Saturday, June 18, 2011
The chaos of a currency collapse
The chaos of a currency collapse
Thu Jun 16 2011 19:41
Thu Jun 16 2011 19:41
Last month Belarus witnessed the effects of a collapsed currency when the Government cut the rouble’s value against the US dollar by almost half. Previously 3155 roubles would buy a dollar but in the blink of an eye they decided 4930 would be needed. This was not even the reality because perception of the collapsing currency meant the situation was even worse as people scrambled for foreign exchange on the black market where you needed at least 6000 roubles to buy a dollar.
So what sparked this crisis?
President Lukashenko had promised to raise public sector wages by a third during his election campaign, which he duly carried out. This was sustainable only because of the support Belarus received from Moscow in terms of loans. However, as fears grew about the country’s finances, support from Russia waned and even near neighbours from the EU didn’t fancy the risk thus sparking a sharp drop in confidence in the currency.
To exacerbate the problem there was a shortage of foreign exchange currencies, dollars or euros, in the country.
The consequences of a collapse
Shelves quickly emptied of food and any "tangible asset" that would hold value better than their currency
Wide spread panic broke out as the economy effectively became paralyzed and people suddenly realised their currency was of diminishing worth. Shops were quickly emptied of everything that could be bought. Everyday food was snapped up at “luxury” style prices as people thought of survival but also they also bought electric goods like toasters, microwaves, canned goods and virtually anything that was for sale as they rushed to convert their currency into “any tangible assets” that were not losing value as quickly as their roubles.
The empty shelves throughout the towns seemed eerily reminiscent of the Soviet controlled days.
Shoppers knew that anything they could purchase could be more useful as a form of barter than the diminishing currency in their purses and wallets.
The human cost was quickly evident from the stories of employees sent on unpaid leave as companies also struggled to cope and comprehend the impact. Andrei, a computer company employee explained how he queued for a week in Minsk trying to buy dollars but didn’t even get one. “In just one month, I have been made bankrupt, the entire country is bankrupt” he said, adding that “even during the Soviet collapse we never suffered such a nightmare”.
There are many more stories of hardship, families without food or the means to buy any, shops without stock for them to buy even if they had the means.
Dmitry who is a 48 year old factory worker explained how he closed his bank account to get out 5 Million roubles in cash so he “could buy something before my money turns to dust”.
Tensions are growing as many people blame the President for mismanaging the economy.
Staple food supplies are now hoarded but people feel anxious that unrest is starting that could spill over into conflict at any time.
Revolution is always more likely when the population are starving.
Which country is next?
This may all seem so far away from wherever you are reading this but the causes of currency collapse may be closer to your doorstep than you think.
How many countries are in deep debt and reliant on support loans and bailouts right now?
Greece, Ireland, Portugal, Spain, Italy, Japan, USA, Belarus and virtually all of Eastern Europe and the Euro zone (only they never put it in the headlines!)
What happens when the support cannot be maintained?
Currency Collapse.
It could be the US Dollar, the Euro, the Yen who knows?
But even if it isn’t your currency that collapses what will be the knock on effects in every developed country if one of these currencies collapses?
The same as in Belarus.
Globalisation has been the buzz word for expanding Capitalism but it also means that economies are now inextricably linked and inter-twined to such an extent that when one sneezes they all catch a cold!
Remember the level of Sovereign Debt is spiralling out of control in the US, Greece, Ireland, Portugal and others are close behind such as Spain and the UK. Austerity measures in all countries are hurting normal folk badly – they are losing their jobs, suffering pay freezes, inflation and pension erosion. Social unrest and industrial action looms large across Europe and this will itself impact the recovery and debt repayment. This has already started in Greece, Portugal, Ireland and large scale protests in the UK are gathering momentum with the Autumn likely to be the boiling point of anger.
The discontent and despair of regular folk is understandable as they are bearing the brunt of all the hardship and it just isn’t fair.
