Financial topics

[Higgenbotham]

In light of what we've been discussing about manipulation (and to what extent the market can be manipulated and for how long) here, I uncovered this article tonight and found it interesting. Richard Russell is a well regarded market observer with 50 years of experience publishing Dow Theory Letters.

http://pragcap.com/deep-thoughts-from-richard-russell-4

I guess I should come clean and admit it. After reading all about Goldman Sachs and studying Paulson and Geithner and former NY Fed Chairman Friedman, I have become almost hopelessly cynical about the markets. Is anyone ethical? Is anyone honest? I’m starting to wonder. Where money is concerned, is there anything Wall Street or the bankers won’t try?

Rumors of manipulation have been around ever since I started writing Dow Theory Letters in 1958. I always pooh-poohed those rumors, believing that it was the losers who always blamed their losses on manipulation. But now I’m not so sure.

For instance, I watched yesterday’s close on the NYSE minute by minute. The Dow was fluctuating back and forth — up 5 points one minute, down 3 points the next minute. But with one minute to go, the Dow suddenly spurted 33 points higher. I stared at my computer screen in surprise, and I asked myself, “What the hell was that?” It seemed apparent that “somebody” wanted a noticeable higher Dow at the close.

The market can be manipulated on a daily basis or maybe for a week. But in the big picture, as to the primary trend, I don’t believe the stock market or the economy can be manipulated. Although heaven knows that Washington is trying — throwing unprecedented trillions of dollars at the US economy. It’s never been tried before, but won’t trillions of dollars be enough to manipulate the great tide or the primary trend of the market? Maybe for a few weeks or even a few months, but I still don’t believe that the primary trend can be halted or reversed, no matter who tries and no matter with how many Federal Reserve dollars.

[aedens]

Keep your powder dry and good hunting. I tapped out today on the sidelines waiting for the show.
No animal sprits here just disipline over conviction. On a side note we are moving product over the pond. Best regards..
They will mop up later than sooner for the predicated cycle rent dissipation protection. This reminds me of 1979 and 1980 btw
http://www.zerohedge.com/sites/default/ ... 0sales.pdf
[quote="Higgenbotham"]In light of what we've been discussing about manipulation (and to what extent the market can be manipulated and for how long) here, I uncovered this article tonight and found it interesting. Richard Russell is a well regarded market observer with 50 years of experience publishing Dow Theory Letters.

http://pragcap.com/deep-thoughts-from-richard-russell-4
Game Set Match on the dollar index.
http://generationaldynamics.com/forum/v ... tion#p2765

dx-2.png (20.33 KiB) Viewed 8083 times

[Higgenbotham]

http://www.zerohedge.com/sites/default/ ... 0sales.pdf

This article is very well researched. I had also thought of the 58/58 concept mentioned there and have been using that as a marker (I don't tell everything here, but now that it's "out there"...). You know I compared this rally to 1975 a few pages back. One thing I mentioned back there that he didn't mention was the upcoming durable goods orders report. Those orders will be reported around August 26 (can't remember the exact day) and the equivalent report in 1975 was up 9.8%. I expect there could be a large selloff when that report comes out.

Back to the big theoretical GD picture. The bubble extensions beyond natural limits due to interventions can be summarized as:

No government attempt to extend the bubble
1637 Tulip Mania and 1720 South Sea Bubble
Bubbles burst the equivalent of second half of July 2009

Some government attempt to extend the bubble
1930 Dow rebound high
Bubble burst the equivalent of first half of August 2009

Extreme government attempts to extend the bubble
2009 Dow rebound high
Bubble has not burst as of August 23, 2009 (let's make it Sunday)

The report above is projecting that this bubble will burst in the first half of September between 1028 and 1052. The high Friday was around 1028.

