The Latest PPT Rally Fades

Massive sovereign debt loads now imperil economies and stock indices alike. The Plunge Protection Team has tried and tried to reassemble Humpty-Dumpty and put him back on the wall. The Fed is currently engaged in yet another round of Treasury note yield manipulation designed to keep the ‘man on the street’ blissfully ignorant of the deceit of debt. The PPT has apparently been busy boosting the stock indices as if to confirm the green shoots of anticipated economic recovery. Unfortunately, central banks can’t really create jobs and they can’t really foment true economic recovery. All they can do is facilitate the expansion of debt and the consolidation of capital into the hands of the elite. To this thought I say, “Bravo, gentlemen. Job well done!” Formerly sovereign nations like the US, Greece, and Italy have seen power wrenched from the hands of the elected representatives and assumed by unelected banker elites. Of course, the citizens are dumbfounded by their ignorance and rendered catatonic by their chains of patriotism. The citizens of nations have not yet realized that their nations simply exist as a conduit to ferry the harvest of a populace to the banquet of the elite. All of this takes place without a single shot being fired. The populace has volunteered to surrender their riches in exchange for an extension of debt. The populace still believes that its national leaders are representatives of the people. They still believe that they too will one day have access to the keys of prosperity. They still believe that they will be taught the secret handshake of the elite and they will be invited to join the club of affluence. But rather, the populous is being duped. They are being fleeced. The elites have a different plan.

The elites have allowed populous greed to embrace the illusion of wealth. This is accomplished through indebtedness. This expansion of debt has to be offset by collateral of gold. In other words, debt default results in confiscation of gold held by the debtor. Obviously, the populous only holds a small amount of gold. Therefore, debt expansion must be minimal as lost gold cannot be replaced. The trick is to get the populous to believe that paper money created by a central bank fosters more wealth than gold because it is expandable. Paper money can be created, multiplied, and loaned thus creating the illusion of wealth. Paper money can also be inflated so as to make the value and purchasing power decline. That inflation serves to grow the demand for credit and debt until the populous has exchanged all their gold for the illusionary gain of affluence granted by credit.

Credit, or debt, has a price. The interest coupon attached to the extended credit generally serves to mute the demand for such credit as growing debt loads lead to higher interest rates to reflect higher risks of principal default. At some point the debtors refuse to put their gold at risk because the interest rate price simply gets too high rendering repayment less likely and gold confiscation more likely. However, central bankers in the like of Greenspan and Bernanke cleverly reduced the interest rate coupons to near-zero levels in recent times so as to coax the populous into risking more of their gold in exchange for the privilege of living in debt thus promoting the illusion of wealth.

Sovereign nations have sought to promote this illusion of wealth by promising a higher living standard than can be reasonably supported by tax collection. The economies of the present are now gripped by the realization that not only is a large percentage of the populous broke but so too are the sovereign nations that have promised support and protection to their citizens.

The two largest economies in the world are the US and European Union. EU members Ireland, Portugal and Greece have accepted debt bailouts that will eventually be realized as nothing more than central bank control resulting in debt perpetuation and economic strangulation. Italy is now on the edge of accepting the same fate. All of these formerly sovereign nations have had their elected leaders removed from office and replaced with ‘BFFs‘ (Banker’s Friends Forever). While everyone knows the US economy currently struggles with its own debt load, most don’t realize the magnitude and pervasiveness of sovereign debt. For instance, in Eurozone debt web: Who owns what to whom? we see that the US has just under €11 trillion (euro equivalent) in foreign debt. However, the big four members of the EU - Germany, France, Italy, and Spain - collectively have over €12.3 trillion in foreign debt. Sadly, all of these debt addicts loan to each other so if one of them defaults, all of them will likely be dragged down the same path.

The obvious solution to excessive indebtedness is to let the defaults cleanse the system and extinguish the illusion of wealth that lies at the core of central banker seduction. Of course, this would trigger massive derivative losses that would bankrupt most of the big banks around the world. A depression would ensue but just as a forrest fire burns everything in its reach, new and stronger economic seedlings would eventually begin to grow. Central bankers would have to be forced out of the business of running sovereign nations and their plague of debt would cease. Unfortunately, this would require courage and truth from our leaders. Unfortunately, this is not going to happen. National leaders are either pathological liars or they are living in the land of delusion.

As a case in point, Mr. Obama addressed the Australian parliament (11/17/11) to affirm US intentions of expanding military presence in the Asian realm with the agreement to establish a military base in Australia. He said, “As the United States puts our fiscal house in order, we are reducing our spending...”. What makes this so ridiculous is this was the same day that the national debt in the US passed the $15 trillion mark. Worse, Congress could not even come to grips with the need to cut a single dollar from spending.

Is the US really intent on putting its fiscal house in order as Mr. Obama suggested? Is the US really going to reduce its spending? Both points are totally laughable. Why would a national leader make such mendacious statements in public?

Obviously, we cannot face the truth. Everything that might be perceived as negative has to be reconstituted as somehow positive. Let’s look at this example.

November 15, 2011 - My local newspaper printed the headline, ‘Lowe’s profit plummets, earnings forecast dims’. How depressing. The economy must be sputtering. But my spirits were lifted when I read in a leading financial publication that, ‘...Lowe’s beat EPS views by 13% and edged past sales targets’. Well, now I feel better! But which story is the truth? Which story is ‘un-spun’ to simply reflect reality? By reading both stories, what should we interpret about Lowe’s company earnings? Were they good or bad? Why does everything have to be spun like a load of dirty laundry?

So how do we direct our investments in this environment of deception? We must find what drives the stock indices. Clearly it is not driven by reality. As a suggestion, the chart below shows the Dow Jones Industrials in candlestick and the euro currency (FXE) in black for three months ending 11/18/11. This is the same concept as a weaker US dollar serves to rally the Dow as the US dollar and the euro generally move in inverse correlated trends. But the euro seems to lead the Dow and the current trend for the euro is leading to weakness in the Dow. In this sense, the Dow simply reacts to the current developments concerning the european debt problem. Investors must determine the likelihood that the Europeans will find success in managing their debt. One only has to understand this Dow - euro relationship to see the importance of a strong euro currency. The blue lines on the chart that form a pennant show a breakdown in the Dow’s fabulous rally instigated by the PPT on October 4. It may now be fading. A brief positive for the Dow might be that the end of November is upon us. In down months, the Fed has acted to boost the stock indices at the end of the month to shore up those monthly investor statements. All this massaging is designed to keep the populace spending. We shall find out whether or not government propaganda is more powerful than ballooning sovereign debt. In the meantime, the euro is the key.


Click here to enlarge

DJIA in candlestick, FXE in black - last 3 months daily
Chart courtesy StockCharts.com

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

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