Politicians spout their practiced rhetoric about how to fix things but the reality is they just don’t care that much as they are not the ones affected. They have means to isolate them from the hardships and many of them are actually responsible for producing the mess. How can they care about regular people or preach what we need to give up when they don’t – ever met a poor politician? Enough said!
There is now even talk of a “sub-prime” type problem in China because of over-indulgence in property speculation, leaving huge swathes of developments empty or under-occupied and therefore leaking money and ready to default.
We need more than lip service!
Mainstream news outlets are all controlled by self-interest groups (private and Governments) and they never provide the whole story about global economic frailty as there would be worldwide panic if they told the truth. The situation right now is on a knife edge and the next Belarus is not far away. Politicians won’t admit it but then again they won’t suffer like the rest of us as they’re all rich enough and well connected to see out any storm. They care too much for their own popularity to be honest.
Posh boys and rich kids rule the world and their assets are well protected in advance.
Remember what happened when panic struck in Belarus, people bought any tangible asset they could because it would maintain value better than their currency.
This phenomenon is happening daily – your bank account is the best place to keep currency if you want it to devalue!
Currency is not a means of preserving wealth because it has no inherent value especially when confidence is lost – then it is just a piece of paper.
The only real money available is a tangible asset that maintains its value whatever happens to printed bits of paper currency – and that is gold!
A lesson on Money and currency
We need to understand the difference between money and currency as one is real and the other a promise. Money can be defined as a medium of exchange and a store of value and until fairly recent times was in fact coins made out of precious metal with an intrinsic value or for ease of use, notes backed by precious metal.
Money, when considered as the fruit of many years’ industry, as the reward of labor, sweat and toil, as the widow’s dowry and children’s portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency. Thomas Paine (1737 – 1809)
Currency is still a medium of exchange but is not a store of value as it only derives its value by government degree or “fiat”. It’s value is based on the issuing the authority’s guarantee to pay the stated (face) amount on demand, and not on any intrinsic worth or extrinsic backing. All national currencies in circulation, issued and managed by the respective central banks, are fiat currencies.
A days wages in Germany 1923
The problem is that fiat currency runs the risk of central bankers printing too much and causing large inflation or worse. The more that is printed the more the currency is debased just as the Fed is doing now with the dollar. This has been going on for decades with central banks indiscriminately creating money to cover expenditure and ever increasing debt. There are examples throughout history and in the 20th Century most of us are aware that in Germany in 1923 it would take a barrow load of Deutschmarks to buy a loaf of bread but an ounce of gold could buy a reasonable house and one dollar was worth 4 trillion marks.
This irresponsible printing of money has eaten away at the value of the world’s reserve currency the USD dollar and dollar based assets, to such an extent that they have lost 82% of value since 1971, the year the US cut links with the gold standard. The GBP has fared even worse that the USD losing around 85% of value since 1971. There are many illustrations of then and now and how owning gold with intrinsic value would have more purchasing pro rata than currency. E.g the latest model Cadillac Eldorado would have taken 180 ounces of gold at $42.02 to pay the showroom price of $7,546. This same 180 ounces is now worth over $200k and would buy two Cadillac convertibles with enough left over to fuel to first service. In the UK an average family car cost £1000 around 60 oz of gold and now the same would cost £17000 around 23 oz of gold. The 60 ounces would have bought the same family car for you a sports car for your wife and a hatchback for your son or daughter. Gold retains its purchasing power year after year.
Not long ago the gold standard imposed monetary discipline on countries as they had to hold enough gold to cover the money in circulation but this all changed with the Jamaica agreement in 1971 when the decision was taken by President Nixon on the 15th August 1971 to suspend the direct convertibility of dollars into gold, the keystone of the financial system created in July 1944 (the Bretton Woods Agreement). On the 1st October 1971 the general assembly of the IMF asked the board of trustees to study and propose a comprehensive reform. This would be adopted by member States during a meeting held in Kingston (Jamaica) on the 7th and 8th January 1976, and included a set of provisions which put an end to the reign of gold. The US money supply in 1971 was $776 billion and quickly became an upward curve which rose dramatically over the last decade where the US money supply doubled from below $7 trillion to $14.3 trillion indicating that spending is out of control.