I have no strong notions at this point about how far the Bernanke experiment will extend this bubble. After Friday's action, I plan to sit short and wait. I guess the only thing I would continue to put forth is that nobody will figure it out exactly. Very few will be short at the peak. As of Friday's close, I am the only person I know of who is short (besides 2 people on this forum - freddyv and wvbill). I'm not in awe of this bubble because it's just another bubble (I am disgusted by it because this whole bubble apparatus/bureaucracy is a useless time and money drain on hard working people and prevents productive activity). So I remain short, take my hit, and wait. Friday it extended beyond all previous generational bubbles so far as I can tell. That much I think I know. I got an e-mail from a former S&P floor trader this morning and he said I don't know how you can take this. That's why the phone calls go back and forth as described in the above report. As for me, I don't really care whether it's over now, at 1032, 1040, or 1052 (and it will almost definitely be some other number that nobody has thought of). In the big picture it makes no difference, but if it extends beyond the area that I've mapped out as my limit, I will take my loss there. That would destroy about 10% of my net worth and help to prove the Maximum Ruin theory. The article also mentions stop runs at certain points in the pattern he studies. This guy really does his research.

[gerald]

John in your last post regarding Iceland, you say you think you are in a bad movie and can't get out, and wonder why Iceland did not see the coming storm? And you ask why no one saw this? One possable reason ( not counting conspiracies ) is people do not want to face facts, especially if facts go against what they "think" or "want" be true. This can be illustrate by two books " Forbidden Archeology" by M Cremo and R Thompson , and "Forbidden Archeology's Impact "by M Cremo. The first book is simply a compilation of field research " that is "Physical evidence " by various accreted archaeologists for over more then a century, research that has been suppressed, dismissed, or simply written off as "just an anomaly". The second book is a compilation of correspondence to Cremo and Thompson mostly of attacks by other archaeologists. Essentially saying - how dare you publish "unapproved" information that we "experts" know goes against what we "know" or " want to think" is true. This kind of thinking I am sure exists in other areas as well, such as Politics and Finance. So don't be surprised.

[jwfid]

Higgenbotham,

Do you think that if the Fed continues with market manipulation and quantitative easing to the very end, that we will experience inflation because of the destruction of the dollar? I'm wondering if the extreme measures to inflate the economy this time (versus 1930, the tulip mania, and the south sea bubble) that hyperinflation may be the ultimate outcome.

Higgenbotham wrote:

I believe you are correct when you say they are using printed money to buy up the market (indirectly). I went on record here a few months ago saying they would not do that. The reason I said that is because it's suicidal - it will destroy the currency. That's the limitation on how far this can go - the value of the dollar. This morning, the dollar fell again as the stock market rose. It's close to going off the edge of the cliff. If that happens, we will have far more problems than low stock prices. Denninger explains in more detail here and in other articles:

http://market-ticker.denninger.net/arch ... Ahead.html

Thanks,

Joe

[Higgenbotham]

Higgenbotham,

Do you think that if the Fed continues with market manipulation and quantitative easing to the very end, that we will experience inflation because of the destruction of the dollar? I'm wondering if the extreme measures to inflate the economy this time (versus 1930, the tulip mania, and the south sea bubble) that hyperinflation may be the ultimate outcome.

Thanks,

Joe

This is just my opinion, but I should say first that I never thought Bernanke would be so stupid as to do any QE so that shows how much I know.

It's not cast in stone quite yet.

I think Bernanke has pushed it too far and has planted a seed of distrust. The international community is not buying this nonsense about Bernanke saving the world.

First, I think this bubble will burst and the dollar will temporarily strengthen. But I don't think it can get "strong" like I was saying it could last Fall because the US has violated the trust of the international community by wantonly debasing the currency through the QE program.

Once the bubble bursts, in order to restore the trust of the international community, the American people are going to have to take matters into their own hands and make sure HR 1207 gets passed. Ron Paul has a book coming out September 16 called "End the Fed". In order to save the dollar, I believe the Fed will have to be dismantled, the fraudsters put on trial and imprisoned and honest leadership restored. In short, there will need to be a second American Revolution.

I believe that will happen once the crash ignites the fury of the American people. However, if it does not, then I believe the dollar will be destroyed and America will collapse in a similar manner to the Roman Empire, 14th Century Europe and the Soviet Union. I should also add that as far as timelines, I would have no idea. First, the bubble bursts and then take it from there. But if the bubble doesn't burst, then I dunno.

