Propping up the US stock market

5. May 2011 by stocktraderdude.

All three US stock market indices are up nearly 10% on the year, with most of that gain occurring in April.

 

 

The US economic landscape is much worse now compared to 2004 and 2005 – and bear in mind that in 1994 and 1995 the DJIA was at 4000 to 5000, and in 1992 to 1993 the DJIA was 2000 to 3000, so how can anyone feel positive about natural upward market momentum?

 

-       Outstanding credit card balances are approximately 900 billion US dollars (How much physical US currency is there worldwide? $850 billion, as Time Magazine reported at the end of 2008)

-       Foreclosures

-       Joblessness

-       Poverty (43.6 million people are classified by the US government as below the poverty line - the highest number in 51 years of record keeping)

-       Uninsured & increasing health care costs (Over 40 million uninsured)

-       Inflation

 

 

Does this sound ideal for the US market indices to be at such high levels? Maybe, if we consider that the US stock markets do not reflect the economics of Main Street.

 

Average Jane Q. Public is never going to achieve wealth in the stock market, nor in real estate, or in anything else – the one thing that will make a difference for her existence is affordable or free health care. If she’s not healthy she can’t viably engage in the pursuit of happiness, nor take care of her family or community.

 

The average Jane Q. Public family doesn’t have the financial wherewithal to continue consumer spending – they’re still trying to pay off what they spent when times were good! And if the Q. Public family has a family member who is no longer employed, their focus is on the basics of food, other household staples, and getting around town (all of which cost them more!).

 

Yet we’ve still got folks marketing how to profit in the US stock markets and suggesting continued investment for your retirement security, and as a way to generate wealth. What a silly claim – even with the US stock markets registering gains for this year the value of the US dollar has declined to offset any potential rise in actual portfolio value. Why risk your money just to break-even?

 

 

 

 

Here’s an example from Tharp and his newsletter – which he promotes to get people to sign up for his expensive workshops. He claims to turn people into super traders and other nonsense. Is he a super trader? No. Does he even trade the markets? No. But he hangs out with people who trade. And he claims they have improved their trading performance from reading his literature. Oh, yeah, because trading books make people money – not!

 

But isn’t it possible that your “students” made money because the markets have gone up anyway, regardless of how fundamentally bad the economy is? Tharp forgets that in 2004 he was so focused on the collapse of the US stock markets that he was wrong about his secular bear market analysis being the same as a forthcoming severe market decline. And he didn’t personally achieve any of the profits to be gained from the fast declines from 2008 and 2009, nor did Tharpy have anything substantial to say to his newsletter readers during that period. So here’s what he is saying now:

 

General Comments

We’re in a secular bear market, which means a long term and dramatic reduction in equity valuations. Eventually, we can expect to see S&P 500 PE ratios in the single digits. Fundamentally, conditions certainly seem to support that trend even though the economy can do quite well in some secular bear markets. (Right, you found out after screaming from 2004 that we were due for a massive decline that the US markets did nothing but go up, up, and up, and register record gains in the DJIA to 15,000. That was exactly the opposite you said would happen! Remember in 2004, 2005, 2006 that’s all you could keep talking about – massive decline – massive decline – massive decline, based on your carefully crafted research – which you kept trying to push, and frankly, you make newsletters, not trading profits! You don’t directly trade or profit from any global stock market.)

 

 

He goes on to say:

The stock market is in roaring bull mode because of the Fed’s activities; however, those effects are not flowing into the economy. The economy is a disaster. The Fed’s money is just flowing into the stock market, probably largely through big banks investing the new money. Banks certainly are not lending it like the Fed intended. (The Federal Reserve doesn’t print anything. The Bureau of Engraving and Printing does the actual printing. The Federal Reserve just creates book entries as a way to become a creditor and signify they bought US government debt and thereby introduce money into the system. Does Tharpy ever discuss this? Not directly.)

 

 

 

He then states: Here is what is going on in my opinion:

1. The US economy is in a shambles. The debt is so big that the government cannot fix it. It is only a matter of time before it caves in. Expect the government to default on a lot of its contracts, especially social security. (I say, people need social security, there’s no viable way for their savings to significantly surpass inflation.)
2. The Federal Reserve is printing massive amounts of money to stimulate the economy, and usually that should work because the banks normally lend out three or more times as much money as they get from the Fed. But right now the rate of lending is at 0.74. The banks are not lending their money; they are putting it into the market…the big banks at least. (We went over this, the Fed creates book entries, they don’t actually print anything – I know Tharpy must know this, but he acts like a typical media reporter when he comments like that.)
3. US interest rates are very, very low right now because the government, due to its debt, cannot afford high interest rates (nor can the economy). Low interest rates, the US account deficit and our massive debt have crashed the dollar. Expect things to get even worse because one day the world will not accept the US dollar as the world’s reserve currency. (Canada is looking well.)
4. While the market is in a strong bull period, the overall gain in the major indices this year is not as big as the fall in the dollar.
5. In this climate, long term investing does not work. You must be a trader, and you must have your psychology together in order to succeed. Trading is not easy; you need to educate yourself and exercise your discipline. (Oh, you mean like you do? Wait – you don’t actually trade any stocks, right? So, you don’t have firsthand experience in actually winning in the markets or making a living from trading. Selling high priced workshops about how to trade, yes, making money in the markets as a super trader or even a competent trader, no.)

 

 

Buy a stock trader dude hat – it will keep you warm, and yet when it’s too warm it will offer shade to keep you cool. And it’s a lot more practical than fussing inappropriately with the markets… but act now before the price goes back up to $750 US.

 

 

All three hats for $97. (Questions about your order? Contact us at ordering @ stocktraderdude)

 

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