have on America as much as the movie, Wall Street. Released in 1987, it reflected the values that would be responsible for America's moral decline over the next 30 years. This 45 second clip from Wall Street is chillingly revelatory:
In September 2010, Oliver Stone's sequel to Wall Street, Money Never Sleeps, is scheduled for release with an older but still unrepentant Gordon Gekko. After the 1980s, greed did not go away in America - it flourished.
AYN RAND, GOLDMAN SACHS & GOD:
Nowhere was Ayn Rand's influence felt more than on Wall Street. The selfishness and greed that Ayn Rand exalted found a natural home among Wall Street banks, especially Goldman Sachs where Senior Partner Gus Levy succinctly summed up Goldman's strategy as long term greed. It was a mission statement Ayn Rand could be proud of.
It is incorrect, however, to attribute Wall Street's greed solely to Ayn Rand. Greed and selfishness existed long before she posited the two vices as virtues, just as free markets existed long before capitalism was illegitimately birthed in a manger of paper money at the Bank of England in 1694.
Ayn Rand's writings are nonetheless responsible for giving greed and selfishness the sheen of respectability they previously lacked, especially among the bespoke jackals that serve our currencies back to us in the form of loans.
In defense of today's bankers, Goldman Sachs CEO Lloyd Blankfein recently stated, We are doing God's work; and, so, they are, if capitalism's culling of the trusting, vulnerable and less fortunate is included in Blankfein's novel definition of God's calling.
[I] managed to sell a few [worthless] abacusbonds to widows and orphans that I ran into at the airport.. not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient. email, 6/13/2007, Fabrice Tourre, vice-president Goldman Sachs
If it is God for whom Blankfein toils - at enormous compensation, i.e. $68 million in 2007 - it is not the God of the New Testament where Christ Jesus admonishes us to be our brother's keeper. It is the Hindu God, Shiva, the destroyer and transformer for whom Blankfein puts in overtime; and in that capacity he has done yeoman's work for which he is to be congratulated.
Goldman Sachs, more than any other bank, under Blankfein's leadership has played a central role in destroying capitalism, i.e. economies based on bankers' debt-basedcapital, a parasitoidal system bankers designed to indebt productivity and commerce for profit until society collapses.
PAPER MONEY - GOLD = PAPER
SHIVA'S DANCE OF CAPITAL DESTRUCTION:
While Lloyd Blankfein's contribution to capitalism's demise should not be minimized, capitalism's current problems actually began in 1971 when gold, one of the four essential ingredients in the bankers' brew of debt-based money, was eliminated from the classic formula that had served bankers and governments so well for so long.
Capitalism's recipe insures government's infinite growth as government access to central bank credit is unlimited and bankers will profit from loaning paper money into perpetuity.
When gold was removed from paper money in 1971, this simple yet powerful recipe for capitalism's success was fundamentally altered and so, too, would be capitalism. It would only be a matter of time until capitalism sans gold would falter.
Lloyd Blankfein, Robert Rubin, Lawrence Summers and Alan Greenspan et. al., individually and collectively, would only hasten the process. Lord Shiva's dance of capital destruction was already underway; because without gold, the illusion of paper money as money is only an illusion. Without gold, paper currencies are only coupons with expiration dates written in invisible ink.
To call capitalism a monetary system is a misnomer. It's a financial shakedown, a scheme whereby bankers profit by inserting debt into every aspect of human activity. Eventually, everyone becomes indebted beyond their capacity to repay and the system collapses.
The bankers' indebting of others eventually will end in their own demise, with governments, businesses, and consumers drowning in debt and banks insolvent. Capitalism is an economic parasitoid, a parasitic system where parasite and host both expire.
A parasitoid is an organism that spends a significant portion of its life history attached to or within a single host organism, which it ultimately kills (and often consumes) in the process. Thus they are similar to typical parasites except in the certain fate of the host. http://en.wikipedia.org/wiki/Parasitoid
As with all life-forms, parasitoids will do everything to insure their survival while blind to the fact it is their actions that will destroy them. Until its self-inflicted end, capitalism will struggle to survive and expand - and a part of that struggle is the bankers' war on gold.
THE WAR ON GOLD:
The IMF.. explicitly states in its Articles of Agreement that member countries are prohibited from tying their currencies to gold.
Gold Wars, Ferdinand Lips, The Foundation for the Advancement of Monetary Education, New York
In 2001, Ferdinand Lips published Gold Wars, his book that describes the bankers' ongoing war on gold. That Lips, a Swiss banker, would write such a book is to our benefit as the Swiss have a unique, historical, and deep respect for the monetary metal.
Curiously, Lips had earlier been an agent for the infamous Rothschild banking family. In 1968 he was co-founder and Managing Director of Rothschild Bank AG Zurich. As such, Lips had an insight into the world of gold that few had and some believe it would later cost him his life.
One story in Gold Wars is of particular interest as it involves John Exter, the extraordinary central banker (formerly vice-president in charge of international banking and gold and silver operations at the New York Federal Reserve), and Paul Volcker, later Fed chairman and erroneously believed by many to be a hero.
Exter's story shows Volcker in entirely different light, not as a hero but as the one responsible for the removal of gold from the monetary system. Volcker, according to Exter, played a central role in the decision to do so.
In Gold Wars (pp.76-77) John Exter tells Ferdinand Lips how the decision to demonetize gold was made: On August 10, 1971, a group of bankers, economists and monetary experts held an informal meeting... to discuss the monetary crisis. Around 3 o'clock in the afternoon, a big car rolled up with Paul Volcker in it. He was then Under-secretary of the Treasury for Monetary Affairs.
