Stock Market Rebound Raises Red Flags For Economists, Investors

The Washington Post:

With a close over 10,270 on Friday, the Dow Jones industrial average had its best showing of 2009. Like the day a few weeks earlier when it broke the five-figure mark for the first time since October 2008, the market's achievement was greeted not by champagne and celebration, but by introspection among economists and investors. Can this rally be trusted?

Read the whole story: The Washington Post

Comments

[TJCole]

It's not investing any more folks, it's gambling with swindlers, liars and cheats.....good luck..!

[LeftCoastLarry]

The article contradicts itself on one point I believe.
It states that the value in real terms based on its relative value to the rest of the world is 75% of its stated worth. So a DOW of 7500 seems hardly over valued given the tendency of corporations to go global.
Disclaimer: Just a casual observation by someone who does not claim to be an expert in these matters. Just doing the best I can to try to understand them.

[Oldtimer]

For the last five or six years I have viewed the stock market's barometer as a measure
of th destruction of the working class. The better the market does the worse off
the American worker is.
And on American corporate TV it is all about how great the stock market is.

[shivasquest]

Let the games go on ...and on..and on.....

[milkman]

Who is "Martha C White"? The only thing i can find about this person is a few articles and that she is a "free lance journalist". It would be nice to know where she went to school, her age etc. It might make her a bit more credible.

[xlntcat]

Whoever she is, she has no background in economics and her conclusions are seriously flawed. Other than the financial system, the balance sheets of all other sectors are more robust than they have been in years. Companies probably over-reacted to the crisis and became mean and lean. Problems remain on the balance sheets of banks and in the housing sector but the situatiion is no where near what the jounalist painted it to be.

[muckraker3]

The dow jones has very little to do with the American economy. most of their profits come from overseas.

[Gretel1or2]

Intreresting, because earlier this year, when the DOW was tanking for a while, the MSM was blaming Obama's "talking down the economy" for the drop. Do you recall this?

[xlntcat]

And before blaming him for it tanking by talking down the economy, they screamed if he didn't appear before cameras every day of the transition because the market stabilized when he appeared.
The market is comprised of a bunch of superstitious gamblers who react to inane things.

[gs-425]

The MSM blaming Obama??? I have yet to see that from the MSM.

[roninroshi]

Greed and Fear motivates the Stock Market...

[xlntcat]

Well, you are discounting that the vast majority of working American's were invested in the stock market through 401Ks and tax deferred retirement accounts. There were very few middleclass Americans who were hurt by the crash. Those who took a deep breath and rode it out have made back 60% of their loses.

[bluevase]

The fact remains: the DOW was 10,000 nine years ago. If you put your money in a regular savings account, even with a low return, over the last nine years, you would have more money now than you would have if you kept it in the stock market.

[HamletsMill]

By April 1930 the stock market had regained 95% from the October 1929 crash just like it has from March 2009 to November 2009. Then the other shoe dropped and the stock market crashed seven more times like a ball rolling down a staircase. By July 1932 it had lost 95% AGAIN and never recovered for 12 more years. THAT was the Great Depression. The initial 1929-1930 rally was an insider professional manipulation rally of stock bargain hunters and short sellers. It was not real investment. It had no legs. The Smoot-Hawley Tariff Act was implemented for the knee jerk orthodox economic beliefs of the time causing the exact opposite result of it's intention. Today's orthodoxy is Keynesian economics combined with insider TBTF collusion with the Federal Reserve and the Treasury. So far so good. But what unforeseen fissionable event is out there under the water line? I say it is currency speculation being fueled by the cheap money made available for the crony banks. We'll see how it goes in the days and months ahead.

[Carolab]

HamletsMill -- read this piece by Webster Tarpley from August 2009:

Snip:

Today, therefore, we are, so to speak, in the trough between the October 1929 wave (which corresponds to the derivatives crisis and banking panic of 2008) and the September 1931 wave, which this time around is highly likely to take the form of a hyperinflationary dollar crisis, or in other words a hyper stagflation and depression of the world economy radiating out from Wall Street and the City of London.

The world needs to go toward a new pro-growth world monetary system in which the euro, the yen, the dollar, the ruble, the Chinese yuan, a possible Latin American monetary unit, and a possible Arab monetary unit would all be included.

