The American Stock Market
Today the stock market is widely considered to be the fundamental indicator of American prosperity. News pundits, politicians and stockbrokers all agree that America has a new economy. It is a brand new world, or so the pundits would have us believe. Yet the valuations of most so-called new economy stocks are so far from reality that those who invest in these ticking time bombs, will lose a lot of money, that is unless the lessons of history and human nature have changed. The stock markets have all but lost touch with real free-market forces. This is the essence of the 'new economy'; extremely high valuations for marginal or poor performing stocks and a Wall Street/mainstream Media advertising and spin campaign that has mesmerized otherwise fairly intelligent people. The markets have been prone to some extreme volatility recently and it seems that the recent 500 point drop (April 4, 2000) is only a sign of some things to come. The only way a disaster was averted on April 4th was through the intervention of some big name Wall Street houses (Goldman Sacks for one). These behemoths purchased key futures contracts that quickly propped up the sinking ship of the US stock market. The actions of these entities (along with the Administrations Working Group on Financial Markets) have protected the market from the main safety valve of any truly free market, financial losses for bad investments. The team has been extremely adept at maintaining the perception of prosperity in the face of looming financial disaster. The team may have had some influence in persuading foreign investors to buy up stock in critical market sectors. Billions are flowing in from foreign sources which have also helped prop up the markets. These machinations are kept out of the mainstream media and one must be familiar with these activities to understand the recent trends in the market. But once these things are better understood, it is clear that the game of financial musical chairs cannot long continue.
The areas to watch in the coming weeks and months are, of course, the technology sector, the high flyers who are selling at hundred of dollars a share and have never turned a profit. Another sector to check are the hedge funds, they will experience big trouble if the market takes a sustained dive. Many will go belly-up leaving a big hole in the global financial system that will immediately require large amounts of liquidity. This will spell doom for the American economy. Admittedly, this has been the view of many 'discredited' economists for a long time, people who have been 'wrong' because the rules of the game have changed. They have changed because of behavior by America's financial elite who have manipulated the market to dupe the unsuspecting investor out of his and her portfolios, mutual funds and retirements. They have manipulated it to the point now that they know that someone has to lose his or her shirt, and they are determined that that someone is not to be themselves. It will be the small investor and the taxpayer who will bail out the big banks and investment houses that created the soon coming financial disaster, who will have to pay. This may not happen all at once and many stocks have already been effected in a big way. The majority of stocks have seen their value plunge over the past year. It is the manipulated stock market averages (Dow, NASDAQ) that give the general impression of prosperity that continue to rise higher, or at least not plunge significantly lower. When these manipulated stocks begin to value themselves more closely with economic reality, huge losses occur and yet more money must be funneled in the system to continue to deceive the unsuspecting investing public by propping up the markets, indeed the Federal Reserve Chairman has said in public statements that direct intervention in financial markets by the government and the Fed is now a "responsibility".
Huge debt burdens are also a real problem for Wall Street and the banking industry. Banks are bundling low-yield loan portfolios and selling them to the bond market. Ordinary Americans are using home equity loans to pay off loans and yes, invest in the stock market. These factors and others dealing with consumer debt are a sure fire receipt for disaster. These things will happen despite all of the talk of a 'new economy'. The only thing new here is the degree of manipulation transpiring to rob ordinary people of their wealth. A long bear market, recession and perhaps even depression are on the way. A major contributing factor is that the economic figures coming out the administration are so flawed and fraudulent that regardless of how bad things get, economists will be able to argue convincingly that all is well, 'just look at the numbers'. All the while people will be being laid off and mortgage companies will be repossessing homes that are worth only 40% of their original loan amount, not dissimilar to what is still happening in Japan after their economic excesses. Americans are not immune to this. Americans are about to learn a lesson that was taught to their parents and grandparents in the 1930's, that there is no magic potion to ward off economic downturns and economic losses. Yet magic potions and financial hocus-pocus are the rules for today and the modern 'snake oil' we see in our TV ads for the big investment houses. These warnings will fall on deaf ears as people generally have a difficult time believing things can change. When in a long bear market, people have difficulty believing in a bull market will come, and vice versa. That is why wise investors can continue to make their mortgage payments when the bear market hits and will stay out of the fancy restaurants and Rolls Royce's in the bull markets.
Be wise, eat and pay your mortgage during the coming bear market. Copyright © 2000 Mark S. Watson