U.S. Markets Flash Strong Warning Signals

I have always been a fundamentals-oriented investor. My reluctance to embrace “technical analysis” is based upon my extensive background in mathematics and statistics – and an awareness of all the unstated assumptions upon which almost all technical analysis is based.

Two of those (many) assumptions are “perfect information” and “free and open markets”. Even a brief look at these premises reveals they are utterly inapplicable to U.S. markets. Not only do U.S. markets lack “perfect information” (something which isn't truly present in any market), but in many cases investors are denied even “imperfect information”.

It is certainly no secret that U.S. markets are dominated by financial-sector companies (in more ways than one). To begin with, the balance sheets of these companies are saturated with the leveraged bets which these companies have placed in their own, private casino: the derivatives market.

The general public knows virtually nothing about this market, while even many “market professionals” openly admit they have (at best) no more than a rudimentary understanding – of a side market with a nominal value far in excess of ten times global GDP.

However, this is only the beginning of the information-gap which envelops U.S. financial sector corporations. I have alluded on many previous occasions to the regressive move by the U.S. “accounting watchdog” to legalize “mark-to-fantasy” accounting – where these companies are allowed to list assets on their books at valuations which haven't existed for years, and to maintain those phony valuations indefinitely, simply by asserting that these assets represent “long-term investments”.

Even this doesn't fully describe the “veil of secrecy” which surrounds the U.S. financial sector. The Federal Reserve is currently doing everything in its power to prevent the American people from finding out what it did with trillions of dollars of their money – in propping up the U.S. financial sector with a plethora of “emergency measures” over the last two years.

In the case of these companies, it is a much easier question to ask “what do investors know” about these companies rather than “what don't they know”.

We know that these companies have been declared “strong”, “healthy”, “well-capitalized”, “stress-tested” - and even “profitable” by Treasury Secretary, Tim-the-tax-cheat Geithner, and a legion of media propagandists.

This begs the obvious question: if the previous, mind-numbingly optimistic description of U.S. banks mentioned above is accurate, then why are the lawyers for the Federal Reserve vehemently arguing that divulging the emergency lending-activities which these companies participated in a year ago could cause the collapse of these “strong and healthy” banks (see “Federal Reserve Fights Judge to Hide Secrets”)?

Similarly, the assumption that the U.S. has “free and open markets” simply doesn't even come close to standing up to scrutiny. As I have pointed out on a number of occasions, the ultra-wealthy top 1% of the U.S. population holds 55% of all stock. Even more importantly, the vast majority of that wealth is managed by a relatively tiny handful of Wall Street firms (see “Explaining U.S. Market Psychology”).

This massive concentration of market-share (and market control) obviously completely refutes any suggestion that U.S. equity markets are “open markets” - even before factoring-in the Plunge Protection Team, whose permanent, full-time job is to manipulate U.S. markets any and every time they move opposite to the wishes of the U.S. government.

However, this commentary is not devoted to the numerous, factual flaws upon which most technical analysis is based, but rather is focused on a few aspects of “technical analysis” which are not dependent on the previous assumptions (which clearly have no validity).

An example of such a “technical indicator” is insider-selling. As has been widely reported, U.S. insider-selling has been accelerating throughout this entire “rally” - a glaring reality which is completely ignored by the vast majority of “market experts”. Currently, insider-selling is at its highest level in years.

A second (valid) indicator is the extremely obvious decline in volume as U.S. equities move up to ever-more unsustainable valuations. As with insider-selling, declining volume on rising prices is a “technical indicator” based upon simple logic, rather than a set of unrealistic assumptions – yet (once again) this glaring fact is completely overlooked by most of these market-pumpers.

Over the last couple of weeks, we have now been provided with a 3rd powerful indicator of the future (downward) direction of U.S. markets: the explosion in the share prices of the some of the most-dubious, high-risk companies in the entire S&P 500: Citigroup (C), AIG (AIG), Fannie Mae (FNM) and Freddie Mac (FRE).

Even the ever-servile, U.S. Treasury Department describes its massive bail-out of AIG as “highly speculative”.

At best, this stampede into these high-risk stocks represents “irrational exuberance”, and at worst an example of greed-blinded investors chasing a “rally” - which has been shunned by U.S. “insiders” for six, solid months.