We need to wipe out the derivatives bubble with a 1% Tobin tax or securities transfer tax, on all speculative financial transactions. The top Wall Street banks are zombie institutions that need to be seized and liquidated under Chapter 7 bankruptcy. Foreclosures should be banned outright for five years or for the duration of the depression. The Federal Reserve should be seized and nationalized, and used as a vehicle to issue 0% Federal credit for productive activities only, not for speculation.

Science drivers in the fields of space exploration and colonization, high energy physics, and biomedical research should also be fully funded in this way to provide technological modernization.

The social safety net needs to be expanded and developed.

http://www.globalresearch.ca/index.php?context=va&aid=14801

[HamletsMill]

He is right. Outstanding piece. I agree with you Cab that it is going to be currency speculation that sets off the next unforeseen chain reaction fissionable event. Are their derivatives on currency speculation? There must be I would think. There are going to be big plays there with all the free money being pumped into the system to the crony banks. Remember Ellen Brown's analysis on the true causes of the Weimar inflation.

http://www.webofdebt.com/articles/hyperinflation.php

It is all still full tilt pump and dump. I have a very bad feeling, Carolab. A very bad feeling in my bones. I hope I am dead wrong. But there is no longer any sanity in our financial system. It is not investing. It is gambling in a rigged casino.

[HenryDavid]

"The initial 1929-1930 rally was an insider professional manipulation rally of stock bargain hunters and short sellers."

Yes, a group of the very rich (including Joseph Kennedy) made incredible fortunes from this rigged game. Such is the mode for building dynasties.

In October 1987, the game was on again. Overnight, the stock market dropped almost 25% in value. Again, manipulation of huge blocks of stock. Investors were later told that this loophole had now been closed. Actually, the culprits or their successors just wait 20 or so years for the public to forget.

[4TJefferson]

Humm fuzzy math? The market peaked at 381 in September of '29 and never rose above 294 in April of '30. That is 77% not 95%. Now, in October of '29 it hit 352 but again that is 85% not 95%. Also, I do not believe that GDP rose again until '33 or '34.

[xlntcat]

I can't remember the exact number but during FDR's second term the GOP was down in the teens in the Senate.

[HamletsMill]

I got it from a link I will try to find and post. The author did explain that the extra 13% comes from starting on Black Thursday and then figuring it from some kind of month to month chart. But I feel 85% will still fit that analysis to make the point. the 1929-1930 rally was a fools rally that covered up the underlying weakness. Then the other shoe fell and the rest is history. I hope I am dead wrong. I really do. But I don't see anything real here in November 2009. It is just financial plays of rearranging the deck chairs on the Titanic.

[gs-425]

"But what unforeseen fissionable event is out there under the water line?"

Commercial Real Estate.

[SimJack]

Fissionable events? Interesting turn of a phrase HM. Modern investors aren't concerned about 'real' corporate value, just how to flip for profit. Almost all of this 'artificial' increase in stock prices will quickly find it's way into the offshore accounts of those that got in low/get out high as well as the upper level corporate managers and board members, of course. They're doing a good job too, of luring in institutional (e.g. 401K fund managers) along with home schooled individual 'investors'. As an extreme example, let me mention the 'play' and returns on numerous 'zombie' stocks have realized since March 2009. Some saw as much as 2,000% returns! Factor in that during the Depression the US dollar was still coupled to the gold standard whereas today the $$ is 'fiat' money and you can begin to see through the smoke and mirrors of what is happening in the market. After a chain-reaction of rapid fissionable events there is not much left except ashes and rubble. I hope you are prepared.

[HamletsMill]

I totally agree SimJack. Totally. It is all now the smoke and mirrors casino economy. A high frequency trading vacuum system still going strong on the money of duped suckers. I am telling everyone I know to very quiently get out of their 401K before the other shoe drops.

[anonimost]

The market will make a normal correction next week around 18 19 and 20th because that is the normal cycle.

The overall trend is bullish off of the July lows and will remain so despite the correction that will occur next week and all the medium to steep corrections that are yet to come.

For those who cheer Wall St's demise the last thing they should have is a 401K or personal IRA because they are cheering their own downfall.

[TheBMChief]

Yes, cheering. Good. Buh bye crooks

[hypnotoad72]

Without proper paying jobs, nobody can save for retirement.

