The Dow ended down 588 points on Monday. Overnight the Chinese lowered interest rates and their reserve requirement. This had the futures contract in the overnight market up over 400 points. The markets in the U.S. opened sharply higher on Tuesday. This was the proverbial “Sucker’s Rally”. The so-called “smart money” (if there even is such a thing on Wall Street) was a seller on the rally. The “dumb money” (lamentably—the public) was the buyer. All day long the “market pundits” on CNBC (Cramer and company) were the cheerleader. This is sad. These people are paid not to know what they’re doing, but to pick up and carry the banner of an ever advancing market. Not surprisingly (to anybody with half a brain) the market ended lower on Tuesday—down 204 points.
Funny numbers, the smoke and mirrors of corporate earnings, can fool a gullible investor public only so long.
Cheap money (low interest rates) can move a market only so far before the real economic fundamentals have to finally prevail. Funny numbers, the smoke and mirrors of corporate earnings, can fool a gullible investor public only so long. Ultimately corporations have to register real organic growth, exclusive of the cost-cutting and corporate down-sizing accounting tricks.
It’s easy to blame the Chinese. Yeah, they’re just a bunch of former communist bureaucrats trying to run an industrialized, laissez-faire modern economy. Is it any wonder that they get it wrong, that they don’t know what they’re doing. The real test for American companies though is the earnings they produce, and are those earnings real or just the result of a lot of loose accounting rules. Cost-cutting measures that lay-off American workers so that jobs can be out-sourced and CEO’s can collect their bonuses and stock options.
This is a carnival barkers show that can only go on for so long.
And is the Fed (for its own pecuniary and political reasons ) a party to this hoax, this conspiracy of economic growth? The proof is in the pudding as they say, and the pudding is the wages and salaries paid to American workers. Sure stock prices just recently posted a new high. But only ten-per cent of the public owns more than fifty-percent of the country’s financial assets (stocks and bonds). The other 90 per cent benefit not at all in new high stock valuations. These are the people who work for a living and depend on their wages for their livelihood (who have seen their earnings — corrected for inflation– decline almost 23 percent since 1980). And these are the people (the vaunted middle-class) who pay up to 35% of their income in taxes. Mitt Romney, and the hedge fund honchos who rule this country (some of whom make 2 – 3 billion dollars a year on what’s called “carried interest”) pay 15% or less in taxes, and they make the rules that the rest of us have to live by. If you’re an average working American and you don’t like you’re circumstances—well, you know where to look. Washington is full of people ( your elected representatives) working to compromise your interests. And Wall Street is their patron.
But this is a carnival barkers show that can only go on for so long. Sooner or later, the unsuspecting public—the people who buy the tickets, pay the taxes—will realize it’s all a fraud. Perhaps that realization started today?
The Money Trader