This “rally” becomes even more sinister when we start to combine some of these pieces of data. Many if not most of these market “insiders” are part of the Wall Street cabal of financial companies. The same group which has relentlessly been buying stocks for their own clients has been dumping their own holdings with equal fervor.

You don't even have to be a card-carrying cynic like myself to understand that it is not a wise idea to be buying (with reckless abandon) at the same time your broker is selling.

Disclosure: I hold no position in AIG, Citigroup, Fannie Mae, or Freddie Mac.

Comments

[CautiousInv...:]

A host of the technical indicators I use have been flashing warning signals but this market is being driven by historically unique forces, including massive deficits and prodigious liquidity injections, or is being supported by the machinations of the Fed. In either case, what in the past were useful tools are being compromised, if not castrated, in the current setting.

The market is clearly overbought and has risen to unsustainable levels. It was first better than expected earnings, then it was the growth of China, after that it was about improvements in housing and other reports, next it was we sold a few more cars through the clunker program and now, finally, we are starting to take stock of things and look at the fundamentals. They have remained unchanged and over the long-run these cannot be abrogated by either liquidity or complicity.

I see striking parallels between the present and the Depression and the Japanese market of 1989 and do not believe either fiscal or monetary policies offer sustainable remedial action; the adrenal glands of the economy are shot and we have become habituated to liquidity much as someone who eats too much refined sugar and becomes insulin tolerant, requiring ever more insulin from the pancreas to stabilize blood sugar levels; we have reach the point where ever increasing amount of liquidity is required to effect a given economic outcome.

And unchecked fiscal spending is not an option because sooner or later we run the risk of some combination of currency debasement, deflation with higher commodity prices, higher interest rates and reduced investor appetites for Treasuries. A more profound question is whether the stock market has sufficiently grasped the nature of the post-crisis model of capitalism the world is moving towards. Governments will be exercising greater control over the management and levels of profit in banking, the motor industry and elsewhere. Regulation will increase, as will taxes. And the populist backlash against bank bonuses threatens to spill over into a wider resentment of profits and wealth creation.

I wrote yesterday today that banking on China to lead us out of the current morass is a risky bet and, stateside, we have structural underemployment, a trend toward higher savings, excess capacity, ominous fiscal imbalances, severe state and local budget imbalances, reduced final demand and an artificially supported banking system poised to take a round of hits from CRE in its various forms.

Further, we do not have an environment in which to nurture innovation and risk taking; a solid investment environment depends on a strong and stable currency, restrained federal spending, less harmful legislation, dependable contract law, limits on taxation and countercyclical capital regulation.

Aug 30 07:37 AM

[Roger Knights:]

"This “rally” becomes even more sinister when we start to combine some of these pieces of data."

What if ...
... TPTB want to deprive the shorts-on-financials of "ammo" with a short squeeze, so they can't or won't "pile on" if the market turns downward in Sept., which TPTB anticipates will happen, having advance knowledge of how the economic numbers will turn out then? It would be better, from their point of view, to have a slow and stately sell-off, to avoid harming confidence.

Aug 30 08:07 AM

[Dave Wrixon:]

Spot on. It is the Debt that they cannot game. They cannot easily fiddle the Tax Receipts or under-report their expenditure.

What I am increasingly worried about though is the Fed. Their concerns about being audited suggest to me that may be a hell of lot more Dollars on their shadow balance than they are admitting to.
Unless they are independently scrutinized, how do we know how many dollars are really in circulation? Where are the mysterious increases in Treasury purchases through London really coming from.


On Aug 30 07:35 AM Leftfield wrote:

> The Devil can mislead better than anyone as he knows the Bible better
> than anyone. GS knows technical trading signals better than anyone
> and they have taxpayer megabucks to play with. Now, more than ever,
> it may pay to watch figures and indicators that government can't
> game.

Aug 30 08:09 AM

[Seed:]

Capital is money, capital is commodities. By virtue of it being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs.
Karl Marx


On Aug 30 07:37 AM CautiousInvestor wrote:

> A host of the technical indicators I use have been flashing warning
> signals but this market is being driven by historically unique forces,
> including massive deficits and prodigious liquidity injections, or
> is being supported by the machinations of the Fed. In either case,
> what in the past were useful tools are being compromised, if not
> castrated, in the current setting.
>
> The market is clearly overbought and has risen to unsustainable levels.
> It was first better than expected earnings, then it was the growth
> of China, after that it was about improvements in housing and other
> reports, next it was we sold a few more cars through the clunker
> program and now, finally, we are starting to take stock of things
> and look at the fundamentals. They have remained unchanged and over
> the long-run these cannot be abrogated by either liquidity or complicity.
>
>
> I see striking parallels between the present and the Depression and
> the Japanese market of 1989 and do not believe either fiscal or monetary
> policies offer sustainable remedial action; the adrenal glands of
> the economy are shot and we have become habituated to liquidity much
> as someone who eats too much refined sugar and becomes insulin tolerant,
> requiring ever more insulin from the pancreas to stabilize blood
> sugar levels; we have reach the point where ever increasing amount
> of liquidity is required to effect a given economic outcome.
>
> And unchecked fiscal spending is not an option because sooner or
> later we run the risk of some combination of currency debasement,
> deflation with higher commodity prices, higher interest rates and
> reduced investor appetites for Treasuries. A more profound question
> is whether the stock market has sufficiently grasped the nature of
> the post-crisis model of capitalism the world is moving towards.
> Governments will be exercising greater control over the management
> and levels of profit in banking, the motor industry and elsewhere.
> Regulation will increase, as will taxes. And the populist backlash
> against bank bonuses threatens to spill over into a wider resentment
> of profits and wealth creation.
>
> I wrote yesterday today that banking on China to lead us out of the
> current morass is a risky bet and, stateside, we have structural
> underemployment, a trend toward higher savings, excess capacity,
> ominous fiscal imbalances, severe state and local budget imbalances,
> reduced final demand and an artificially supported banking system
> poised to take a round of hits from CRE in its various forms. <br/>
>
> Further, we do not have an environment in which to nurture innovation
> and risk taking; a solid investment environment depends on a strong
> and stable currency, restrained federal spending, less harmful legislation,
> dependable contract law, limits on taxation and countercyclical capital
> regulation.

Aug 30 08:18 AM

[perceptions...:]

For the Record

For the record, the following is a “Quick” snapshot of where we have been, where we are going and why! My apology for not being able to fit a 200 year history, into a few sentences! I encourage comment, to agree or disagree & most importantly I encourage you to propose solutions!

US Influence
Let me dwell for a moment, on the relationship between the USA & the Global Economy.

It has been suggested, in recent times, that the Global economy and in particular the BRIC countries, have De-coupled from the US and the influence of the US is now substantially lessened, on the World economy.

That said, the US economy, in GDP terms, is still greater than the next 3 countries GDP, combined.

For the Record, whilst some countries have room to manoeuvre slightly, they can not swim against the US tide and clearly, the current economic slowdown has put an end to the De-coupling suggestion, at this time!

Where are we Now
Let me put it this way, the US situation is as follows -
1) The Debt to GDP ratio is heading north quickly, to 100% and beyond.
2) Consumers have taken a massive hit, via falling housing equity, lower share values & reduced access to credit.
3) The economy is deleveraging and will do so, for some time to come. Derivatives is the other Elephant in the living room!
4) Two of the three major growth drivers (Oil & Population), have Peaked and are heading south.
5) Unemployment and Taxes are both rising.
6) Business Earnings are falling dramatically and bankruptcies are rising.
7) Tax revenues and consumption are both down.
8) Massive increases in Health and Social Security Costs, are on the way, again expanding government deficits.
9) Problems arising from Climate Change and Food Production are also set to interfere with future plans.
10) Share Markets first fell some 50% and have since increased some 50%, still leaving a massive reduction in total wealth.

How did we get here
There are seldom “Single Reasons or Silver Bullets” for events, such as these and this event is no different!

Going back in time, the last 200 years has seen 3 primary growth drivers –
1) Population Growth
2) Cheap & Abundant Energy (Oil)
3) Innovation

The Global Population attained 1 Billion around 1800, 2 Billion around 1930 and we have now reached over 6.5 Billion, having added 4.5 Billion in just 80 years, with WW2 intervening.

Previous energy supplies Peaked out, as the Global Population expanded, with Wood & Whale Oil giving way to the Cheaper & more abundant Crude Oil, as it started to come on stream, just on 150 years ago.

Man’s Innovation has also expanded incredibly, over the last 200 years, as the Industrial & Information revolutions, increased Production persistently, via means such as the Steam train, Aeroplane, Television, Medical technology, Nuclear fission, Computer & the Internet.

So, the scene was set and it culminated in the greatest economic boom in history, between 1995 and 2005!

