A couple of blog posts--today in Zero Hedge and Saturday's Automatic Earth--help to confirm some truths that otherwise might be called "conspiracy theories" or "doom-and-gloom" thought.
In Zero Hedge, Cazenove Strategist Discusses PPT And POMO Interventions To Keep Markets Ramping Higher, the credible technical strategist Robin Griffiths from the credible firm, Cazenove Capital Management in the United Kingdom, on credible CNBC, European edition, explains Permanent Open Market Operations and the Plunge Protection Team, both entities that provide money to banks to pump up the stock market via the Fed.
Fact is, the market is heading to a ridiculous and artificial 11,000 number, which it cannot sustain. Griffiths believes it will not get up to its April high, but it is sure to come down.
Automatic Earth furthers the charade when it considers company profits jacked up by "fuzzy accounting" practices in What You Know for Sure That Just Ain't So. The blog post delves into housing and unemployment and how statisical methodologies cover the numbers for politicians seeking reelection.
Understandably, every office wants statistics to look good for them, so the system never changes. Interestingly enough, voters don't want to hear the bad news either, according to the post. It's excellent reading, which supports the previous FIN TRUTH post that refers to a Stock Market Scam and a country that still suffers from a recession despite NBER's proclamation that it ended June 2009. If that's the case, get ready for the double dip.
Just remember how the U.S. government "fixed" our problems in October 1998. As the stock market continued falling, they announced the Troubled Asset Relief Program, TARP, to provide $800 billion to banks. After Congress voted against it, the market tanked. Enough special interests convinced a few extra members of Congress to vote for it.
The market held steady after falling about 7,000 or more points from its peak. Then, instead of falling off a cliff, the country slid off one with millions of lost jobs. Companies reorganized their balance sheets, keeping productivity high with fewer people.
Also, when it appeared banks were on the verge of collapse in the Spring of 2009, after the stock market hit a new low in March, banks did not have to count 100 percent of their loans as losses...even though residential and commercial real estate loans were all underwater. That would have caused the stock market to fall again, but the Federal Government manipulated the rules by pressuring the Financial Accounting Standards Board to change the accounting rules when it came to mark-to-market accounting.
It became mark-to-model accounting and then all bets were off. The market came back, investments improved and, therefore, balance sheets for many companies that invest improved as well.
Also, 401K plans improved for people holding stocks and bonds. The bond market yields have dropped to ridiculously low levels. More important for politicians, the people holding retirement funds based on the stock market are happy--for now.
But banks still cannot lend. They are holding undervalued real estate loans on their books because they are "extending" them for the borrowers and "pretending" the value will return on those residential and commercial properties. Based on today's values, these banks are insolvent.
Because of these undervalued loans, banks are holding more money in capital reserves. They are not lending it out. The companies who need the money cannot get it and the ones who don't need and can get money don't want it. See Community Banker Chimes In Regarding Small Business Lending from Mish's Global Trends Analysis for more about that.
So, we remain a stagnant economy with high unemployment--16.7 percent based on total unemployed--plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force. The number announced is 9.6 percent. Also, don't forget that many people have left the labor force, meaning that number gets higher when they return. During the Great Depression, unemployment was 25 percent of the American public and the stock market did improve based on optimism.
Now, we have false optimism because trillions of dollars mask insolvent banks, corporations that can only make a profit with skeleton crews, consumer spending declines and a society turning into the haves who can manipulate the system to work less, the haves who work more and the have-nots without jobs and few if any prospects. It is a bifurcated society that widens each day.
And, don't forget that since unemployment soared in 2008-2009, we have had two years of high school and college graduates that came out into the "real world"--many with debt from student loans--to a country in recession with few companies willing to hire inexperienced workers.
With unemployment likely to remain high for several years, and people with jobs likely to save money as they watch "extend and pretend" push economic uncertainty further into the decade (think Japan's lost decade), consumer spending will likely not account for 70 percent of gross domestic product. That means more product, less manufacturing and all those numbers that technically determine a recession, will determine it once again.
The question, again, is how long the inevitable truth takes to reveal itself--one year, five years, ten years or longer? It will depend on how long European countries can pretend that they have money without falling more in debt; it will depend on how long the U.S. can pretend residential and commercial real estate values will return to levels once held from 2005 to 2007--30 percent to 40 percent higher than current values--without falling any more in value; and it will depend on how long the U.S. can pretend that unemployment levels will lower to anywhere near record levels of 4.8 percent back in February 2008 without unemployment, in fact, rising anymore.
And, when we cannot pretend any longer, then the truth will rear its ugly head and we confront unemployment and the economy in a realistic manner.
Robert Michaels
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