The US National debt is now greater than this!
The US though still likes to play the rich kid on the block and bizarrely gives aid to those supporting its debt as a report in the Daily Mail of London illustrates:
The U.S. is providing hundreds of millions of dollars of foreign aid to some of the world’s richest countries – while at the same time borrowing billions back, according to report seen by Congress.
The Congressional Research Service released the report last month which shows that in 2010 the U.S. handed out a total of $1.4bn to 16 foreign countries that held at least $10bn in Treasury securities.
Four countries in the world’s top 10 richest received foreign aid last year with China receiving $27.2m, India $126.6m, Brazil $25m, and Russia $71.5m. Mexico also received $316.7m and Egypt $255.7m.
And yet despite the massive outgoings in foreign aid, the receiving countries hold trillions of dollars in U.S. Treasury bonds.
China is the largest holder with $1.1trillion as of March, according to the Treasury Department.
Brazil held $193.5bn, Russia $127.8bn, India $39.8bn, Mexico $28.1bn and Egypt had $15.3bn.
Maybe it’s just additional interest on the debt to keep them sweet!
Greece figures predominantly in the spotlight and unrest is growing – will the Government have to mortgage the Acropolis and Parthenon or even sell them off to pay their debts?
Clearly they can never work their way out of this debt because they would have to increase GDP by 12% a year for 30 years in order to grow their way out of debt.
The Sovereign Debt crisis is well and truly out of control and the only solution will be to default on the debts and devalue currencies.
As discussed in the example of Belarus, chaos ensues when currencies collapse and regular folk suffer badly as they don’t see it coming or refuse to believe it could happen to them.
Be warned: A currency collapse is coming near you.
Be prepared: don’t put faith in bits of paper which have no inherent value.
Protect yourself: Invest in tangible assets that hold real value at all times, especially during a crisis.
Remember: Real money has inherent value, it is worth something because of what it is not because of what is written on it.
Now you know why people buy gold to protect themselves from crisis – it always holds value and is the only real money.
In summary:
• Currency is not money and its value can be changed by monetary policy makers
• Currency can be created and printed at will with no substance to support it
• Currency depreciation in value is accelerating with subsequent loss of purchasing power
• National debt is increasing to disastrous levels with threat of sovereign debt default
• Confidence in the USD is waning and its use as a reserve currency is under threat
• Countries and investors are shedding their dollar assets
• Central Banks are diversifying into gold and out of dollar assets
• Smart investors are diversifying their portfolios with a proportion of gold
• The value of gold has been consistent in retaining its purchasing power
• Gold is insurance for your wealth
• Gold is the only real money
I rest my case!
Boeing Shares Set for Takeoff The company sees blue skies ahead: BA
At Thursday’s Paris Air show, Boeing (NYSE:BA) boosted its long-term forecast of aircraft sales. If the company’s forecast is accurate, sales should rise above previous expectations. Is that a definite buy signal?
Instead of selling 30,900 aircraft through 2030,it now expects that figure to total 33,500 – an upside of 8.5%. Given price increases, those new orders will add $4 trillion to industry sales — 11% more than Boeing’s July forecast of $3.6 trillion.
Boeing’s brighter forecast reflects an optimistic view of global growth. Randy Tinseth, vice president for marketing at Boeing’s commercial airplanes division, told the New York Times that growth would come from strong air travel demand now and positive long-term trends. As Tinseth said, “Not only is there a strong demand for air travel and new airplanes today, but the fundamental drivers of air travel — including economic growth, world trade and liberalization — all point to a healthy long-term demand.”
Boeing expects 3.3% average global GDP growth over the next 20 years with the fastest growth in China and India (up 7% a year each). Moreover, Boeing forecasts 5% global air traffic growth by 2030, with the fastest air traffic growth in the Asia-Pacific region (up 7% a year) and the slowest in North America — up 2.3% annually). Moreover, Boeing expects passenger traffic to nearly triple while cargo traffic will more than triple by 2030.