This was the “Perfect storm”, for making money.

Finally, one of the oldest and most regular players came back into the game, when GREED joined the party, assuming the party would never end. Leveraging, via the Banking/Financial sector, went thru the roof, NINJA Loans came into being and the completely unregulated “Derivates Market”, went into the Stratosphere, at over US$600 Trillion, 10 times the Annual Global GDP!

However, there is a dilemma in the current economic/banking system; it REQUIRES exponential growth, within a finite environment!

The inevitable happened around 2005, two of the three major growth drivers (Population & Oil) Peaked and their combined effects had a profound influence on events. Population growth had already started to slow and the Baby Boomer generation had just started a 20 year transition, from their Peak Earning & Spending years, to being thrifty Retirees, before leaving us forever.

The slowing Population growth had already influenced the New US housing market, with construction in long term decline. However, the slowing Population Growth, combined with the Retiring Boomers, spilled over into Existing housing and that Bubble burst, as Demand slowed, forcing a vicious cycle, of falling housing values and rising Foreclosures, re-enforcing each other, in a race to oblivion.

Around the same time, Global Peak Oil, which had been long talked about, as a theory, became a reality. As Production effectively Peaked around 2005 and then started to fall, the Oil Price raced to $147 a barrel, and then, as the costs ballooned and economic reality set in, together with the perception of a faltering global economy, Oil Prices fell, as Demand also reduced.

The rest of the World joined the Party!

Many countries spent up, mainly by vastly increasing Debt and mortgaging the future, on a bet that the status Quo would return.

With Debt to GDP ratio’s approaching 100% and in some cases more, the status quo will not return!

What of the Future/Conclusions?
Now that the calm EYE of the Hurricane, created by Trillions in “government money” has nearly passed over, that “Perfect Storm” is about to re-appear, this time as a Category 5 Financial Black Swan Event!
We are now in the final stages of proving that the current system is not working & is actually unworkable, over time.
Recent increases in leverage, in the financial sector and the Peaking of two of the three major Economic drivers (of the last 200 years), are now conspiring, to bring economic growth to a shuddering halt!

The great era of Population Growth is now ending, as costs increase & Revenues fall, in line with an Aging Population and a Slowing Population Growth!

The economic enabler of Cheap & Abundant Oil (Energy), is also ending, as Production levels start to fall and EROEI (Energy Return On Energy Invested) falls from an initial 100/1, to under 10/1 now and still falling! This greatly reduces the Profit motive on some new Production and therefore the incentive to proceed with some new fields, may also lessen?

What proceeds from there, may not be pretty, but nor will be the final judgement of historians and future generations. That said, it is likely that economic Growth will ratchet down, as will share Prices & the Oil price will ratchet up, over the next 3-4 years.

Innovation, is now the final frontier for economic sustainability, the "exponential Economic Growth Fairy" is no more, it died of "shortages of natural causes (oil)”, in 2005, but in the long run, we are all dead.

The "fundamentals" are now changing!

What we do or don't do with this new paradigm, over the next 5-10, will set the course of humanity, for the next 200 years. Be advised, this new paradigm may lead back to the future, as Globalisation, gives way more and more to a local economy, unless a NEW Cheap & Abundant Energy source is put into Production, quickly.

That said, we must now go where there is no path and leave a new trail!

We can, the $64 Trillion question is, will we?

I would like to finish with the words of John Fitzgerald Kennedy, “Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.” However, another JFK quote may finally prove more appropriate, "My fellow citizens of the world, ask not what America will do for you, but what together we can do for the freedom of man."

In short, irrespective of our Political or Economic leaning, we need to pull together Globally, NOW, for the sake of our own future and that of future generations!

So, other than those few minor issues, I don't see any reason why share prices shouldn't go straight thru the roof, into the stratosphere??

Aug 30 08:31 AM

[wee:]

Have a beer. The planet is about 70% covered in water. The anwser is splitting the water into oxygen and hydrogen then burning the H2 in your car, furnace, stove, etc just like natural gas. New appliances required generally. The nonpolluting solution is available but people's resistance to change is the hurdle.

FYI-compressing the water before applying the direct current reduces the need for any further gas compression in most instances. Should have thought of that during my '74 experiments.

Aug 30 09:56 AM

[factandveritas:]

Time will only tell when will the supersonic printing machine will crack.

Then it will be up to the markets to decide which way to go next.

