Seeking Alpha
Long/short equity, deep value, newsletter provider, gold & precious metals
Profile| Send Message|
( followers)

Given the sheep herd’s tendency to want to see this rally continue, this article will likely not be very popular. However, before anyone should express indignation at the title of this article and ask if I am aware of the recent surge in global markets, note that whenever a large disconnect has existed between the reality of economic fundamentals and stock market behavior, this large disconnect has always yielded disaster at some point in the future.

This historical phenomenon, in fact, birthed the coining of a new term, “irrational exuberance”, by the ultimate insider, former Federal Reserve Chairman Alan Greenspan. Of all people, it is no shock that Alan Greenspan perhaps understood this concept better than anybody else for it is the firm that he worked for, the US Federal Reserve, that largely continues to create such dissonance in markets today. In fact, today, dissonance in stock market behavior and economic reality may be at one of the highest peaks since the period that preceded the Great Depression. In the absence of free markets, rising stock markets and declining economic conditions are entirely feasible.

The Role of Dollar Debasement in the False Green Shoots Theory

The tremendous surge in US markets that we have recently experienced, despite the production of the largest 3-month rally in almost 80 years, has still seen the S&P 500 index rise only 8% on the year. Furthermore, if one takes the true rate of dollar debasement into consideration over this same time span, the 8% rise has in all likelihood, produced no gains at all in real wealth. In fact, contrary to beliefs being espoused by shills for the financial industry like Charles Lemonides, the Chief Investment Office of ValueWorks, the worst possible thing that could happen in the future would be to see the DJIA surge from 9,000 to 15,000. Earlier this week, Mr. Lemonides stated:

“When you have better economic conditions and really, really compelling valuations; and you’re bumping up against the top end of a range it’s sort of a good recipe for breaking through that range and going significantly higher.”

Lemonides, in an interview, attached numbers to his view, and stated that the Dow could easily reach 12, 000 in six months to twelve months and 15,000 in two years. If the Dow reaches 12,000 in six months, then it will mark the debasement of the US dollar into near worthless paper. In terms of creating real wealth, the Dow soaring to 12,000 will likely create none. Just like the Feds will never publicly tell you that their actions of slashing interest rates severely diminishes the purchasing power of your dollars, financial shills that keep talking about economic recovery will never publicly state that a run much higher in US markets can only be achieved with further severe debasement of your dollars.

Yes, it is possible for the amount of money you own, as represented by your stock portfolio, to increase greatly at the same time your real wealth is being destroyed. Greater ownership of more money, especially under this current environment, will not necessarily translate into an increase in wealth and a higher standard of living. And this is the concept that the financial shills don’t want you to understand. Anybody today that is pumping the idea of green shoots, whether a CEO of a large multinational company or a financial journalist, should resign when the blow-back of their irrational exuberance materializes. Why? Because there are only three possibilities that can explain the actions of people that speak of green shoots today:

(1)They have no understanding of how money is created and what gives it value;
(2)They have no idea of how to interpret economic statistics to determine if a recovery is realistic or not; or
(3)They understand (1) and (2) but choose to hide (1) and (2) from the public.

Thus, it is no harsh statement to conclude that someone that is incompetent or someone that has no moral character should resign.

The Role of False Government Statistics

Most recently, two major events largely spurred US markets, and consequently global stock markets, higher. The first was the “surprising” improvement of initial unemployment claims reported by the US Labor Department on July 11th of 522,000, the lowest such number reported since last January. The ever-opportunistic US financial media pounced on these numbers to report that the economic bottom “was in” and that recovery was now on its way.

However, anyone that understands anything about how governments calculate key economic statistics knows that almost all statistics that they produce are a heap of rubbish. Ironically, worsening unemployment claim numbers reported yesterday were virtually ignored by the financial press due to their underlying agenda to stoke the levels of irrational exuberance to even higher levels.

Admittedly, these levels of irrational exuberance exist primarily on a psychological level and are presently maintained by computerized trading programs that have continuously taken advantage of low trading volumes to pump stock prices and indexes higher. Full-fledged irrational exuberance would manifest itself in a spike in trading volumes as well, which has not yet happened. Were the Dow to spike to 12,000 in six months as Lemonides thinks possible, then automated trading programs would almost certainly be insufficient by themselves to accomplish this. Such a significant spike higher from this point would have to occur on the back of much larger trading volumes. Were this to happen, then we would have full-fledged irrational exuberance on our hands.

But first, let’s examine the two bogus events that help stoke the fires of the green shoot shills. Consider that in a June unemployment report, the BLS (Bureau of Labor Statistics) noted the following:

“About 2.2 million persons (not seasonally adjusted) were marginally attached to the labor force in June, 618,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the past 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 793,000 discouraged workers in June, up by 373,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in June had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.”

Though this June report was referring to total unemployment figures in America and not initial claims, the purpose of discussing these reporting methods is to illuminate the highly fraudulent nature of the unemployment numbers reported by the US government. Note that the 793,000 discouraged workers, and the 2.2 million workers that had not sought work in four weeks (nearly 3 million people in total), though unemployed, are not counted as unemployed.

Furthermore, the BLS creates all kinds of other bogus categories to count as employed those people that are truly unemployed. From their own website, consider this section entitled “Who is counted as employed”:

Example 1: George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father’s farm and spends about 20 hours each week doing so.

Example 2: Lisa Fox spends most of her time taking care of her home and children, but she helps in her husband’s computer software store all day Friday and Saturday.