This will translate into different levels of aircraft demand growth around the world, according toHeraldNet. Boeing expects 20-year demand growth by region as follows:
- Asia-Pacific 34%
- Europe 23%
- North America 22%
- Latin America 8%
- Middle East 8%
Most of the new sales will come from smaller planes. Boeing expects 70% of the growth to be in sales of single-aisle planes like the 150-to-200-passenger Boeing 737. Twin-aisle wide bodies like the Boeing 787 Dreamliner would account for another 22% of the growth.
Boeing’s ability to capture that growth in twin-aisle demand will depend on its ability to deliver its oft-delayed 787 — the 865-order, $139 billion backlog for the 250- to 330-seat aircraft — about which I wrote in You Can’t Order Change. (Boeing’s stock has fallen 30% from its peak of $105 in Sept. 2007 when I signed that book contract.) Since the book’s 1998 publication, Boeing has delayed the 787 seven times due to technical problems, a strike, and more generally, the problems of too much outsourcing.
Boeing CEO Jim McNerney recently acknowledged these outsourcing mismanagement problems about which I wrote in 2008. As he said at its annual investor conference, “What you end up realizing is, you need more cost to supervise outside factories outweighing the benefits of outsourcing design and manufacturing on the 787.” In January, the 787′s $12 billion cost was 120% over budget.
Boeing also faces problems in opening up a 787 production line in nonunion South Carolina. Boeing set up the plant there because workers don’t need to join a union in order to work in a plant in that state. This would give Boeing a place to continue making 787s if its unionized plant workers in Washington went on strike. The House of Representatives is now taking up a National Labor Relations Board complaint against Boeing, according to AP.
While Boeing’s future is the key to valuing its shares, its short-term performance also matters. And on that front, Boeing beat expectations and has maintained its guidance for lower than last years’ earnings per share in 2011. Boeing’s first-quarter profit was $586 million, or 78 cents a share, which beat analysts’ expectations. Its revenue was down 2% to $14.9 billion, partly because it delivered fewer 777s than in the previous year.
Boeing stuck with its 2011 outlook of sales between $68 billion to $71 billion and EPS between $3.80 and $4. Those 2011 earnings would be below 2010, when Boeing earned $4.45 a share on revenue of $64.3 billion.
Boeing is doing its part for shareholders. After all, it’s producing positive EVA Momentum, up 2% — with a great turnaround from 2009′s EVA of negative $1 billion to 2010′s EVA of $462 million and 2009 revenues of $64.3 billion. And Boeing’s PEG of 0.56 makes it look undervalued — its P/E is 16.3 on earnings expected to climb 29% to $5.33 in 2012. And the earnings forecast does not reflect Thursday’s 8.5% boost to Boeing’s 20-year industry revenue forecast.
With its 2.27% dividend yield, now would not be a bad time to think about adding Boeing to your portfolio.
Gerald Celente : the IMF the International Mafia Federation
Gerald Celente : ...the people in the west still live under the illusion of democracy , there is no democracy it's the political mafia in charge run by the IMF the International Mafia Federation that's the biggest boss the don , whether raping a woman or raping a nation that's what the IMF does , the only reason they get away with it is because the media is part of it they are nothing more than money junkies and murdered they are raping every country on earth to get the money and that's what they did in Egypt , .I am angry because we are going to war and nobody is stooping it says Gerald Celente of the trends journal , the politicians only represent the people who give them campaign contributions that's white shoe boy lingo for bribes and pay offs ...it is a fight for your life ...the only way this is going to stop is to do like Iceland , ...what we need NATO for , NATO has no business ...
Is The Highest Equity Put-To-Call Ratio Since S&P 666 An Indication Of A Market Bottom?
