Thursday, August 25, 2011


Do you want proof that our markets are out of whack? Check out the following chart, which comes to us via Barry Ritholtz' The Big Picture.  Make of this what you will, then follow me below ... 

My thoughts? We just experienced a market collapse, and are poised to enter a second recession. Yet, the stock market is still above the point at which Alan Greenspan thought we might be entering a period of "irrational exuberance" in 1996.

As I've written about before, I think what you see in the chart above can be attributed to several factors.

1. The Fed's seemingly never ending money dumps (started after Reagan fired Paul Volcker), which are designed to boost markets when they stumble (a.k.a. the Greenspan Put).

2. Financialization run amok (due, in part, to the rise of the symbolic economy and deregulation).

3. The market's herd mentality (made possible, in part, by centralized modeling and market zombies).

4. Accounting gimmicks & fraud (a market staple that acts like Ritalin).

5. All of the above ...

Take your pick. You can make a case for any one of the choices here.

For my money - as those of you who read regularly have probably guessed by now - it's #5 ... "all of the above." This why I think Fed Chair, Ben Bernanke, will let the world know tomorrow, in Greenspan-like fashion, that the money's still going to be cheap, and/or that another money dump is on the way (though it will probably be clouded in murky Fed-Speak).

Whatever it is, our markets ain't right. And Bernanke's speech tomorrow won't do much to fix it either.

- Mark

UPDATE: It's déjà vu all over again. It was February 2007. Market were in a tizzy over stocks went crazy on February 27. Ben Bernanke came out and said that "markets were working well" and that he expected the U.S. economy to pick up. Then we have his other gaffes (including 5% unemployment through 2011). Fast forward 4 1/2 years to August 2011. Markets are worked up over recent roller coaster rides on Wall Street and what appears to be an imminent recession. Today Federal Reserve Chairman Ben Bernanke said the U.S. is on track for long-term economic growth and announced no new economic stimulus measures during his speech at a conference in Jackson Hole, Wyo. But he did leave open the possibility of more action by the Fed if another recession looks likely. If we look at Bernanke's track record, and translate from the Fed-speak, this is what we get: We're in trouble. Expect another money dump.

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