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Who Is Responsible For The Non-Stop Market Rally Since March?

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17

December 31, 2009 – Comments (5) | RELATED TICKERS: GS , JPM , GE

"After all, if a company like Goldman Sachs can borrow gigantic sums of "money" from the Federal Reserve at zero interest, why would it not shovel that money into the burning furnace of a fake stock market rally? "

"I've said Dow 4000 for three years in a row. Okay, my timing has been off. But I still believe this is its destination. Given the currency situation, and the dilemma of no-growth Ponzi economies, I'll call it again for this year: Dow 4000.  "

James Kunstler Forecast 2010

MY COMMENT:

Some new "All Star" Fools have been calling me out for my Bearish positions and decline in Points standing as the rally continues. Let me be clear, IMO the Rally is Bogus.

1. Most Americans will not buy another stock for decades. 

2. The S&P 500 P/E = 80 to 140 (LOL!)

3. Insider selling is 88 to 1 

I do not know how/when this will end, but I suspect badly. I suspect it will end far worse then most can imagine now, but life will go on.  Globally, I suspect unemployment is 20-40% for working age men. From my experience traveling I would guess the average pay for a college educated English speaking man is about $260-300 a month and for general labor $80-190 a month. That is what they pay for Philippines and Pakistanis in the Middle East.  I asked one good natured Philippino, if he was able to save money while working in the M.E on $330 a month."

"Yes, you can save money, if you do not eat. If you eat, you cannot save money"

He had an engineering degree in Maritime Engineering, spoke English, Tagalong, Spanish, some Arabic and was working at Columbia Sports Wear in the Mall making $330 a month. 

A good example of global labor cost, I saw on TV filmed in China. The camera crew was following a recent Chinese high school graduate as he looked for work in the city. He found a job recovering red bricks from a brick wall. He and another guy were hand chiseling red clay bricks and removing the cement from the red bricks with a metal hand pick.

Try that in the US with the labor costs here. There is a reason nearly everything at Wal-Mart says "Made in _____" (not the US)

In general, the Reserve Currency status, ability to trade fiat dollars for resources and relatively low population density of the US allows Americans to live a lifestyle better then 80% of the planet. This is changing rapidly. 

 

BREAK--------------------------------------

This Rally is Bogus -

http://www.zerohedge.com/article/trimtabs-asks-who-responsible-non-stop-market-rally-march-gives-some-suggestionsTrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions

Submitted by TrimTabs' Charles Biderman

Are Federal Reserve and U.S. Government Rigging Stock Market?  We Have No Evidence They Are, but They Could Be.  We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March.

The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion.  The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
 
We cannot identify the source of the new money that pushed stock prices up so far so fast.  For the most part, the money did not from the traditional players that provided money in the past:
 

Companies. 

Corporate America has been a huge net seller.  The float of shares has ballooned $133 billion since the start of April.

Retail investor funds. 

Retail investors have hardly bought any U.S. equities.

Bond funds, yes. U.S equity funds, no. 

U.S. equity funds and ETFs have received just $17 billion since the start of April. 

Over that same time frame bond mutual funds and ETFs received $351 billion.Retail investor direct. We doubt retail investors were big direct purchases of equities.  Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks.  Also, retail investor sentiment has been mostly neutral since the rally began.Foreign investors. 

Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October. 

But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.Hedge funds. 

We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities.  But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.

Pension funds. 

All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.

If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else.
 
We do not know where all the money has come from.  What we do know is that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers.  Why not support the stock market as well?

THE REST IS HERE:

http://www.zerohedge.com/article/trimtabs-asks-who-responsible-non-stop-market-rally-march-gives-some-suggestions

 

5 Comments – Post Your Own

#1) On January 01, 2010 at 2:54 AM, uclayoda87 (29.38) wrote:

Even though the US government has engaged in massive QE, many pundits have had a hard time trying to find inflation.  But like little kids who are unable to find their toys, if they would just open their eyes they would find inflation staring them in the face every day, in the market.

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#2) On January 01, 2010 at 3:43 AM, ikkyu2 (99.13) wrote:

You know, the Barclay's Capital (ex-Lehman) 2010 look-ahead referenced a little gem from a 2009 San Francisco Fed speech: the ideal target Fed Funds rate for our recent recession would have been -5%.

Quantitative easing - i.e. flooding banks with bogus liquidity in the form of repos, swaps, and asset purchases - is what the Fed does when it can't lower rates any more.  

The scary part is the Lehman flack thinks it's working.  It'll be entertaining to see how they try to back this semitruck out of the china shop.

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#3) On January 01, 2010 at 9:53 AM, StatsGeek (29.38) wrote:

Agree completely

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#4) On January 01, 2010 at 5:09 PM, portefeuille (99.66) wrote:

Globally, I suspect unemployment is 20-40% for working age men. From my experience traveling I would guess the average pay for a college educated English speaking man is about $260-300 a month and for general labor $80-190 a month. That is what they pay for Philippines and Pakistanis in the Middle East.  I asked one good natured Philippino,

----------------------

another bizarre paragraph (see comment #8 here).

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#5) On January 01, 2010 at 5:12 PM, alexpaz (29.11) wrote:

I'm full short on Caps and building my short position in real life as the VIX dips under 20

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