Last Friday, the CBOE Equity Put/Call Ratio reached the highest level in the past two and a half years, higher not only than May 2010 when the market plunged on the first Greek bankruptcy, but higher than March 2009 when the S&P hit 666, and lower only than the second week of January 2009. Additionally, while this one off event may be discounted, the 10 Day Moving Average, as shown on the chart below, has now lifted to levels not seen since February 2009. A quite note by Stone McCarthy captures the conventional wisdom on the topic: "Where a 1-day rise in this indicator alerts us to investors temporarily seeking protection against a market decline, an extreme high by the 10-day smoothing line reveals a more comprehensive sentiment buildup that typically proves to be a more reliable contrary indication of a meaningful bottom being NEAR." Perhaps. However, never in the past has the Put/Call ratio been at such levels even despite the multi-trillion backstop of central banks, and worse still, just two weeks in advance of when the Fed will end its daily stimulus program. The is a saying that being contrarian in the face of conventional wisdom is the only sure way to make money. The problem with that saying is that conventional wisdom is quite often actually correct. Furthermore, last time we checked back in January 2009 Greece and Europe were not about to go Chapter 11, nor was a $900 billion asset purchasing program about to end...
More technical observations from SMRA:
The series of recent new highs by this indicator warns that market participants are still in the process of building protection against downside expectations in price. Therefore, the threat of a more cathartic end to the post-05/02/11 price decline remains real. With the benchmark equity index still locked in a C-wave decline (se chart), risk will continue to favor a better test of the all-important 200-day line at 1262.80, the 2011 low (the 03/16 pivot) of 1249.10, rising trend support from the Mar '09 lows near 1239, and, in a worst-case scenario, a 161.8% extension through 1215 as long as 1311.20 remains resistance.
Are options traders actually correct this time? Next Tuesday, which is when the Greek cabinet vote of confidence takes place, may provide a quick answer.
Europe, America and China Reap The Econmic Crisis That They Sow
Europe, America and China -- The three great players are plunging into simultaneous economic crisis. They all deserve it.
We recently asserted that "There will be blood" in Europe. We also said the results would be fairly spectacular when played out, both in terms of violent currency movements and human spectacle.
Such is quickly coming to pass now. The euro currency is diving -- the U.S. dollar rising -- as these words are being written. On the human side, the following comes from George Mavrogiannis in Athens, Greece, via the BBC:
I just returned back from Syntagma Square and it is like a war there. Our own government is attacking us.
Greece is killing its children. In this revolt there are all types of people from all age ranges and the police keep throwing tear gas which is unacceptable.
I have lost my voice because of the yelling and tear gas. The police are trying to break the protesters and take control of the square but the protesters are not letting them.
They throw anything at the policemen from rocks to pieces of wood.
People have lit fires on the streets near the square using trash cans and papers. You can't cross the area without wearing a wet headscarf.
The atmosphere is really toxic and suffocating.
Up until now the police have arrested 19 protesters and the arrests continue.
There is a fire in Filellinon Street and people cannot pass through.
More and more policemen are coming to the square with bikes and protesters keep throwing things and yelling at them.
We shall not stop until this government listens to our concerns.
George Papandreou, the Greek prime minister, has promised to form a new government as a result of mass protests.
The attempt to jam austerity down the throats of the people is failing. Whispers of "Lehman 2.0" are all over the eurozone now. It is the same beast that has stalked the old continent for years -- only grown stronger over time.
Meanwhile a rift has grown between Germany and the European Central Bank (ECB). Germany wants some sort of debt restructuring for Greece, apparently fed up with the endless "kick the can" games. This greatly upsets the ECB, which wants to continue with the business of "bailouts as usual."
Why is Germany willing to risk systemic default with its aggressive stance? Why are they digging in their heels at such a dangerous time, for what appears to be a small amount in the big scheme of things?
Perhaps because they know the fiasco will never end -- unless someone makes it end.
If a line is not drawn in the sand with Greece, then the same troubles will come up with Portugal. And Ireland. And eventually Spain, or even Italy. On and on.
Unless and until someone says, "Nein. Let this come to a head here and now."
(The debt crisis in Greece has been building for a while. Sign up for Taipan Daily to stay up to date on global market changing events with all of my and fellow editor Joseph McBrennan's investment commentary.)
