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Thursday, June 30, 2011

The Truth why the market is going up

Everything about the stock market is rigged.  It is smoke and mirrors.  High frequency trading and computer algorithmns. It is a con; an insider's game, and you the everyday person is not meant to benefit from it.

Did you know: 90% of all the stocks are owned by 10% of the population?

So the market's been rising.  The carnival barkers on the financial networks pick rationales out of the thin air (or another area more posterior) and tell you to Buy! Buy!  Invest! Invest!   And Mom & Pop investors and the Jim Cramer dirtball wannabes stay glued to their sets, hoping to learn how to make money.

So.. What made the market rise in the first quarter of 2011 and continue to rise, beside all the Fed stimulus which everyone will have to one day repay in tax increases and social program cuts?

From MarketWatch:

"A new report from TrimTabs, the investment analysts, has blown the whistle on what really went on behind the stock-market "boom" we saw in the first quarter, when the S&P 500 Index rose more than 5%...  So who was driving up the market? What was creating this boom?

Turns out it was the companies themselves. TrimTabs says companies spent a thumping $124 billion in the first three months of the year trying to boost their share prices by buying up stock.  That works out at about $2 billion for every day the market opened."

~ In other words, companies took some of their collective $2 Trillion in cash reserves which they did not wish to use on job creation, and put into their own companies to give the appearance they were stronger than they appeared and to entice Mr & Ms Sucker to invest with them.

* "This stock is jumpin' I tell ya'  Juuuuummpin~"

Let's continue...

"Meanwhile, according to Trim Tabs, guess who avoided buying stock during the first quarter? Company executives. The "insiders."  These are the guys whose stock purchases tend to strongly signal bull markets and genuine booms. They were spending investors' money buying their stock, but weren't spending their own... "We've never seen such a sharp contrast between what insiders are doing with their own money and what they're doing with the money of the companies they manage," TrimTabs Chief Executive Charles Biderman wrote in a note..."

~  Interesting- the CEOs did not wish to risk their own money on their own companies.  They understood the rise in the market was complete bullshit. They better than anyone else, understood their balance sheets and profitability was nowhere near as strong as the public perception they were selling.

How is this not different than say, cooking a meal for others which you're afraid to eat or buying a car for another which you're nervous to be a passenger in?

Now part 3- the money source.

"Where did the companies find the money to buy back their stock? In some cases the money came from profits (includes hoarded cash)... But in other cases they just borrowed the funds.  According to the latest data from the Federal Reserve, corporate debt surged again last quarter — to the highest levels on record.  Debts for nonfinancial corporates hit $7.3 trillion by March 31, reports the Fed. That's up more than $100 billion since the start of the year.

The total at the end of 2007, at the peak of the so-called "credit bubble," was just $6.7 trillion."

~  Now if/when there's another financial crisis and corporations are crumbling like in 2008, and claiming they're all 'too big to fail', where do they get the funds to resuscitate themselves?  Correct-- the US government.  And who really pays?   Yes-- you and I, the taxpayers.

So corporations borrow heavily to acquire the funds to invest into their own stocks to give the appearance of strength.  Shareholders are happy because their profits rise.  Everyday Americans are suckered in to believing there's a 'recovery' going on.  Novices put their money into the market and hope for some kind of return.. and its all one elaborate dupe.

And people get fooled because they want to be.  They want hope and optimism and a belief that all will be well again, while trusting in the most corrupt and soulless individuals-- politicians and corporate businesspeople, to make it happen.

* "Who wants the American Dream?  Ha Ha! Step right up, folks.."

The author of the MarketWatch commentary puts it best...

"When a company borrows money to bolster its own stock price, it makes me wary of the bonds. When the executives aren't even willing to invest their own money, it doesn't exactly make me enthusiastic about the stock either."

Nothing is getting better.  Personally I do not know how much if any, the 2012 Election will matter in terms of improving things.  I do know that in spite of the market rising as it has this week, the most fiscally sound advice one can give is to not invest.  And if you Have to invest, don't commit any money that you will miss when you lose it.

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