We discussed various possible solutions. As you would expect, I was for tight money - raising interest rates - but that was overwhelmingly rejected... As for raising the gold price, as I suggested, Volcker said it made sense, but he didn't think he could get it through Congress.
At one point, Volcker turned to me and asked what I would do. I told him that since he wouldn't raise interest rates and wouldn't raise the price of gold, he only had one option... he'd have to close the Gold Window... Five days later Nixon closed the Gold Window.
The final link between the dollar and gold was broken. The dollar became nothing more than a fiat currency and the Fed [and especially the banks] were then free to continue monetary expansion at will. The result... was a massive explosion of debt.
Paul Volcker, then, is the one who eliminated gold from capitalism's 300 year-old recipe for power and wealth. Karl Marx was right when he predicted that capitalism would destroy itself. We just didn't know it would be Paul Volcker who would pull the plug.
THE SLEDGEHAMMER THAT BROKE THE CAMEL'S BACK:
The explosion of debt allowed by Volcker's removal of gold in 1971 has now reached extraordinary levels. In 1971, US debt was $436 billion. Today, US government obligations exceed one hundred trillion dollars. Tethering the dollar to gold was the one constraint on US spending. Volcker eliminated that constraint thus enabling the US to indebt itself ad infinitum - and it did.
Debt, the inevitable effluvia of credit, is Shiva's final shiv in capitalism's back. But it is not the indebtedness of those the bankers indebted that are now causing capitalism's final paroxysms. It's the debts of the banker's themselves.
When US banking and financial interests repealed the Glass-Steagall Act, it reopened the doors to another depression, doors that had been sealed since the 1930s. Prior to its repeal in 1999, Congressman John Dingall (D-Mich) whose father helped write Glass-Steagall in 1933 warned:
What we are creating now is a group of institutions which are too big to fail... Taxpayers are going to be called upon to cure the failures we are creating tonight, and it is going to cost a lot of money, and it is coming.
Congressman Dingall's warnings were ignored by both republicans and democrats. The republican-sponsored bill to repeal Glass-Steagall was passed overwhelmingly in the House by both parties (362-57) and in the Senate (90-8) effectively enslaving America's future generations, gratis of a $300 million lobbying effort by banks and insurance companies.
The beauty of paper money is that it buys real power
Once again, both republicans and democrats sold out the nation's future and allowed banks to bet the savings of America, this time with obscene leverage of 40:1 and more. Not surprisingly when the banks bet the house and lost, the house collapsed.
Politicians can't be bought. They can only be leased.
When bankers couldn't cover their losses, governments came to their rescue and indemnified them with taxpayer money. But the trillions of dollars spent to rescue banks and restart capitalism's broken engine is not being levied on the banks. It's being levied on those who saved them. The current upsurge in sovereign debt is the cost of the bankers' crisis subsumed into national ledgers.
Recently, President Barack Obama went to Wall Street to ask for help in reforming the financial system. Asking Wall Street's help with financial reform is akin to Neville Chamberlain asking Hitler to assist in redrawing Europe's borders. The current effort is designed not to fix the system, but to continue it.
Avarice is never appeased. Greed is never satisfied and the fires that Ayn Rand inflamed will not subside until the house that fanned them and gave them shelter burns to the ground. The bankers have come too far to go back. There is only the road ahead - and it's a cliff.
SHIVA'S COMING MAKEOVER:
I end my articles with the words: buy gold, buy silver, have faith. Of the three, I believe faith to be the most important, the most valuable and the least understood. A strong and unwavering belief in an intellectual construct is not faith, though many believe it to be.
Faith is a knowing that we are one with our Source, despite all appearances to the contrary. Finding faith in a tautological matrix that creates its own reflection is not easy. Faith exists despite the world of appearances; despite maya; despite - and not because of - human ignorance.
In March 2007, I delivered my paper predicting a severe economic collapse to Marshall Thurber's Positive Deviant Network (the PDN) and the reaction was disbelief and anger except for the very few already invested in gold.
In 2008, one year later, after $6 trillion of worth had been stripped from global markets, the Positive Deviant Network was more predisposed to hear what I had to say. That February, I gave a talk to the PDN on what I believed to be the real reasons for the crisis. My talk, America at the Crossroads, can now be viewed on YouTube in four parts: http://www.youtube.com/watch?v=4xjKnATlxMY
At its birth, America embodied the highest hopes of mankind but is now a tragic caricature of those great ideals. As it enters the 21st century, America finds itself bankrupt morally as well as financially. Its ideals stood the test of time but America did not.
Two hundred years ago, Thomas Jefferson warned America about the dangers of private bankers and standing, i.e. permanent, armies. Fifty years ago, President Eisenhower warned America about the dangers posed by the emerging military-industrial complex; and ten years ago, Congressman Dingall warned America about the danger of repealing Glass-Steagall.
America was warned and America didn't listen. Now, the price must be paid. Shiva's dance of destruction and transformation is underway. The destruction comes first, the transformation comes next - but only if America first changes its ways.
It's coming to America first,
the cradle of the best and of the worst.
It's here they got the range
and the machinery for change
and it's here they got the spiritual thirst.
It's here the family's broken
and it's here the lonely say
that the heart has got to open
in a fundamental way
Democracy is coming... to the USA
--Leonard Cohen, 1984
Leonard Cohen's simply-stated truth - that the heart has got to open in a fundamental way - is the crucial prerequisite for America's transformation. During America's drive for self-aggrandizement, world dominion, corporate profits and billion-dollar bonuses, America lost its way - and lost touch with its heart in the process.
America is at a crossroads. It has already chosen. It'd best do so again.
What's the difference between a pendulum and a wrecking ball?
Sometimes nothing.
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