Stocks set to pop on Europe debt deal … U.S. stocks were set to rally at the open Thursday, after European Union leaders agreed to expand Europe's bailout fund and take major losses on Greek bonds – the latest step in an ongoing effort to curb the region's debt crisis. The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were about 2% higher. – CNNMoney
Dominant Social Theme: The stock market is impersonal and precise. It tells the REAL story about the economy.
Free-Market Analysis: We do believe that the stock market provides all the available price information on a given security. In fact, this is a power elite dominant social theme, that the stock market is "efficient" and gives one an accurate snapshot of where the economy is – and is headed.
But what is never mentioned is that the efficiency of the markets involves more than industrial influencers. The world (to us) seems either in a great depression or headed toward one. The term "Great Recession" may soon not be accurate.
Given that the European mess continues, that most banks in Europe (and likely in the US) are under-water, that the US is technically in debt for some US$200 TRILLION if all socio-political promises are kept, that Europe is even worse off in terms of debt and insolvency, that China is dealing with vicious price inflation (along with India and Brazil), that Japan just hiked rates, etc., etc. … given all these factors, how can markets be going UP?
The US stock markets set the tone for markets worldwide and US markets have been climbing steadily even as the world's economy seems ever closer to collapse. How can this be? Well, we would argue there are extracurricular factors that the world's stock markets recognize that the average investor may not.
The biggest factor in our view is that stocks are now regularly manipulated by the US "plunge protection team" initially set up under Ronald Reagan after the 1987 stock market crash. This "team" to the best of our knowledge has never been disbanded and there is no reason to believe that the US government and sundry market forces have ceased to support US markets, and maybe markets abroad as well.
Then there is the money system itself. The Federal Reserve still stands as the guarantor of last resort for the world, as evidenced by the US$16 trillion that the bank printed during the 2008 economic crisis, much of which was sent abroad as short-term loans.
The world's biggest traders and investors thus have the certainty that market itself is backed by unlimited funding. Between artificial market supports and endless fiat-money availability it is a wonder American stock markets especially have not blasted into the stratosphere. But maybe that would be too suspicious. Here's more from the article excerpted above:
Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET. The eurozone debt agreement came early Thursday at the end of marathon talks aimed to find a solution to the debt crisis in Greece, instability in the banking sector and an inadequate bailout fund.
Under the new plan, Greek bondholders voluntarily agreed to write down the value of Greek bonds by 50% — which translates into €100 billion — and will reduce the nation's debt load to 120% of economic output from 150%.
Europe: It's a deal! Leaders also agreed to leverage the region's bailout fund by four or five fold, the statement said, boosting its resources to about €1 trillion. "It's a step in the right direction," said James Schroeder, . "At least they are addressing the issues. The real question is how they are going to do this; and if they stall and no progress is made after all this, markets will recognize that and pull back." All U.S. indexes closed higher on Wednesday as investors started betting that European leaders would seal a deal addressing the debt crisis.
We are used to this sort of commentary by now. There is always some explanation for the market's behavior, though in reality such reasonableness is entirely insufficient. The linkage between the justifications and the results certainly cannot be proven in any scientific way.
The article goes on to tell us that in a CNNMoney survey, "21 top economists are forecasting that gross domestic product, the broadest measure of a country's economic activity, rose at an annual rate of 2.5% in the third quarter, after adjusting for inflation." No doubt we may see further rises in market indices as the continued "good news" pours forth, no matter how doubtful the underlying statistics.
The truth is, as we see it, that the economy is in a full-fledged fiat-money retreat. This happened back in the 1970s as well. No matter what manipulations take place within the securities arena, the price of gold and silver are doubtless going higher. (Editor's Note: our educated guess, not a prediction.)
The bull market in precious metals may not end for several more years, not until 2015 or beyond. It may go even longer if the powers-that-be continue to distort industry by propping up too-big-to-fail companies and by supporting securities markets with illegal manipulations. Ironically, such activities only stoke the very precious metals bull market that the power elite is trying to control.
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