Fed Can’t Prop Up Stock Market Forever
Greg Hunter’s USAWatchdog.com (updated)
From the very beginning of QE2, it was no secret the Federal Reserve wanted the stock market to rise. The Fed got its wish. Many people see the stock market increase of nearly 20% in a few short months as a sign things are turning around. The turnaround is really a mirage of the printing press. Even so, some pundits think the economy is on the mend. Maritime News reported last week, “It has been successful,” Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York, said of Bernanke’s policy of pumping money into the financial system, dubbed QE2. “It’s contributed to the rally in the stock market” and has “been important in reducing substantially the downside risk of deflation.” (Click here for the complete story.) Pumping money into the stock market to get stocks to go up is not the same as hiring people and making products so share prices grow. With the stubbornly high unemployment rate of 9.8% (or more than 22% according to Shadowstats.com), this is just one of the dismal facts of this economy. Other gloomy indicators are the million plus foreclosures this year and next. The auto industry just had its fourth month of decline in new orders. The FDIC has shut down 157 banks so far this year, and all the banks look solvent only because of rule changes that amount to government sanctioned accounting fraud. You cannot have the banks, housing and auto sales all tanking at the same time and expect the party to last.
For the life of me, I cannot see how share prices going up are going to get businesses hiring again. This stock market rally is good for one group of people—insiders. They are selling at a rate of more than 10 to 1 over buyers. It is obvious this market is not growing organically but is simply being pumped. Now, people should look out for the dump. Will the market continue to rise? Will there be QE 3, 4, 5, 6, 7 or to infinity? Is printing money the true road to wealth and prosperity? I think you know where I’m going.
A funny and clever way to illustrate what is going on has been put together using a site called Xtranormal. There have been a series of financial cartoons produced with the help of this site that explains the economy. Below is one of the latest called “Suckers rally: Pimp Bernanke and the Psychopathic Super-Whores of CNBC.” (Yes, this the actual title.) Enjoy the cartoon below:
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
Hi Greg. My theory is the extra profits from rising oil prices will be used to prop up the market, suck in more of main streets last remaining shred of money, then the market will fall once again.
I wrote an article about this very theory here. http://wallstreetchange.blogspot.com/2010/12/oil-rising-economy-sinker-when-economy.html
America the biggest bubble soon to burst …. by printing all of the money the FED is creating real deflation. What else happens when you dilute a currency? Isn’t inflation just a shrinkage of the dollars value which means that more dollars are needed to purchase an item? (we call that inflation)
The smoke and mirror accounting can not hide the problem forever. Allstate just filed suit against BOA regarding the toxic paper it bought from Countywide before it was dumped on BOA. This is fractionalized banking at its best ……. and it seems the FED believes the USA can operate like the banks …..
Thank you Mitch, Red and Art!
Greg
This is just too damn funny =)
I once read a book by Charles Dow (Dow Jones average named after)which was written arount 1930 or so. Of course, he was a student of the market as well as a large player in his time. He claimed in the book that one should beware of the “low volumne” rally, that it was a sure signal of a bear rally in the making. That is just what is out there today, a low volumne swing upward Look out, as Dow said, the bear rally could turn down at any time. Interesting to note when a bear rally turns negative, it usually dives. As the cartoon stated, they need more long postitions in place before the insiders go short; clearly right around the corner.
“Fed Can’t Prop Up Stock Market Forever”
Greg,
They have been doing this big-time since the day that rotten Clinton put that even-more-rotten Rubin in the US Treasury. Unfortunately, they can keep propping it up and they will until the currency becomes utterly worthless or a good old guns-and-bullets revolution cleans out Wall Street and Washington,D.C. Frankly, I’m rooting for the latter.
You’re dead on with respect to everything else you stated.
Actually, I think it started under Bush 41 but you are correct by at least the Clinton Era. It has gotten especially bad lately. Thank you for the comment!
Greg
love the cartoon.
Seems like the QE2 is having a temporary impact on the market, but what will the long term impact be? Are the rising prices for oil (leading to rapidly increasing gas prices) due to the growing demand for oil or the devaluation of the dollar? I suspect the dollar loosing value to other currencies is the main cause.
As for the growth in jobs, American companies are hiring more now than a year or so ago. However, those jobs are not in America. The bottomline of American companies is improving due to increased sales in countries like China and Brazil where the economies are growing, the American companies are producing products in those countries and they are hiring due to those demands.
