Banks And Government Pumping Up Stock Markets: How Long Can It Last?

The drama being played out in the world today is not, as many people think, the end of the American Empire. Rather, as I see it, it is the life-or-death struggle of the titans of the financial services industry, the old guard players who control Humungous Bank & Broker (HB&B) as well as the politicians of the so-called free world, to maintain their power over capital markets as well as their own positions at the top of the world’s most important decision-making hierarchy. Should these people lose, there will be others move in to take control and America will remain a powerhouse.
http://tinyurl.com/qbcr8k

The end, I feel, is near for the existing powers at HB&B. I sensed it yesterday as I watched a stream of the talking heads who serve HB&B tell the mass audience, rather desperately I thought, that the new Bull market has now begun. Had they made the same statements on Friday, they would have been laughed at. Tout TV would have been turned off by the people, finally.

So what happened in the meantime? India, with a GDP of $1.237 trillion (2008 est.), elected a majority government. Had this been France ($2.978 t), Italy ($2.399 t) or Spain ($1.683 t), or Russia ($1.757 t), Canada ($1.564 t), Brazil ($1.665 t) or Mexico ($1.143 t), would the world have paid much attention?

The problem is that HB&B controls the Western media; they employ fiction for fact; and, after years of being dummied down, the public have succumbed to their nonsense. Worse, HB&B have one objective in mind, and that is to stay in control, regardless of the tactics they employ. If you understand the term moral hazard, then you know the situation has become one of outright fraud of the highest order.

The capital that is being used today to propel the equity market higher is coming not from the personal accounts of those who control HB&B, but from the Assets Under Management (AUM) of Mom and Pop. No, those titans of which I speak removed their capital from the market during the long-term cycle top after their leader Henry Paulson was parachuted into the White House in June of 2006, whereupon strategies like Humungous dividends and share-buybacks were employed.

The fact that your pension funds, mutual funds, hedge funds and sovereign wealth funds made the purchases of stock at the cycle top that the bankers and their families and friends were selling is why their wealth has grown and yours has plummeted. Make no mistake about it. Make no mistake about it. Those people knew the gig was over before the credit squeeze commenced at the end of 2Q2007, a year after Paulson and friends took over the White House. The de-leveraging process has been managed from the get-go. It always is.

Politicians today are in a jam. They are trying to serve two masters - those who elected them and those who opened the doors for their candidacy and then paid for their election campaigns. When it comes to the paths taken in a democracy, let’s just say money talks. HB&B prints the money, and the people who control HB&B are powerful indeed.

But as powerful as they are, they head financial organizations that are still weighed down by worthless assets that require write-downs, which in turn requires more capital injections. The public has reacted angrily to the Paulson-Bernanke programs to bail-out the banks. They expected more banks to fail and they wanted the scoundrels who caused the systemic failure of the international financial system and the crash of equity markets to be arrested and prosecuted for serious crimes. Given the public got short-changed by President Obama, they stand united in refusing to have more taxpayer money be turned over to the bankers.

So, now the matter has come down to HB&B trying to save itself by pumping up equity markets to facilitate share offerings to acquire the needed capital base. The Obama Administration is doing all it can to help. HB&B’s man, Timmy Terrific, has been brought into the White House to clean up the mess left by Paulson. Obama’s speeches are filling the public with hope.

Meanwhile independent traders are not buying it at all. Trading volumes have collapsed. Only the algo-driven computers of HB&B are working away at a process that if you and I were doing it would be called wash trading. Like Martha Stewart, we’d be sent off to jail. But not HB&B; they’ve been given six months or more (probably much more) to get their books in order.
http://www.forbes.com/2007/03/20/ishares-proshares-etfs-pf-etf-in_bc_032…
http://financial-dictionary.thefreedictionary.com/wash+trade

Giving the appearance through higher prices that the markets are getting stronger, helped by self-serving so-called HB&B independent research department ratings upgrades, particularly among the pre-selected banks who are needed in their peer group struggle to survive, and by the succession of incentivized talking heads claiming a new Bull market has begun, the stage has been set for more investment by pension funds, mutual funds, hedge funds and sovereign wealth funds, which will only be a compounded mistake.

The jury is still out as to whether or not the HB&B titans remain in power. Should they con the public into buying the equity market higher, they stand a chance of survival. However, if the major market indexes of the equity market were to stumble and tumble, there will be an outrage from the public that elected politicians will have to respond to.

There is a lot of drama going on today in the market. To the extent it stays real, and does not stay caught up in fiction, I believe share prices are headed south. I believe the cycle bottom process will continue into 4Q2009.

In the immediate future, I believe there will be a final rally in gold and silver, probably starting this week, reaching quickly into the $980-1000 level, silver possibly to $17, and oil to $65, based on a falling $USD, which I think will fall to just under 80 over the next several months. I do not believe the S&P 500 (^GSPC) will rally past 950 or the DJIA (^DJI) past 9100 in this short-term cycle. This final action over the next couple weeks is probably a good time to sell into strength as prices come to you.

I would definitely like to see the changes promised by President Obama, with a whole new system of rules and regulations for financial services and capital markets, but I’m not counting on it. Nor do I care about the drama being played out within HB&B because that’s all politics.

I am however focused on market prices and I have an open mind. If the markets move higher here, which is indicated by the action this morning, I am well positioned with holdings in precious metals producers and a bit of energy (and mostly cash), waiting to lock in profits. I will also be waiting for technical break-downs in other sectors to switch to a short position with put option strategies.

Have a great day.

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