Sunday, August 8, 2010
The Unshakable Faith in Magic Market Wizards
I see what I think is the same faulty herd mentality developing in financial markets that hammered investors in 2007-2008. This is the belief that infallible bankstaz and bureaucrats can create price levitation in any and all asset classes at will. Not only that, but the success rate of these manipulative, magical wizards is so high that you shouldn't "fight the fed" to use one oft-quoted phrase.
Yes, there is market manipulation. Yes, it occurs in every market. Wall Street has never presented a fair game to retail investors since its inception. Nobody said the game was easy. If you don't want to play, buy physical Gold, keep quiet about it and store the physical metal outside the financial system.
However, the belief that the federal reserve is all-powerful or the plunge protection team won't let markets fall is beyond ridiculous. This magical belief in secret forces that control all markets will never go away, but it has become more acute recently. Everyone in the market is trying to manipulate it! The larger the player, the larger the influence. However, the larger players are also more easily trapped in their positions due to a lack of parties able to take the other side of the trade. Ask the Swiss central bank how well currency manipulation works when Mr. Market has other ideas.
The federal reserve and U.S. government failed to stop the biggest bear market in roughly 40 years during the 2007-2009 time frame despite throwing the kitchen sink at it. Does everyone forget that before the prior cyclical bear market picked up steam that financial firms were bailed out, the entire U.S. mortgage market was nationalized, the fed cut interest rates aggressively and short-selling was banned? The amazing response of some of those steeped in market manipulation lore is that the bear market was caused on purpose by the same organizations that used all their resources to prevent it!
If the bear market was caused on purpose by the fed and their Wall Street cronies like Goldmun Sucks (ticker: GS) and JP Whore-gan (ticker: JPM), why did GS and JPM fail spectacularly in the crash and need a bailout to survive? GS and JPM are only ongoing concerns right now because they were bailed out by the fed and government. This isn't fair, but it ain't exactly new in the history of financial markets and doesn't really suggest a pre-meditated crash (wouldn't GS and JPM have made billions shorting the market if they saw it coming/caused it?).
Please don't misunderstand what I am saying. I am not saying that the fed and large Wall Street firms aren't powerful. They absolutely are and they absolutely abuse their power and cheat, lie and steal. But financial markets have been rigged since their inception hundreds of years ago. This manipulation cannot change the primary trend.
The bear market is getting set to resume in my opinion. This opinion is based on technical and fundamental analysis. I may be wrong in my opinion, but if I am, I certainly won't blame it on market manipulation. And I won't blame it on "QE II" or some new government policy to make it illegal to pay your mortgage. If I am right on my market call, however, hopefully it will convince a few more market participants that central bankstaz and their respective governments and keiretsu financial firms are not all powerful.
In fact, I believe it is one the jobs of this secular stock bear market to reveal how truly impotent our "masters" are to stop the carnage partially caused by their prior reckless policies.The Dow to Gold ratio will reach 2 (and we may go below 1 this cycle) before the ongoing secular stock bear market is over and the magical wizards are powerless to stop it.