We are a country in decline, we have spent our way into a deep hole that will take many years to repair and most likely that repair will not begin until a huge crisis occurs. We have not learned anything from the past two years given the incompetence shown by our leadership in Washington.
I don’t quite understand Bernanke’s obsession with the stock market. For most Americans, their only avenue into that market is through their 401K’s. Many people I’ve talked to simply have their contributions taken out of their paychecks and never bother to check where it’s being invested or by whom. They have no clue and just assume that everything will be alright.
However, even with their 401K’s, most people don’t have that much money in there (i.e. they don’t have enough to retire) – The most I’ve heard a regular 9 to 5 employee had was about 300K (& this is for someone in their 50’s) and the reason they were even able to save that amount was because they didn’t have a mortgage to deal(they inherited a paid-off home from their parents when they passed away).
Had this person had to deal with a mortgage, they probably wouldn’t have been able to save that 350K. Also, she only has one kid in college who is taking out loans so she doesn’t have that added expense either.
And it gets worse for people in their 30’s and 40’s — they just don’t have that much at all in their 401K’s or even in terms of any personal savings. Let’s say most college educated white collar professionals make about 60K a year. How much can one really save on that salary? Especially if you are still struggling to pay off college loans? Then add in a mortgage, kids, etc, etc…You can’t save very much at all.
Basically, what I’ve observed is that the people (especially younger one’s) who are making it are being helped out by inheritance. Either from their parents (the WW2 generation that saved & didn’t have debt) or from their grand-parents (who again are part of that WW2 generation).
So, for the average American, the stock market will not be their financial savior.
Greg,
You are an erudite reporter. Please tell me why there is increasing propensity in the media to allow (what used to be) vulgarity to be printed and voiced nearly everywhere?
The super-clever “super-whore” cartoon is an example. Private discourse is one thing, but didn’t there used to be standards for acceptable language used in public venues? Sloppy language detracts from the main message. Thanks.
John Reed,
You are correct the language was off color but I could not rename the cartoon. I don’t like bad language. I let some go up on the site because I want to this forum to as open as possible. I can see how the language is offensive, but I thought the message in the cartoon outweighed the bad title. Thank you for your comment.
Greg
Greg,
I was not criticizing you. I was looking for your commentary as to what is happening to our discourse, generally, and maybe you have an opinion as to why. Keep up the good work. Thanks.
John
John Reed,
I did not think that you were criticising me at all. You asked a legitimate question that deserved an answer. No problem man. John, you are a trusted regular here on the site. I really appreciate your support and questions, anytime. Please have a very Happy New Year. Peace bro.
Greg
Lets try again, First one at 1:20 did not go through.
Seems like the QE2 is having a temporary impact on the market, but what will the long term impact be? Are the rising prices for oil (leading to rapidly increasing gas prices) due to the growing demand for oil or the devaluation of the dollar? I suspect the dollar loosing value to other currencies is the main cause.
As for the growth in jobs, American companies are hiring more now than a year or so ago. However, those jobs are not in America. The bottomline of American companies is improving due to increased sales in countries like China and Brazil where the economies are growing, the American companies are producing products in those countries and they are hiring due to those demands.
We are a country in decline, we have spent our way into a deep hole that will take many years to repair and most likely that repair will not begin until a huge crisis occurs. We have not learned anything from the past two years given the incompetence shown by our leadership in Washington.
Hey Greg,
I love the clip. You and I agree on many issues and disagree on a few issues. However, I believe what you wrote in your article and said on the video clip is very accurate. This has been my theme since 2008.
Elitism is the problem. “The Bernanke” and “The Obama,” can’t reserect an economy by printing money and bailing-out bad investment decisions made by the “best and brightest.”
Let freedom ring. A free market is nothing more than democracy in action. People who purchase BP gasoline are voting for BP to go offshore and drill for oil. I diligently try to fly on Boeing aircraft versus scarebus planes. Everytime I do fly Boeing, I am voting for Boeing to survive.
This really is eigth grade math.
When Washington allows democracy to return to our economy, and loser businesses die, our economy will recover.
The “collective” decisions made by ordinary people who are making buying decisions is always better than Bernanke’s manipulations.
markm
MarkM,
Good comment. I love the last line of your comment.
Greg
Saw this quote from the blog zerohedge.com
“The top 10% wealthiest Americans own 98.5% of all the stocks in the country. They feel richer because Ben Bernanke has propped up the stock market with trillions of borrowed money from future generations.