Aug 30 09:59 AM

[Dave Wrixon:]

Yes, but the US GDP is much bigger because they tend to count a lot of activity that is not productive and not wealth generating and because their currency is grossly over-inflated and they printing far too much, and I am not really convinced they are declaring honestly how many dollar they are actually creating. Yes, you have a lot more smoke and much bigger mirrors,


On Aug 30 08:31 AM perceptions_now wrote:

> For the Record
>
>Bla Bla Bla

Aug 30 12:21 PM

[awake09:]

Well said! :)


On Aug 30 08:52 AM bloomberg 30 wrote:

> .

Aug 30 12:52 PM

[Genesis:]

I find it ironic that, after having derided technical analysis, you mentioned three indicators that are far more technical than fundamental in nature. After all, market technicians like to watch actual money flows, and tend to be distrustful of the latest corporate-owned media news releases, knowing (contrary to your assertion) that this information is anything but perfect. Random walk theory assumes the exist of "perfect information," but this is certainly not true of technical analysis. Market technicians only want to know that their market data (price, volume, etc) is correct. If you know something about this that others don't, I would be interested in learning about it. By the way, volume (which you emphasized) is surely the least reliable indicator right now due to all the flash trading and front-running of orders that is going on.

I do think market technicians are realistic in the sense that they are aware that a sudden, news-making event can disrupt even the most perfect chart pattern. Nobody claims that technical analysis is 100 percent accurate. Far from it!

I agree that the stock market indexes are highly manipulated, but this does not discredit all technical analysis on all markets. Again, a good market technician focuses on money flows, and therefore has some awareness of unregulated derivatives markets, the plunge protection team, and of publicly traded markets and indexes that begin to behave irregularly, i.e., not in accordance with expected chart patterns. For the technical trader, there are always other ponds to fish in.

Aug 30 01:18 PM

[Spartacuss:]

One just needs to condense. Too much information out there and a great deal of consternation as a result.

So, to condense is also to be suspicious. First, the markets. The upside rests on two pillars: FED money (PPT) going into the markets to shore up pension plans etc. No wonder helicopter Ben doesn't want transparency. The second pillar is hype. Wall street does what Wall street does, take your money. Putting it a different way, just what do you want to do with your money? That is, the backbone of the world economy rests on the back of equities and the leverage that it represents.

The question is: will this persist? Or putting it differently, how long will envestors put up with the smoke and mirrors? As Keynes put it, "the markets can remain irrational longer than you have money".

I posit that while the retrenchment will be fast and violent as reality sets in, in the mean time there are fortunes to be made but not for the neophytes unless just lucky. As long as the liquidity train is de jour, it is reasonable to expect more of the same. However the downside forces are picking up steam. Big time.

Yes it was nice to ride the gravy train, but then, at some point you have to get off. How do you do that? If things are continuing to go up you aren't getting off. Second you have to pay the taxes on the gains. Ouch. Oh, you say it dipped some today, but not to worry, it will be back up tomorrow. Greed overtakes reason and then when it becomes obvious the bottom is falling out then all the gains are gone. People brag about how this and that investment has gone up and they have made a certain amount of money. Wrong! You haven't made a dime until you sell.

Aug 30 01:41 PM

[Jeff Nielson:]

Genesis, like most people who PRACTICE "T/A", you obviously have no background in mathematics and statistics.

1) If the underlying assumptions of a subject of analysis are false (i.e. "T/A"), then the conclusions produced by the analysis are invalid. Period.

Keep in mind that T/A is used to predict whether something will go up or down - meaning that there is NEVER less than a 50% chance of being right.

People who continue to use T/A for manipulated markets, deprived of accurate information could save a lot of time and effort by simply flipping a coin in order to do their "T/A analysis".

2) The particular facets of "T/A" which I referred to are based upon LOGIC not invalid mathematics - which I clearly noted in my analysis.

I suggest you LEARN the underlying mathematics and statistics - so that you are truly capable of understanding the limitations of T/A.