Under the Government’s definition of employment, both George and Lisa are considered employed. They fall into a group called “unpaid family workers.”
Thus according to the government, performing household chores, but not actually earning money, is sufficient to be included among ‘the employed”. By counting people that earn zero money among the employed, it certainly makes the green shoots theory look viable doesn’t it? But the calculation of unemployment statistics becomes even more ludicrous.

On their website, the BLS actually includes definitions of what they consider as “actively seeking a job”. One must “actively seeking a job” to be considered among the unemployed. The BLS states that “attending a job training program” or “reading about job openings that are posted in newspapers or on the Internet” do NOT qualify as actively looking for a job. Thus, an American citizen could elect to attend a job training program after being laid off in a valid attempt to find new work, but in the eyes of the US government, this effort does not count. Thus, this person would not be counted as unemployed when in reality, he or she, is of course, unemployed.

But the fraud doesn’t stop here. The BLS also seasonally adjusts unemployment statistics to distort real statistics. These adjustments often have no bearing on reality and greatly skew real results as these adjustments are made at the discretion of BLS officials. For example, even though the ACTUAL number of initial unemployment claims in the US for the week of July 11th was 667,534, the BLS seasonally adjusted this number, per their discretion, to 522,000, thus spurring the announcement from the financial shills that this economic crisis has bottomed. And this is not even where the manipulation of unemployment statistics end. It keeps going on and on and on, but for the sake of saving space and boring you to death, I believe I’ve stated enough to make my point.

And the point is, if you are an honest person truly trying to determine the real rate of unemployment in the US, the LAST source you should ever reference is the US Department of Labor. However, this is the FIRST source referenced by shills for Wall Street that wish to talk up stock markets. In reality, if one strips away all nonsense and lies incorporated into Department of Labor unemployment statistics, the real rate of unemployment in the US is now over 20% (Source: Shadowstats.com), a figure that hardly paints the economic recovery that the green shoots charlatans desperately want you to believe (By the way, these same shenanigans are not just employed to unemployment statistics but to every major key economic statistic reported by the US government).

The Role of Analysts in the False Green Shoots Theory

Secondly, investment analysts have been extremely complicit in selling America the green shoots nonsense. The second quarter earnings has been nothing but a constant parade of “surprise earnings that beat analyst expectations.” Since I’ve already explained in this article how this con game works, I’m not going to elaborate too much how this scam works within the confines of this present article.

However, let’s consider just one hypothetical example of how the financial shills that work on TV and in newspapers twist reality to sell economic recovery and paint terrible corporate earnings with their revisionist paintbrushes into a positive picture by using Nokia’s recent earnings press release.

STOCKHOLM — The world’s top cell phone maker, Nokia Corp. , on Thursday said second-quarter earnings fell 66 percent as the global recession sapped demand. The company scrapped its target to gain market share this year and its stock sagged. Net profit was euro 380 million ($535 million), down from euro 1.1 billion in the same period a year earlier. Sales tumbled 25 percent to euro 9.91 billion. Analysts polled by SME Direkt had forecast a profit of euro 328 million and sales of euro 10.1 billion.

If Nokia (NYSE:NOK) were a financial company, and the green shoots shills desired to pump its stock price higher, they would state in a highly visible newspaper or television program that Nokia’s earnings stomped analysts’ expectations by almost 16% and surprised to the upside, without ever focusing on the 65% decrease in profits. This is how the green shoot fraud works. By twisting corporate statistics to serve their message and gladly accepting clearly false government statistics as truth, the green shoot advocates have found it possible to sell an economic recovery in an environment devoid of workers, full of profits simply engineered for a quarter or two through cost cutting measures achieved by firing employees, and devoid of the production of any real goods.
In July the Los Angeles Times reported,

“Trade at international ports is on track to drop more than 10% this year, one of the steepest declines ever, according to a new maritime industry report. Cargo ships will carry 27 million fewer containers by year’s end than they did in 2008 — a reduction roughly equivalent to all of the cargo containers handled by the five busiest U.S. seaports in a typical year, according to London-based Drewry Shipping Consultants’ Container Forecaster Report. ‘There has never been a decline like this before. We have never seen numbers like these,’ said Neil Dekker, editor of the Drewry report. ‘The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties.’”

As I’ve stated many times before, a rise in stock markets, when created under socialistic, fascist economic environments will not track the underlying fundamentals of a nation’s economy. In fact, the act of currency debasement can lift stock market indexes to higher levels while simultaneously creating zero real wealth.

The End Game is Still Economic Disaster

In the end, disaster is coming due to the toxic combination of foolish fiscal and monetary policies and combined lies being spread by financial executives and politicians desperate to sell the idea of an economic recovery. And yes, even though I believe another stock market bubble is forming that will burst contrary to the general consensus now that believes the head and shoulder formation of the S&P 500 chart has been invalidated, even if the S&P 500 were to soar another 30% higher, the circumstances that would have to materialize for this to happen would be disastrous to the real wealth of all Americans and all foreign investors in US stock markets. Thus, a rise to Dow 15,000 would still be a disaster were it to occur.

All green shoot espousers would be well served to heed Patrick Henry’s advice given in his famous “Give Me Liberty or Give Me Death” speech: “Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it. “

Today, the green shoot shills that work for the banking and financial industry are unwilling to see or hear reality nor to reveal this reality to the public. The actions of the green shoot shills is truly shameful, as when the worst of this reality manifests itself, the public will truly be unprepared to provide for it.

Source: Irrational Exuberance of the Green Shoots