The other 90% of Americans have stagnant or non-existent wages, rising costs for fuel and food, falling home prices, rising debt levels and little hope for the future. They have been thrown a bone of extended unemployment bennies, a temporary payroll tax cut, and extended tax cuts. Any spending they are doing is on credit cards as the austerity deleveraging storyline is another big lie by the MSM”.
Correction: Xtranormal is the site some group used to produce their videos. Xtranormal is just a cartoon-producing website for use by anyone, and had been used for the recent Geiko “it took us just 15 minutes to make this” commercials.
Greg,
If hyper inflation occurs as many predict, wouldn’t cash be the worst place to be?
Wouldn’t most dollar denominated stocks rise with the rate of inflation? I’m assuming commodities and some foreign ( non US) denominated issues would rise even more.
Hoppe,
I guess you are really asking Can I hide out in stocks? The answer is yes as long as the brokerage does not go under. Many brokers have extreme counter-party risk from OTC Derivatives. Be careful with that kind of strategy for wealth protection.
Greg
Great article and video. Sadly, those who need this info most won’t visit your site and will continue to be sucked into the market by the get rich quick pumping by people like Jim Cramer.
Jim in Ga,
Maybe we will reach a few souls. A few is better than none. I do get your point and it is valid. Thank you for making it here.
Greg
Greg, Xtranormal’s cartoon was great. Thought your readers would like to see this concerning CNBC’s shining star, Jim Cramer.
http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-pt–1
http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-pt–2
http://www.thedailyshow.com/watch/thu-march-12-2009/jim-cramer-pt–3
George,
Thank you.
Greg
Greg, I hope you & your family will have safe & happy New Year.
The year has been filled with so much dis-information from our own government, the MSM that offers up a never ending supply of junk economic advice from Keynesian economist who’s actions show just how wrong they were. The “Dumbing Down of Americans” by a group of bankers have destroyed our nation to the point that we have to “Depend” upon the work being done by people like “USAWATCHDOG” & the many other folks like Jim Sinclair, who have Freely gave us usefull “Truths” to those of us that want our nation to remain a beacon of hope & freedom. 2011 is almost here & we will all face the storm together. M.SMTH
M Smith,
Thank you so very much for your kind words and support! Happy New Year to you.
Greg
I relayed this article to someone and there response was that the stock market can’t be artificially inflated because it’s made of companies that sell real goods. i.e. these companies don’t rely on Bernanke for their cash flow. They depend on their ability to sell their goods. e.g. Apple selling it’s computers.
How would you respond to this?
NM,
Let the Fed allow interest rates rise to real levels, force the banks back to mark to market accounting, stop the government from doling out 95% of all mortgages, stop the Fed from printing $75 billion a month to buy our own Treasury debt and then see where the stock market would go. Please.
Greg
I loved the video Greg! Thanks, this was really good! Please, send us more of these when you find them.
By the way, thanks for your web site. It is very instructive and please, keep up the good work for 2011. We need people like you. I really mean it.
Eric
Eric,
Thank you for the feed back and encouragement.
Greg
True the fed can’t prop up the market forever but between now and forever could be a long time. Until the dollar crash and burns there is no telling how much longer this charade can continue. My guess is we still have another year or two until the end game but until that time, the market could be another 30% higher. Short term: Don’t bet against the Fed. Long term: The day of reckoning is coming.
Okay, I am confused. According to this source (pasted below), the Insider Selling / Buying ratio is around 7:1…. Can you help me?
http://www.marketwatch.com/story/insiders-are-headed-for-the-exits-2010-12-15
Mike,
A site called Zerohedge.com has been following this. it has been reporting nearly every week there is a new number of insider buying and selling. In their last story I recall insider selling was 80 to 1. Here is a link to the story: http://www.zerohedge.com/article/bob-toll-once-again-joins-insiders-unprecedented-stock-selling-spree I think the correct number is from Zerohedge.com.
Greg
Thanks for the reply. We may have a little circular deal going on here, as that post is 15 months old and then Zerohedge just quoted you as a source for which you quoted them a long time ago. According to the Marketwatch source I posted above, the ratio has been much lower.
Mike,
I am so sorry, I gave you an old link. Try this one: http://www.zerohedge.com/article/insiders-close-last-week-2010-style3-buys-and-34-sales And some other’s from late in the year http://www.zerohedge.com/article/insider-selling-buying-surpasses-1400-1 Here’s one from October 2010 with multiple weeks of insider selling: http://www.zerohedge.com/article/insider-selling-buying-update-1169-1 I hope this helps.
Greg