On Aug 30 01:18 PM Genesis wrote:

> I find it ironic that, after having derided technical analysis, you
> mentioned three indicators that are far more technical than fundamental
> in nature. After all, market technicians like to watch actual money
> flows, and tend to be distrustful of the latest corporate-owned media
> news releases, knowing (contrary to your assertion) that this information
> is anything but perfect. Random walk theory assumes the exist of
> "perfect information," but this is certainly not true of technical
> analysis. Market technicians only want to know that their market
> data (price, volume, etc) is correct. If you know something about
> this that others don't, I would be interested in learning about it.
> By the way, volume (which you emphasized) is surely the least reliable
> indicator right now due to all the flash trading and front-running
> of orders that is going on.
>
> I do think market technicians are realistic in the sense that they
> are aware that a sudden, news-making event can disrupt even the most
> perfect chart pattern. Nobody claims that technical analysis is 100
> percent accurate. Far from it!
>
> I agree that the stock market indexes are highly manipulated, but
> this does not discredit all technical analysis on all markets. Again,
> a good market technician focuses on money flows, and therefore has
> some awareness of unregulated derivatives markets, the plunge protection
> team, and of publicly traded markets and indexes that begin to behave
> irregularly, i.e., not in accordance with expected chart patterns.
> For the technical trader, there are always other ponds to fish in.

Aug 30 02:39 PM

[Albertarocks:]

LOL! That analysis makes so much common sense to me that I've decided to go long banks tomorrow. The logic can no longer be denied.


On Aug 30 07:23 AM yellowhoard wrote:

> To expect the Fed to not prop up the financial sector at taxpayer
> expense is to expect your dog to not lick his balls.
>
> The urge to do it, for both, is just too irresistable.

Aug 30 03:55 PM

[YoYoMama:]

Wow. I've never read a more inhospitable comment from an author. Must have touched a nerve.


On Aug 30 02:39 PM Jeff Nielson wrote:

> Genesis, like most people who PRACTICE "T/A", you obviously have
> no background in mathematics and statistics.
>
> 1) If the underlying assumptions of a subject of analysis are false
> (i.e. "T/A"), then the conclusions produced by the analysis are invalid.
> Period.
>
> Keep in mind that T/A is used to predict whether something will go
> up or down - meaning that there is NEVER less than a 50% chance of
> being right.
>
> People who continue to use T/A for manipulated markets, deprived
> of accurate information could save a lot of time and effort by simply
> flipping a coin in order to do their "T/A analysis".
>
> 2) The particular facets of "T/A" which I referred to are based upon
> LOGIC not invalid mathematics - which I clearly noted in my analysis.
>
>
> I suggest you LEARN the underlying mathematics and statistics - so
> that you are truly capable of understanding the limitations of T/A.
>

Aug 30 05:30 PM

[Shabroo:]

This author is just sour that he's been sitting on the sidelines while once in a lifetime opportunities have slipped through his fingers in the last 6 months. He's been ranting about conspiracy after conspiracy - waiting for the Gold/Silver ratio to equalize, or some obscure Canadian mine to become discovered while we wait for inflation to happen or for China to save the world, everyone else is riding the wave, and adjusting their stop losses, I suggest he do the same.

Aug 30 08:54 PM

[bigjim:]

Obama as a Marist has nothing but the fall of this country in mind; take a close look at the MOB members and fellow Marist that he has appointed as Carz's - the market may inflat but not grow in value ... you peg 95% of it ... Obama Care is just the beginning of the fall - remember what other countries foot steps we are following? It starts with a G .....

On Aug 30 08:31 AM perceptions_now wrote:

> For the Record
>
> For the record, the following is a “Quick” snapshot of where we have
> been, where we are going and why! My apology for not being able to
> fit a 200 year history, into a few sentences! I encourage comment,
> to agree or disagree &amp; most importantly I encourage you to propose
> solutions!
>
> US Influence
> Let me dwell for a moment, on the relationship between the USA &amp;
> the Global Economy.
>
> It has been suggested, in recent times, that the Global economy and
> in particular the BRIC countries, have De-coupled from the US and
> the influence of the US is now substantially lessened, on the World
> economy.
>
> That said, the US economy, in GDP terms, is still greater than the
> next 3 countries GDP, combined.
>
> For the Record, whilst some countries have room to manoeuvre slightly,
> they can not swim against the US tide and clearly, the current economic
> slowdown has put an end to the De-coupling suggestion, at this time!
>
>
> Where are we Now
> Let me put it this way, the US situation is as follows -
> 1) The Debt to GDP ratio is heading north quickly, to 100% and beyond.
>
> 2) Consumers have taken a massive hit, via falling housing equity,
> lower share values &amp; reduced access to credit.
> 3) The economy is deleveraging and will do so, for some time to come.
> Derivatives is the other Elephant in the living room!
> 4) Two of the three major growth drivers (Oil &amp; Population),
> have Peaked and are heading south.
> 5) Unemployment and Taxes are both rising.
> 6) Business Earnings are falling dramatically and bankruptcies are
> rising.
> 7) Tax revenues and consumption are both down.
> 8) Massive increases in Health and Social Security Costs, are on
> the way, again expanding government deficits.
> 9) Problems arising from Climate Change and Food Production are also
> set to interfere with future plans.
> 10) Share Markets first fell some 50% and have since increased some
> 50%, still leaving a massive reduction in total wealth.
>
> How did we get here
> There are seldom “Single Reasons or Silver Bullets” for events, such
> as these and this event is no different!
>
> Going back in time, the last 200 years has seen 3 primary growth
> drivers –
> 1) Population Growth
> 2) Cheap &amp; Abundant Energy (Oil)
> 3) Innovation
>
> The Global Population attained 1 Billion around 1800, 2 Billion around
> 1930 and we have now reached over 6.5 Billion, having added 4.5 Billion
> in just 80 years, with WW2 intervening.
>
> Previous energy supplies Peaked out, as the Global Population expanded,
> with Wood &amp; Whale Oil giving way to the Cheaper &amp; more abundant
> Crude Oil, as it started to come on stream, just on 150 years ago.
>
>
> Man’s Innovation has also expanded incredibly, over the last 200
> years, as the Industrial &amp; Information revolutions, increased
> Production persistently, via means such as the Steam train, Aeroplane,
> Television, Medical technology, Nuclear fission, Computer &amp; the
> Internet.
>
> So, the scene was set and it culminated in the greatest economic
> boom in history, between 1995 and 2005!
>
> This was the “Perfect storm”, for making money.
>
> Finally, one of the oldest and most regular players came back into
> the game, when GREED joined the party, assuming the party would never
> end. Leveraging, via the Banking/Financial sector, went thru the
> roof, NINJA Loans came into being and the completely unregulated
> “Derivates Market”, went into the Stratosphere, at over US$600 Trillion,
> 10 times the Annual Global GDP!
>
> However, there is a dilemma in the current economic/banking system;
> it REQUIRES exponential growth, within a finite environment!
>
> The inevitable happened around 2005, two of the three major growth
> drivers (Population &amp; Oil) Peaked and their combined effects
> had a profound influence on events. Population growth had already
> started to slow and the Baby Boomer generation had just started a
> 20 year transition, from their Peak Earning &amp; Spending years,
> to being thrifty Retirees, before leaving us forever.
>
> The slowing Population growth had already influenced the New US housing
> market, with construction in long term decline. However, the slowing
> Population Growth, combined with the Retiring Boomers, spilled over
> into Existing housing and that Bubble burst, as Demand slowed, forcing
> a vicious cycle, of falling housing values and rising Foreclosures,
> re-enforcing each other, in a race to oblivion.
>
> Around the same time, Global Peak Oil, which had been long talked
> about, as a theory, became a reality. As Production effectively Peaked
> around 2005 and then started to fall, the Oil Price raced to $147
> a barrel, and then, as the costs ballooned and economic reality set
> in, together with the perception of a faltering global economy, Oil
> Prices fell, as Demand also reduced.
>
> The rest of the World joined the Party!
>
> Many countries spent up, mainly by vastly increasing Debt and mortgaging
> the future, on a bet that the status Quo would return.
>
> With Debt to GDP ratio’s approaching 100% and in some cases more,
> the status quo will not return!
>
> What of the Future/Conclusions?
> Now that the calm EYE of the Hurricane, created by Trillions in “government
> money” has nearly passed over, that “Perfect Storm” is about to re-appear,
> this time as a Category 5 Financial Black Swan Event!
> We are now in the final stages of proving that the current system
> is not working &amp; is actually unworkable, over time.
> Recent increases in leverage, in the financial sector and the Peaking
> of two of the three major Economic drivers (of the last 200 years),
> are now conspiring, to bring economic growth to a shuddering halt!
>
>
> The great era of Population Growth is now ending, as costs increase
> &amp; Revenues fall, in line with an Aging Population and a Slowing
> Population Growth!
>
> The economic enabler of Cheap &amp; Abundant Oil (Energy), is also
> ending, as Production levels start to fall and EROEI (Energy Return
> On Energy Invested) falls from an initial 100/1, to under 10/1 now
> and still falling! This greatly reduces the Profit motive on some
> new Production and therefore the incentive to proceed with some new
> fields, may also lessen?
>
> What proceeds from there, may not be pretty, but nor will be the
> final judgement of historians and future generations. That said,
> it is likely that economic Growth will ratchet down, as will share
> Prices &amp; the Oil price will ratchet up, over the next 3-4 years.
>
>
> Innovation, is now the final frontier for economic sustainability,
> the "exponential Economic Growth Fairy" is no more, it died of "shortages
> of natural causes (oil)”, in 2005, but in the long run, we are all
> dead.
>
> The "fundamentals" are now changing!
>
> What we do or don't do with this new paradigm, over the next 5-10,
> will set the course of humanity, for the next 200 years. Be advised,
> this new paradigm may lead back to the future, as Globalisation,
> gives way more and more to a local economy, unless a NEW Cheap &amp;
> Abundant Energy source is put into Production, quickly.
>
> That said, we must now go where there is no path and leave a new
> trail!
>
> We can, the $64 Trillion question is, will we?
>
> I would like to finish with the words of John Fitzgerald Kennedy,
> “Let us not seek the Republican answer or the Democratic answer,
> but the right answer. Let us not seek to fix the blame for the past.
> Let us accept our own responsibility for the future.” However, another
> JFK quote may finally prove more appropriate, "My fellow citizens
> of the world, ask not what America will do for you, but what together
> we can do for the freedom of man."
>
> In short, irrespective of our Political or Economic leaning, we need
> to pull together Globally, NOW, for the sake of our own future and
> that of future generations!
>
> So, other than those few minor issues, I don't see any reason why
> share prices shouldn't go straight thru the roof, into the stratosphere??
>
>
>
>