Nor is it just Europe staring into the maw of debt crisis. In the United States, the speed and severity of the housing bust has been confirmed "worse than the Great Depression." Jobless claims remain elevated. Various U.S. economic health indicators, such as the Empire Manufacturing Survey, have come in at disastrously low levels.
The U.S. economic stimulus is being revealed for what it always was -- a mirage.
This leaves legions of bullish investors left holding the bag. Or rather, holding a investment portfolio full of overvalued stocks bought on margin, in a financial market that is potentially 40% overvalued. "What now?" they ask.
"Sell." That is your what now.
Over in China, as we noted earlier this week, riots and protests are picking up. Food inflation and wage demands are becoming an increasingly violent problem for local authorities with their hands full. And the Chinese property market is showing signs of topping.
China's epic boom is now in the same place, roughly speaking, as America's grand boom of the late 1920s. For America, things got so hot that a newish Federal Reserve had to slam on the brakes.
Rates were hiked sharply again and again to quell America's rampant 1920s speculation -- just as the Chinese government is seeking to quell rampant speculation today.
And America was stuffed with surplus cash (trillions worth, inflation and global GDP adjusted) at the time of the '29 crash... just as China is today. The crash happened anyway -- as will China's.
To add insult to injury, the U.S. financial industry is leveraged to both China and Europe in ways both reckless and appalling. In leveraged purchases from equities to commodities, money managers are betting heavily that China's unprecedented boom will continue.
And word is that American banks have sold hundreds of billions worth of CDS (credit default swap) exposure to European banks at inflated prices -- not realizing who the true sucker is in such a transaction.
(Wait, silly me... the sucker is the American taxpayer, not the American banks, because when the proverbial fecal matter hits the proverbial oscillating device, the too-big-to-fail banks will be rescued once again.)
H.L. Mencken once observed that "Democracy is the theory that the common people know what they want -- and deserve to get it, good and hard."
In the West at least, we choose the terrible leaders we have. We put up with their gross lack of honesty, talent and common sense. We let them make horrible decision after horrible decision, at ultimate great cost to all. And those without lifeboats wind up reaping what they sow.
(Those who are prepared, at least, can kick up their feet and laugh a bit. As Karl Kraus observed, "Things are hopeless but not serious." What a delicious farce it all is.)
In closing, it is no great comfort to your editor that events, thus far, are playing out pretty much as expected.
That's because our expectation is for things to get much, much worse...
You’re Not Imagining It — The Gold Miners Are Tanking
Conventional wisdom — backed up by years of observation — states that gold mining shares tend to outperform the underlying metal in good times because they’re “leveraged to the price of gold.” That is, their extraction costs are more-or-less fixed, so when gold rises, most of the increase flows directly a miner’s bottom line, increasing its earnings at a rate that exceeds the metal’s move.
With gold near a record, most miners should put up ridiculous earnings in the year ahead, which should make their shares act like tech circa 1998, right?
Nope. The biggest miners, whose shares populate the GDX gold miner ETF, did outperform gold (represented here by the GLD ETF) during most of its recent epic run, just as you’d expect. But in April the two trends diverged, and lately the divergence has become a chasm. Gold is up 22% in the past 12 months and the big miners are, as a group, virtually unchanged.
This is painful and humbling for investors who bet on gold by loading up on mining shares, only to discover that they were right on the macro but wrong on the implementation. But one person’s pain is another’s opportunity, and the market appears to be offering a whopper here.
Assuming that the long-term relationship between gold and the miners holds — and there’s no reason to think it won’t — then the trend lines will converge at some point in the coming year. This can happen in several ways: They can both fall, but gold more than mining shares. They can both rise, but mining shares can rise more. Or gold can tread water while the miners go up.
Which means there are two ways to play it: Buy the miners and ride them, which will work if gold goes up. Or short gold and buy the miners, in which case you don’t care where gold goes as long as the miner/metal relationship reverts to normal. The first is simpler but only works in a rising gold price scenario. The second is an arbitrage that should work no matter what gold does in the year ahead, though it carries an emotional price, since shorting gold is disturbing on a lot of levels.
