Financial Sense Blog

There’s growing congestion on one of America’s highways and reports say the problem will only get worse. In just the past few years, America’s technological network—our information superhighway—has gone from hare to tortoise. Dropped calls, Internet outages and surfing at a snail’s pace now seem to be commonplace.

Looking at a weekly chart of the U.S. Dollar Index we can see that it entered a steep correction off the June top when it encountered long-term resistance from a declining tops line reaching back to 2006. During the correction a rising trend line drawn from the December 2009 low was violated, and it seemed likely that the index would decline all the way back to the long-term rising trend line drawn across the 2008 and 2009 lows.

Traders and investors please be aware that the “Flash Crash” of May 6th. was not an isolated incident. I attach two recent examples of similar “events”. The forces that worked in May last are still alive and functioning, however, rather than directing their forces market-wise, they are now targeting specific stocks with very profitable consequences.

Growth and investment thrives when executives have confidence in the future, when prospects for growth are based on expected outcomes. When fear, uncertainty and doubt dominate, companies tighten their purse strings and hold off on any new hiring and investment. The FUD factor (fear, uncertainty and doubt) leads to a weaker economy.

There is a letter by Marcus Tullius Cicero, dated 18 December 50 B.C. This letter was written to his friend Atticus on the eve of the Roman Civil War. He wrote as follows: "The political situation alarms me deeply, and so far I have found scarcely anybody who is not for giving Caesar what he demands rather than fighting it out."

So let’s not talk of double-dips. Let’s face the reality that the real economy’s first dip is still underway, and that's not a bad thing - much better than a double-dip!

Private citizen, Alan Greenspan, could afford to be blunt. “Our choices right now,” he said in early August 2010, “are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

I was pounding pavement instead of kicking rocks recently, on Wall Street of all places. There were Suits hanging around outside the familiar iconic buildings, despondently smoking cigarettes. In my surely biased opinion, the feel of the place was distinctly less energetic than usual.

Of all the belief systems of Wall Street, few can claim the devoted following of the Efficient Market Hypothesis, the idea that stock prices adhere to the same laws of supply-and-demand that govern retail products. Once coined the theoretical "Parthenon" of economics, this notion has consistently endured the test of time until now. Academics and advisors across the globe are currently exposing crack after crack in the "Efficient" model so deep as to bring the entire theory crashing to the ground.

In his weekly radio address this past Saturday, President Obama happily commemorated the 75th anniversary of Social Security. From my perspective, the milestone is nothing to celebrate. For although the president spoke earnestly about the "obligation to keep the promise" of Social Security, in reality, the program will wreck the government's finances within 10 years.