Aug 30 10:44 PM

[adan:]

nice point and info regarding the degree of insider selling - thanks!

Aug 30 11:43 PM

[Did U Think...:]

Too much talk, not enough honest truth. The stock market is a Ponzi scheme which must crash when there is a lack of new money coming in. Boomers are retiring and thus not only cutting their 401 k contributions but also starting to draw down on their 401k balances. New salaries in the market are lower and thus will not be able to replace the retiree salaries in terms of 401k contribution.

It is inevitable that, deprived of its energy source, a Ponzi scheme must collapse. Anything which must happen will happen. The only variable is the timing.

I ask again, did u think the ponzi scheme would last forever?

Aug 31 12:23 AM

[Hot Richard:]

Doesn't the State need another crash/crisis in order to write another couple trillion $ checks, sieze more industry, and expand? Yes, of course.

Plus we all know any recovery built on debt, destruction of wealth, destruction of productive elements, and currency expansion is bound to fail.

Black swans, Ponzi schemes, snake oil...oh, my.

Aug 31 01:00 PM

[dragonpaw:]

The Obama-cons won't be writing trilions in checks, but they will both begin and ostensibily try to halt the next crash scenario. The start is already under way, viz. allowing the Wall Street banksters to continue to perpetuate the ongoing Ponzi scheme . The isider trading (replete with with the check-kiting derivatives scams) continues unabated.
The next down leg will be punctuated with market shut-downs, liberally basted with with media blather from helicopter-Ben and the
proclamations from the "anointed 0ne" that "all is well!"
To halt the dropping market, personal brokerage accounts , (with more behind-the -door Demo-guegic machinations) mutual funds, and any and all other investments will be frozen. The general public will be apoplectic with the frenzy and the acquiescent and slobberingly obliging media barrage that ensues.
The anointed One with multitides of "obamasans" at his side will appoint dozens of czars (and multi-ethnic czarinas) to settle the capitalistic mess started 200+ years ago by our founding fathers
with that most corrupt of documents ;"the Constitution."
A new document will be adopted by the senate that places the US in its rightful position that aligns us about with our position in the UN
(maybe some where a little lower than Libya). Remember it only takes 51 votes in our esteemed senate nowdays to ,as they fondly say, "Ram it through!!" This document will lauded through-out the socio-communistic world as the greatest document since the "Communist Manifesto". It will surely be greeted with approbation by the likes of Hugo Chavez and Maumor Khaddafi.
......................... uh wait a minute, I think that most of this is underway....nevermind....

Aug 31 04:42 PM