Investing in the stock market is the easiest and most common investment in the world. Creating an E-Trade account and investing on margin (taking a loan from a brokerage to invest) takes around five minutes and a signature. Part of this is perpetuated by CNBC’s ability to spin stories and produce “educational” programs, designed to encourage new investors to gamble their money in this rigged casino.
I talk very little about the stock market and its technical analysis for one reason: I believe these numbers and analysis are somewhat invaluable without considering the extremely large “X Factor” of widespread manipulation in markets.
Several years ago, I used to watch CNBC religiously. All day, everyday. I would be amazed by the traders that have records like Jim Cramer who averaged a 24% annual return over 14 years before he retired. I still watch CNBC everyday, but I feel like my understanding of the way this stock market game is set up makes me much less impressed by these numbers. First of all, there are a lot investors that claim to have similar returns year after year, and many of them have their investments backed by real property. Second, there are hundreds of these hedge fund guys that had an awesome run and got completely wiped out during the ‘08 crash. What has come to light in the public eye since the 08′ crash is that the stock market is unreliable at best.
With the recent headlines involving hedge fund manager Raj Rajaratnam’s insider trading, the public is becoming more aware that if you are not on the inside of the stock game, you better watch your ass.
This insider game and the uncertainty in the market is continuing the bull Gold and Silver run that, over the last five years, has left GLD up 113% and SLV up 155%. During this run, many on CNBC said GOLD would stop at 1,000 an oz, then 1,200 then 1,300, then 1,400 and they were WRONG, WRONG, WRONG, WRONG. Even if GOLD is overpriced based on historical means, when do you see investor confidence flooding to the stock market? (Aside from every time Bernanke launches another Quantitative Easing, or Economic Weapon of Mass Destruction as I like to call it.)
Having said all that, manipulation, even government manipulation, can only have effects in the short term. Eventually, stock prices will find valuations that make more sense than the current B.S. rally that we have seen in the ‘10 – ‘11.
The stock market has seen a massive recovery since the lows reached in 2008, and many people look to this as a sign of our strong economy. If you have read any of my prior posts, you know that I do not share this sentiment.
Even with the recent crises that are taking place, in both Libya and Japan, the S&P 500 has experienced an unprecedented 90% gain since the ‘08 lows. This “recovery” is not based on the historical price to earnings ratios, but rather due directly to the Federal Reserve pumping billions into investment banks that have used this opportunity to speculate in the stock market casino. As you can see, comparatively, to other similar bubble busts, we have a long way to fall.
All of these other crashes have similarities and differences, but one point that is clear on all big bubble busts is that the recovery is a lengthy proposition. Unlike what the media is trying to portray, this bubble bust can not be fixed by simply dumping dollars into banks.
This next chart exemplifies the rareness of our current debt to GDP ratio. Notice the only time in U.S. history when the current ratio was greater…
During WWII, the national debt was 123% of GDP, making it the highest in history. The U.S. current deficit is heading this direction. However, it is crucial to understand the difference between these two times in U.S. history. In 1945, the U.S. was at war with the greatest military machine the world had ever seen, and WON. Not only this, the U.S. had positioned itself to, quite literally, take over the world. Compare this to the situation in which the U.S. is currently. Instead of being poised to become a super power, we are in a position to outsource jobs, lose our monetary supply’s position as the global currency, and China is poised to take over as the strongest economic power.
The stock market game is going to be up real soon. As these debt levels begin to put an extreme amount of pressure on the economy, Bernanke won’t be able to keep interest rates so low. When interest rates begin to creep up, as they mathematically are certain to, fear will again take hold of the market. It will not be surprising to me if we see another stock drop off in the coming months. In fact, I would be surprised if we didn’t see another dip accompanied by the continuation of the bull run in GLD and SLV.
- Hunter Thompson
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