[iplaw]

Don't worry without preventive health care in your 50s your retirement won't last that long:)

[Carolab]

Unless you put your 401K or personal IRA into cash, that is, as I did months ago.

[HamletsMill]

Good move.

Why the Stock Market Should Crash
http://seekingalpha.com/article/173607-why-the-stock-market-should-crash?source=email

[hypnotoad72]

money.cnn.com and other sources have dozens of articles discussing how a 'correction' will happen soon, how many stocks are over-valued, how many have quietly been selling, and so on...

[confuseddemocrat]

yes ...some call this the "echo bubble"...­..........­......

[hellboundtrain]

Don't give a thought about the mega trillions in swaps and derivatives!
Everything is just fine! Fine, fine, fine! Everything is just fine!

[HenryDavid]

Right. And, we can rest easy since we've been assured by Goldman Sachs CEO Lloyd Blankfein that he's doing "God's work." I believe Bin Laden said the same thing about himself. With religious and spiritual advisers like these two, how can we lose? I see a new Wall Street dynasty in its birthing. Blankfein Bin Laden Unlimited--"We make things happen."

[iplaw]

Goldman Sachs hurt America a lot more than Bin Laden.

[Hysterian68]

"The stock market might be climbing, but retail investors lack confidence in it."

And for very good reason. They are not going to be sucker bait and buy into a market controlled by short-term traders ready to pull the rug right out from under them the moment they start to sink money into financial stocks.

Where is the late Lou Rukeyser host of "Wall Street Week" when we need him? To impart a note of caution and much-needed skepticism towards the endless stream of happy talkers attempting to lure flies into the Wall Street spider's parlor.

[MilwaukeeDan]

If Lou came back today, he wouldn't recognize the place. The market used to be for long term, stable investing, it has gone insane, way too much garbage involved. But that's what we get when we shifted from manufacturing to a financial services economy.

[land2341]

Too much of our basic economic system rests now on a force that is not in any way tied to free market forces. Until these are re-coupled in a meaningful way (strict regulation of high frequency trading and derivatives) or uncoupled; in that people's retirement savings and a business' actual value are not tied to something so easily manipulated by outside forces, the market will not be reliable.

As long as that which is, by and large the foundation of this economy, is not reliable, our economy will remain weak. Excessive volatility and unpredictability mean business' cannot plan. Without planning they are stuck with quarterly goals, no capital investment and no growth.

[xlntcat]

Fanned. A solution focused post.

[sophistwatch]

WS is usually a leading indicator of what is to come. If this rally is 6 months or even a year ahead of itself there will be some wobbles in the DOW but over all this could very weel be a signal that WS knows that a jobs led recovery and an ease in credit are around the corner. Thus, the current DOW could be more or less justifiable if in the near future we see some credible evidence that the bottom has been reached and that there are some minimal signs of a recovery.

Based on the long positions recently taken in Citi stock by some very savvy investors, it appears that they are betting on making a premium off of timing the recovery correctly.

When the recovery begins in earnest a bank sitting on huge cash reserves has the ability to produce abnormally high returns. Especially if interest rates begin to rise as a natural response to massive pent up demand for credit.

While I don't have a crystal ball, I would pay very close attention to what the institutional players do with stocks like Citi over the next few months. I think the first signs of a recovery might be visible by looking at which banks are lending again at significant volume and for which types of projects.

[hypnotoad72]

Optimism - very refreshing. Thank you much.

[jsarets]

Citi stock is dominated by political risk and is not a reliable indicator of the private economy.

Wall Street is at best a self-fulfilling prophecy of what is to come. Stocks are a leading indicator to the extent that investors believe that stocks are a leading indicator.

The data shows that stock indexes are behaving as concurrent indicator of unemployment. Stocks go up as unemployment goes up. Conventional wisdom in stock markets is to buy in when corporations cut jobs.

My leading indicator of job creation is a decline in the upward slope of labor productivity. That is, when the economy begins to have trouble squeezing more revenue per unit payroll. As long as labor productivity continues to shoot through the roof, any recovery on Wall Street will be jobless in the real economy.

[TFlint]

Market Down! PANIC!
Market Up! PANIC!

Wall Street - All Panic All the Time!

[iplaw]

lol, good point. What would the market have to do for them to think things were going well?