'Buy the Dow' While the US Wilts?
By Staff News & Analysis - January 31, 2011

History Suggests Time Is Right to Buy Dow Stocks … It's not too late to profit from the rally as market's cycle shifts in favor of blue-chip stocks … One of the fastest bull markets in history pushed the Dow Jones industrial average to a close near 12,000 last week, the highest point for the index of 30 blue chip stocks in two and a half years. The broader Standard and Poor's 500 index, the benchmark for most mutual funds, flirted with similar highs. An investor who bought an S&P 500 index fund at its March 2009 low has doubled his money since then, assuming dividends were reinvested. But lost in the attention focused on Dow 12,000 is the fact that it has lagged every other U.S. market index over the past 12 months. Large companies have only recently started to take the lead. That suggests that the bull market could push ahead despite the Dow's 1.4 percent drop on Friday when concerns about political turmoil in Egypt and a couple of disappointing earnings reports gave investors reason to sell. – AP

Dominant Social Theme: Everything will be OK if you invest now.

Free-Market Analysis: Is it really time to put more money into the stock market – especially blue-chip stocks? Sure the multi-nationals are doing a bit better, but despite all the talk of a global world, the dirty secret of America's dominance remains the dollar reserve system. In this article, we will examine whether it is a good idea to invest in America's resurgent markets given the larger challenges faced there – including the gradual and inevitable continuous decline of the dollar-reserve system itself.

America's commutarian economists love to talk about the advantages of American corporate discipline and increasingly efficient workers – and to justify investments in American markets on these grounds. But the real reason for America's corporate dominance is that its central bank can print as much money-from-nothing as it wishes and the rest of the world has to absorb it. This privilege is under increasing attack and may not provide a good reason for investment in Western markets in the 21st century.

The ability to print money-from-nothing (without serious and immediate consequences) was an extraordinary privilege that stemmed from winning World War II. After the war, the United States was the only industrial power that remained standing. The Anglo-American power elite further capitalized on America's dominance by recreating the world's financial system along with the United Nations and NATO. It's been an Anglo-American world every since – for corporations, too.

In fact, there is nothing intrinsically superior about Kentucky Fried Chicken or McDonald's hamburgers, but these are some of the ubiquitous, American brands throughout the world. They have not been built on quality or even slick marketing: They have been built on the back of the dollar-reserve system along with many other, larger US multinationals. These companies via IMF manipulations, World Bank extortions, American military facilitations and favored arrangements with US and Western governments have tended to dominate the world scene and its global business.

Then there is the Dow itself, perhaps the world's greatest facilitator of capital – for a favored few, anyway – as a result of the dollar-reserve system and fiat dollars. Great gouts of domestic and foreign capital are available for a favored few corporations that are then promoted throughout the world.

But now all that is changing. The Anglosphere (and its elite families) has never moderated its goal, which is apparently to build world government; however it has been set back in the 21st century. The fear-based dominant social themes it used so successfully in the 20th century – to push Western Middle classes toward surrendering evermore wealth and power – have been exposed by the Internet. King dollar itself is wavering and America's capital raising machinery is seemingly in disarray.

The Dow has been climbing because the Federal Reserve has been printing trillions in money-from-nothing and pumping it into the American banking and corporate system. All of this money has NOT been circulating but some has. And as always, it has found its way into American stock-markets. But current US money-printing is not business-as-usual; the world in our view is destabilizing fast; the power elite is having a hard time keeping up.

The US – the military arm of the Anglosphere – is basically a bankrupt country. This will have a most deleterious effect over time. We are seeing the beginnings of this unraveling already. The budget battles are just beginning, but they will be spectacular, vituperative and ultimately destabilizing to the Anglosphere's global ambitions and its ability to project military force.

The battle is being waged on budgetary grounds at the moment. The United States must reduce spending, according to Republican House Speaker John Boehner – and these words signal a battle joined. Reality has caught up to the Republicans (who were obscenely profligate during the Bush years) and it will soon catch the Democrats as well. Fox News, which has been covering the budget battle closely, quotes Boehner as adding, "If the president is going to ask us to increase the debt limit, then he's going to have to be willing to cut up the credit card. I think our team has been listening to the American people. They want to us reduce spending, and there is no limit to the amount of spending we're willing to cut."

Boehner is beginning to understand that times have really changed. But there are others in Congress whose perspective is far more radical. Investors Business Daily points out that Tea Party activists oppose increases to the current federal debt-limit – and this is something that Boehner himself cannot endorse. The ground is being laid for internecine warfare. "Tea-infused members," such as Rep. Michele Bachmann, R-Minn., are steadfastly refusing to vote for a debt-limit hike, according to IBD.

The arguments over the showdown on the national debt are serious – and presage an era of extreme political discord at the federal level – but so is approaching state bankruptcy. According to the Las Vegas Sun: "If you're in the government, shoptalk boils down to one topic: money. Or the lack of it. As states announce budget cuts and other austerity measures to rein in runaway deficits, pressure is mounting on the federal government to do the same."

Austerity measures are intended to focus on social programs as Western elites are hoping to avoid military and intel cuts. This is actually where the battle will be fiercest. We recall a recent report from the Washington Post that was the result of a two-year investigation. "Rampant Inefficiency in Sprawling Gov't Anti-Terrorism Offices," the Post announced. "Washington Post reporter Dana Priest led a two year investigation that's revealed mind-boggling numbers: 3,200 government organizations and private firms work on homeland security, counter-terrorism and intelligence; 854,000 people hold top secret security clearances; Analysts publish 50,000 intelligence reports a year."

The conclusion reached by the Post? "[So] unwieldy and so secretive [is the intel-industrial complex] that no one knows how much money it costs, how many programs exist or exactly how many agencies do the same work … The Post analysis reveals there are 51 federal organizations and military commands all tracking terror financing and many are not sharing their information with each other. Since Sept. 11, 33 complexes have been built for top-secret intelligence work. That's 17 million square feet of space, the size of three new Pentagons."

The Post investigation doesn't touch on the US$2 trillion that Donald Rumsfeld announce was mislaid just before 9/11. Generally America's serial wars add additional cost to a US Pentagon budget that is in the area of US$700 billion. These costs pale when America's total obligations are considered. They may be in the area of US$200 trillion, as we pointed out previously:

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 percent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. "Let's get real," Prof. Kotlikoff says. "The U.S. is bankrupt."

The United States is entering what is certainly a new fiscal chapter. After nearly a century of increasing spending and the addition of a central bank, a graduated income tax and a gradual erosion of property rights intermingled with increasing militarization of the entire society, the US is approaching a kind of final reality-reckoning. The upcoming battle will have an impact on elite globalization and the military resources available for its pursuit.

Within this context, the idea that average individuals – or professionals – would "buy" the Dow is at least questionable (certainly over the long-term). The Dow in a sense is almost entirely decoupled from the US's larger economic plight. It is purely a monetary manifestation. The Fed prints money that puffs up the stock market second-hand, and if that is not good enough, the Fed injects money directly into the market to gain the desired results. Meanwhile, as has been adequately proven at this point, the powers-that-be manipulate gold and silver to ensure that neither money metal ascends too far, too fast.

After Thoughts

Those at AP believe stocks are a good buy. It seems a strange conclusion to us, given the challenges the US faces. Eventually, surely, the Dow will come under pressure given America's financial situation and its over-extended military obligations. Additionally, the Internet itself provides a prism through which one can view increasingly acute fiscal and monetary problems. To us, these are fundamental issues that do not lead to a conclusion that now is the "right time" to buy stocks. We'd rather buy physical gold and silver and shares in mining companies. Hey, that's just us.

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