THE BLIND, LEADING THE BLIND

Today's Market

by Dr Invest

I remember the parable of the "Blind, leading the blind", both will fall into the ditch. There is nothing that makes sense in this market.

It didn't make sense for the market to rise 3% on the hopes that the ECB and FED would stimulate the economy; it didn't make sense that a very marginal jobs report would send the DOW another 1.5% higher.

• Spanish Prime Minister Mariano Rajoy inched closer on Friday to asking for an EU bailout for his country, but said he needed first to know what conditions would be attached.
• Ratings agency Standard & Poor's on Friday downgraded a broad swath of Italian banks, citing worries that the recession in the euro zone's third-largest economy could mean mounting losses for the country's lenders.
• New Greek Prime Minister Antonis Samaras' big fear is the government will either fall apart, or run out of money (or both) before Christmas, which could precipitate an exit from the euro.
  If the Greeks fail to reach a deal with Germany and other lenders, or if they fail in the coming months to fulfil promised spending cuts and reforms in any renegotiated deal, then Greece's lenders could stop sending the bailout cheques, leaving the country's government and its banks bust.
• Since taking over as the central bank's president last November, Mario Draghi has already provided a trillion euros in rescue loans, propping up banks and in effect easing government borrowing costs, particularly in Spain and in his home country Italy. He has warned governments not to expect the ECB to do their jobs for them and has recently put the onus on them to get their finances in order. But if people start pulling their money out of the banks in Greece, Spain and other European countries, Mr Draghi probably stands ready to provide trillions more in rescue loans. The risk for him is he is playing a game of double or quits. The more money the ECB lends, the bigger the losses if a country were eventually to leave the eurozone. And if the entire eurozone broke up, those losses would have to be shouldered by governments, and that would make it a huge political issue, especially in Germany.
• The Federal Reserve, directed by Ben Bernanke, has two QEs (quantitative easing) to his credit that has shown limited success in stimulating the markets. QE-1 did pull the U.S. from the verge of financial collapse and a national economic panic. QE-2 failed miserably, excepting the bolstering of Wall Street and the appearance that the U.S. economy was growing, when it really wasn't. (more later) With only the rumor of another QE, Bernanke has been able to control the hope for a bear market. Twist was designed to get the investment of hardworking and honest people's money out of bonds and into stocks. Bernanke gets an "A+" on this strategy. On four occasions the rumored QE-3 has pushed the market into the stratosphere, with tragic investment losses for many investors.

What does this mean to us? There has been no need for a QE-3 when promises to stimulate the economy from Europe and the U.S. causes the markets to rocket. HERE IS THE TRUTH. There is not enough money to pay for all of the bad debt in EUROPE and the U.S.

Trillions was lost in our housing market, breaking BANKS and BROKERS. The U.S. TAXPAYER bought the bad debts, giving the BANKS and BROKERS to continue business as usual. Now the bad debt is repackaged and sold back to the TAXPAYER as an investment at a negative return.

Are you getting this? This is called the "bond bubble". One day, bond holders are going to say, "Forget this, I'm not buying bonds anymore! I'll keep my cash in a shoe!" Then the U.S. government will either have to eat the debt or pay a better yield.

It is the DEBT stupid! The government is in debt...they think, "If we spend money, we will make money!" People are the same way, they think..."If I spend money, I'll be wealthy!" No! You will only spend money now, that you won't have to spend later. When you absorb too much debt, you reach point on saturation and can't take on any more debt. That is when debt prison arises. Because you can't pay your debts, your credit worsens. From that time on, all credit comes at a higher price, think 12% or higher. When you want that managerial job, your employer is going to check your credit because it is an indicator of your truthfulness and honesty. When he sees a "low score" he will find someone who is better qualified for the position. The pay raise you had hoped would come seems to never arrive, while you struggle to pay only the interest you owe on your bills. (This is Greece, Spain, Ireland, Italy, and Portugal.)

A mediocre payroll report does not an economic reality make. A promise to "print money" by the FED and market speculation is not indicative of a "bull market". The smallest rumors of a war, the reality that neither Bernanke nor Draghi can stop a declining market, a hiccup in politics could push our economy over the edge and plunge us into a downturn not recently experienced.

When BILL GROSS, who runs PIMCO's $262 billion bond fund predicted that neither STOCKS or BONDS will show any meaningful returns in the years ahead, he was criticized mercilessly. In fact, Bill Gross thinks that investors have fallen under the spell of a "cult of equity" and the returns from stocks over the past century are akin to a Ponzi scheme. The only thing that Gross seems truly bullish on is the potential for central banks to attempt to revive the economy through inflation-creating loose monetary policy. And Gross is definitely bearish on that.

CONCLUSION

So what have we learned? The systems are turning. People are being told what they want to hear. There is a promise of great gains, with the only bonuses being earned by financial advisers and fund managers. Anyone telling the truth about the economy is punished. And markets are driven by RUMOR... the crowd mentality.

More now, than ever before, use you head. Make only carefully planned investments that are simple and clearly understood. Use a STOP-SELL on all investments. Don't lose money.

(note: the above article is for entertainment purposes only and not to be used as investment advice.)