On the other hand the idea of making money while being short gold — in the middle of a global currency meltdown — has a certain contrarian appeal.
One final thought: If the big miners are underperforming because of fears that they can’t replace the reserves they’re consuming, then we’re in for a buyout binge as they use their rising cash flow to gobble up the juniors with the most accessible reserves. So the small-cap miners will end up being the best part of this market.
3 BULL MARKETS TO INVEST IN NOW
With all the recent bear market chatter it is important to keep in mind that not everything in this world is perfectly correlated. Rob Lutts, CIO of Cabot Money Management was on Yahoo to discuss where investors can find secular bull markets now. Lutts says investors should focus on emerging markets, internet technology and precious metals.
Stock Market Tapped Out?
Pandora shares make spectacular plunge below IPO ... It didn't take long before Pandora went from music to investors' ears to the stock market's version of fingernails on a blackboard. The money-losing online music service became the latest initial public offering to "break," or fall below its offering price. The stock closed its second day of trading at $13.26, undercutting its $16 offering price, so even the privileged investors who bought into the IPO now have losses — if they didn't sell in time. – USA Today
Dominant Social Theme: It is not a trend. Stocks are a good buy and always have been.
Free-Market Analysis: The Pandora IPO came out higher than expected and then went up on the open until it was US$10 more than the initial US$16 offering. The excitement was tremendous. Bloomberg TV literally covered the price action of Pandora every 15 minutes or so for the entire day. The entire episode represented a kind of sub dominant social theme: "Stock trading is back, baby, and the action is hot!"
The Pandora IPO may have provided us with the last gasp of activity in what may soon be a prolonged bear market. The results of QE2 are fading and without more monetary inflation the US stock market is probably doomed to collapse like a gradually deflating paper bag, which is inevitable anayway BECAUSE of all of the monetary inflation to begin with. It is just a matter of WHEN the music stops, that's all.
Granted, the price action for Pandora was feverish but the desperation with which Bloomberg focused on this relatively tiny stock was even moreso. Constant interviews on the NYSE trading floor, confabs between anchors on the Bloomberg set, phone and video interviews with analysts – all created a picture of significant interest. What it also signaled, inadvertently, was that the health of stock trading in the US is questionable to say the least.
In fact, Pandora is now trading under its IPO by a significant margin; the over-enthusiasm directed at this under-reported enterprise is symptomatic of the problems that the NYSE and stocks in general are facing in the early part of the 21st century. The NYSE has merged several times lately, with the most recent merger with German-based Deutsche Boerse that will create a huge, world-spanning conglomerate
But size does not create interest. Europeans generally do not trade stocks with the gusto of American investors and thus as big as modern exchanges get, the amount of mom and pop investors involved is likely lessening, overall. In the United States it is surely true that interest in stock trading likely peaked in the late 1990s with an explosion of interest in day trading and a plethora of mainstream media available to explain different "opportunities."
The efforts of the powers-that-be to reignite stock trading have sputtered in the 2000s after an obvious uptick in mainstream interest in the markets before the financial crisis of 2007. Ever since, US markets in particular have struggled. The "quantitative easings" of the past two years have certainly boosted share prices, but now with this final easing fading, so is the American stock market, which is a kind of bellwether for markets around the world.
As the US stock market fades once again, the hype surrounding the stock market picks up. The Pandora example is a good one. Pandora is a software facility that lets the user customize his or her playlist over time, so that the music being played increasingly conforms to the exact taste of the listener.
Pandora's gross revenue was about US$140 million this past year and losses were only US$1.2 million. But it received the cherished single symbol, "P" on the Big Board and there were, apparently, high hopes that Pandora could turn around investor sentiment.
The USA Today article (excerpted above) gives us some of the context for what happened with the Pandora IPO. It seems to be a fairly predictable story. Thirty-one of this year's 73 offerings have broken below their IPO prices and 41 are trading below their first-day closing prices. IPOs are increasingly breaking below their offering prices for three reasons: Broad market woes; Lofty valuations and hype; and heightened sensitivity to risk.
