Saturday, March 10, 2012

A Weekend Note - The Delicate Balance

Sometimes I become so embroiled with picking stocks that I neglect another side of my life. I can't deny a feeling of disconnect. The market is riding high and the life in the USA no matter how much make up is put on it is pulling me down. A trepidation that has been building for some time in me is becoming more and more aware that what I've feared the most may be inevitable. This rally starting in 2009 is now seemingly going sideways and some say it will end at 15,000 and others that it will go down and can't hold without a pullback.

In "normal" times I would agree that a pullback is essential for Dow 15,000 or even to hold the 13,000 as I have been showing on YouTube. But please note that these are not "normal" times of any recent or past history of the USA. When you have a president that writes regulations at record levels, nothing will be normal every again in the sense that we, adults, have been used to. Add to it that the education of children in schools today is to adapt to the President's model, will only assure that the past "normal" will never have a chance to return. To which I must add my theory which is that in order to continue these new "normal" times the current office holder of the highest office of the world ( or so it seems) will have to be re-elected. Notice that I implied that his re-election is not a "may be", but a "must". In other words it has to be assured.

We are already witnessing the media slowly taking down the competition via much ridiculing of the debates, not to mention altering of facts by reporting dismal data as good or a "good sign" for recovery. Same results and reports a mere 5 years ago would have been deemed unacceptable by the same people, but what is not really discussed is that there is a "Hungry Hippo" in each of our households representing that the real battle is the monetary one.

Most prices today have inflated by 20% (food and energy) while houses have deflated by 20-40% in the past 5 years. So not only have household "wealth" been reduced by deflation of value in property (for those who own) but the cost of living has increased by about the same amount, reducing our real wealth overall. Which can only mean that the markets have inflated to match some of that difference at least. You know, buy less with more. As prices rise, inflation rises is perhaps new to a few, but it seems not to be a concern for those who hold stocks. Bond yields have been 0 to barely nothing, so markets have had to create room for desperate people to make something on their money.

For this President to be assured re-election will require the seeming continued "recovery" and therefore "Green at any cost" is the secret re-election slogan. With markets ending to the upside on almost a daily basis with seeming absorption of any bad news keeps the delusion of things going well and at the same time continuing the inflation to keep'em happy.

But paper money is paper money. It's paper if it's printed and it's paper until cashed from the markets and if/when that frenzy starts, the need to make it real can strip the market very fast as we witnessed back in March 10, 2000. That is the challenge for this administration and the real challenge of the Federal Reserve: The Hungry Hippo must not know that it's hungry and the masses must feel that they are gaining on this losing battle rather than losing their real wealth. So the Fed will keep printing and injecting via mandate to banks they lend to and the investors will keep buying because when the market direction is straight up, investors must invest.

At some point it will have to correct, but when is probably the trillion dollar question because just as the European Union must be kept together at all costs to keep hiding the real debt problem, the USA must keep seeming the most free and prosperous nation to the world for the same reason.

Keep it up another generation and most will not remember how it was and will accept whatever they will be told as the cause of their poverty midst their millions. Can it be done? I say yes, it can. Remember that the delusion was successfully executed by the Soviet Union for 75years and currently still held by many citizens in suppressed countries at a great human and development cost. I think current technology is already assisting in the delusion. Which only proves that choosing who you believe is just as important as what you believe because eventually you may not even have that choice.

Somebody That I Used To Know by Gotye on Grooveshark

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