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Tuesday, June 25, 2013

Rationalizing a Downward market and the Right to Profit off It

Caption: "Humpty Bernanke sat on a Wall; Humpty Bernanke will have a Great Fall; And all the Fed's Forces & Globalist Men know Americans will be Broke-- It sure won't be Ben"

Its Tuesday... back to Finance talk..

Yesterday the Dow dropped another 139pts to close at 14,659

As we like to say at A&G...  Good...
Subtract 7,659 based on artificial manipulation and that's really where the market should be if accurately depicting the true state of the US economy.   For bad math people, that would be Dow 7,000

One week ago-- the closing bell of June 18th, the Dow finished the day at 15,318

In 5 trading days its dropped 659pts or 4.3%

Of course it could jump later today by a couple hundred points for no particular rhyme or reason but that's really not the focus of today's posting..

Its the rationalizations.
No one likes admitting defeat and professional Investors, financial pundits and media don't like acknowledging they're wrong.  So like a football coach after a big loss, they make endless excuses and double-talk their way through the explanation process.

Here are just some of the ways financial media and its 'experts' are calling this current market drop:

* 'Summer Swoon'  -- Sounds refreshing.. like a mint julep on a hot day; gives the impression its completely normal to see a drop like this every June, thus relax and keep investing...

* A 'Pause' -- Rationalizing that stocks can't go upwards every single day can it?  So, just relax and..  well.. keep investing..
* 'Temporary Retreat' --  This gives the illusion that stocks are meant to always go upward and any drop in the market is to be brief and by implication, painless.  And so you can relax and.. you know...

* 'Downward revision' -- This is 'Big Boy' chatter for the same thing as a 'Temporary Retreat'...  The market is down --its perfectly understandable and logical and thus the Professionals can relax and begin 'buying on the dip'...

* An 'Adjustment' -- This is a more simplified term to help everyday investors feel confident to keep investing...  Sometimes the word 'Temporary' will be injected by media for extra Ummphh!

* 'Profit Taking' --  This gives the impression something bad is good.  If the market going up is a good thing, and a dropping market means 'profit' which is good, then by the rules of academic practical logic, Every Day in the world of stocks and finance is a 'Good' day...
* A 'Pullback' -- This is also used to calm jittery investors that one can not expect perpetual market growth and there are occasional blips where it goes the other way.. Of course then resumes its upward trajectory as God would want it..

* A 'Price Reset' Opportunity --  This sounds complex but in simplest terms the logic follows like this: That stock that should be valued at $20/share and was $25 a week ago... Well now its $19 so,  'what are you waiting for-- Buy, Buy!!!'

On and On and On...

“However toplofty and idealistic a man may be, he can always rationalize his right to earn money.” -- Raymond Chandler (American Writer of Detective Fiction  1888-1959)
We have to admit..and we know this sounds terrible to say so matter of factly, but we hope the stubborn investor who absolutely refuses to sell and quit this rigged market while believing the lies the Jim Cramers of the finance world spew out, takes an ultimate bloodbath.

See, its not going to get better..  Maybe you'll see a couple hundred point spike here and there based on a Fed rumor, but right now the market is reacting in panic mode on two things:

1)  Bernanke hinting the QE party will be ultimately tapered and end

2) Higher interest rates

Even if the Fed is not specifically raising them (which ultimately they will have to do at some point), lenders are taking it upon themselves to raise rates for him.
The interest rate on a 30-year fixed-rate mortgage hit 4.25% on June 20.   A month or two ago, it was 3.75%

This means if someone took a $100k mortgage for 30 years back in April at 3.75%, their monthly payment will be $463.12.   The person who took out the $100k mortgage today at 4.25% will be making monthly payments of $491.94.

That additional $28.83 may not seem like much but when you multiply by 360 monthly payments, it adds to an additional needless cost outlay of $10,378.80

Credit card interest rates increased on average to 14.96%
Don't worry.. we're sure interest rates among savers will be increasing too.. Instead of getting 8 cents interest monthly for every $10,000 the bank holds, you'll now be getting 8.1 cents meaning you'll Really be seeing that extra penny by month 10!

The Fed pretends to care about the every day person's ability to survive, but they don't.. Their 1913 charter is to represent and protect the banking interests at all times at all costs.

And since banks are so dependent upon the stock market for generating profit, the Fed then has to care and ensure the market is profitable.

We've said this before.. we stand by it -- spinning plates can not be kept artificially spinning forever.  Ultimately some stop and smash into pieces..   Something about Laws of Motion and Universal Gravitation..

Hey, don't blame us.. Blame Sir Issac Newton...