According to the article: "While investors were willing to look past companies' problems a month ago, macroeconomic concerns are prompting them to take a closer look and demand lower prices now. If the stock market continues to slide, expect IPO prices to fall further and more companies to shelve plans to go public, says Darren Fabric of IPOX Schuster. 'Risk has come back into the market," he says. IPO 'prices will come down.'"
The US stock market's general malaise is already stimulating calls for a QE3. Bank analyst Dive Bove has been promoting the idea that banks should release the approximately US$1.3 trillion in reserves that they have not yet lent out. It is unclear how this might be accomplished.
Ben Bernanke, meanwhile, has indicated that a QE3 is probably not going to any time soon. According to hedge fund manager David Tepper, Bernanke might change course if the equity environment turns seriously ugly. "If the S&P500 falls 200 points ... that would be more than enough to get the Fed's attention, at which point, the oil price might be back in the $80 range with gasoline prices barreling back toward $3 a gallon and Ben Bernanke will have adequate cover in the renewed concern over deflation."
The larger issue is the one we are interested in. The power elite relies on fear-based promotions to create a constant cash flow. They create memes like global warming and then market them through an intricate process that involves think tanks, white papers, mainstream media and eventually NGOs and domestic and global legislation.
As the "problem" is marketed, the elites begin to create solutions, well funded private companies that appear to be brainchildren of alert entrepreneurs. In some cases they are; in other cases, the elites may have, initially, a direct hand in the creation of the companies; they are certainly involved in the venture capital funds and hedge funds that provide funding to these start ups.
Eventually, these companies are directed toward stock exchanges and the initial, elite partners cash out. The cash-outs is then directed toward markets where it can be swapped for more substantial assets like real estate and gold. The real estate may be held or exploited; the gold is stored in countries like Switzerland using elaborate off-the-books accounting methods. Many such banks work directly for the elites; their other businesses are just for "show." This seems to be how it works.
This methodology is well beyond the understanding of most people, unfortunately. The scale at which it operates is almost inconceivable. It involves recognizing that most companies and most exchanges are to some degree under the active control of the Anglosphere elites. One can likely confirm it, however, by tracking the ownership of the Fortune 500 and supervising bodies such as the EU, World Bank, etc.
At the top, the names often turn up in several places. There is a good deal of interchangeability among global institutions, top universities and business schools, legal firms, corporate boards and even top politicians. These individuals are not the final controllers, of course. They are intermediaries.
It is also true that securities exchanges are consolidating at a rapid rate. This is another evident plan for globalization, in which all securities instruments are eventually to be traded on only a few worldwide exchange. The profits that can be made from a single exchanges with multiple instruments are astronomical, especially if one controls the regulatory authorities that are supposedly providing oversight.
These plans along with the elite's wider efforts at globalization are in our view threatened by the rise of the Internet, which has exposed much of what is taking place now. When it comes to the stock market, America was a prized example of how to involve individual investors in the larger elite-controlled casino, but now due to the financial crisis and subsequent Internet Reformation (as we have taken to calling it) investors around the world and especially in America have begun to turn away from investing, especially equity investing.
The sovereign debt crisis may do the same thing for bonds that the financial crisis has done for stocks; sour people on paper holdings. This is a direct threat to the profitability of elite investment strategies. If the larger masses do not believe in "investing" and its outcomes, then the ability of the elites to extract wealth from the masses via the inevitable business cycle upturns and downturns is compromised. This is taking place now and it is a fundamental threat to elite control and the money-making paradigm they have come to rely on.
Conclusion: The stock market's linkage to Fed stimulation is more obvious than ever these days. But with the entire dollar-reserve system gradually collapsing, stock markets around the world are increasingly in disarray. A collapse of American markets will have a significant impact. Whether Bernanke attempts a QE3 at this point seems almost irrelevant. Numbers one and two haven't worked. So why should number three?
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