Another thing I forgot to mention. Japan has been down the QE path so there is a precedent for this somewhat. At the beginning of this thread last Fall there was some discussion about similarities and differences between Japan and the US heading into Japan's depression that started in 1990 and this depression. The GD (John wrote some articles about this) and demographic parameters are very similar but there are also differences. The effects of the Japanese QE program that started in 2001 can be researched and everyone can draw their conclusions. My opinion is that QE weakened the Japanese economy long term but we are in a situation where QE will have worse effects here than in Japan. QE probably didn't end Japan's depression and it for sure didn't elevate their stock market.

[mannfm11]

Somehow you guys get the idea that the government gives a damn about the stock market. A brain dead chimp knows you can't make the market higher long term by driving it short term. The higher they push the market, the worse investment it will be for those engaged in putting their retirement in it over time and the more money those that run the market and acquire stocks to sell at higher prices will make. Russell mentioned the 33 point moves, which basically are a result of the market makers pulling their asks at the last minute and using programs to push the close higher to punish those that decided to stay in on the short side. I don't play the market at this time, but I watch it and I have watched it and played it at various times in the past. One thing that is different here is that the entire move happens in the first hour, then it lays there all day then they push it up the last 30 minutes of the day. Again, we are looking at the group that can make money regardless of direction, the insiders in the market.

Goldman Sachs, Merrill Lynch, Morgan Stanley and JPM now have access to unlimited cash at zero cost with government guarantees to loot the stock market participants. The public don't move the stock market 100 points overnight, those that set the prices do. The public buys this absurd idea that the stock market went up on news, when in fact, the market makers merely marked it up. Now they can just say there isn't any stock to short, which lets them control the short side themselves and allow only buyers into the market, buyers that may have only them to buy from. Most people are better off putting their money on the roulette wheel in 10 separate bets and getting out than playing in this casino. At least they will find out faster they are broke and need to save more money. My father knew the markets were there to get your money and he was in his 20's and 30's in the 1950's and 1960's, the greatest real market in history, 1000% with flat CPI in 16 years.

[Higgenbotham]

Somehow you guys get the idea that the government gives a damn about the stock market. A brain dead chimp knows you can't make the market higher long term by driving it short term. The higher they push the market, the worse investment it will be for those engaged in putting their retirement in it over time and the more money those that run the market and acquire stocks to sell at higher prices will make.

I think you've partly answered the question as to why the government does care about the stock market at this time. Any bank that's in trouble and has been handed a pile of government money to speculate with can buy stocks and dump them off on the public, which will act as an indirect tax. The less the government puts directly into these bailouts the better they like it.

I think there's something else at work in this perverse game too. Bernanke seems to be a great believer in psychology and feel good tactics. If they can pump stocks up, the tactic is that since stocks are a component of the Leading Economic Indicators, higher stock prices will turn indicators positive (and have) and the public will actually believe the economy is improving, go out and spend money, buy more stocks, etc.

[abs]

I still have a few short positions in SDS . . . I am sitting tight waiting for the markets to turn.

[Higgenbotham]

http://www.traderview.com/tedbits/Garre ... g06-09.pdf

It is important to remember that at this stage of the long wave cycle, there is a lot of corruption. We have seen this in government, in business (the Bernie Madoff scandal), and in every industry. It is just an unfortunate part of the cycle … but it is there for a reason. The reason is to teach us (with a very hard lesson) to act right. Once we go through the next two stages of the cycle, specifically LIQUIDATION and CAPITULATION, we will learn some very hard lessons. We will hate corruption in all forms, we will hate liars (like politicians and Madoff), we will hate people who rip off the system, and we will also hate the real estate and stock markets. This will get our thinking back on the right track and bring in the proper mentality to build up the foundation for the next great cycle. We are at the end of a very long cycle. Transitions are tough … transitions in long term cycles are really tough.

This would go along with the post I made back to Joe above. This is "why" markets crash and "why" the real crash has not occurred yet.