Irrational Exuberance, Part II or Squared to the Power of X

Talk about irrational exuberance, the term applied to stock market speculation by the liar-crook-Fed Chairman Alan Greenspan back in the heady days of the internet revolution of 1996 (actually, December 5, 1996), when the "esteemed" Chairman uttered:

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

While Greenspan was a few years ahead of his time - the great dotcom bust occurred in 2000 - his warning to speculative investments was not well-heeded then, just as today, practically anybody not predicting unlimited growth potential and stocks soaring to new levels is routinely given short shrift by the establishment Wall Street press. But suppose someone were to look at the past three-and-a-half weeks (or, extrapolating out to the past three-and-a-half years)and say something to the effect:

Let me get this straight. The hopes of the US stock market are pinned to perpetual zero interest rates at home and hope that a collective of mostly bankrupt European nations will cobble together a lending facility designed to keep certain mostly Southern European governments from defaulting on their massive debts by bailing out banks and then borrowing even more hundreds of billions of euros from them. That sends stocks ten to twelve per cent higher over the course of the past three-and-a-half weeks and we haven't even seen details of the plan. I would call that either wishful thinking, a complete fake-out or irrational exuberance squared and to the power of X, X being the number of idiots who believe issuance of more debt will solve a problem that began because of excessive debt.

Perhaps the imagined quotation is not quite as erudite or economically succinct as Greenspan's more famous lines, but the message is very clear, nonetheless and it is exactly how the Europeans plan to solve their various deep and myriad problems with finance. Most of the known world is so heavily indebted - spilt between governments, banks and businesses and individual households - that most should be barred from going further into debt. Fortunately for most Americans, this is exactly the case, as banks have not lent to anybody or anything besides the most creditworthy since the financial calamities of 2008. The mega-banks' own fears of their own imminent demise forced them into tighter lending standards after they realized (too late, though, since they are bankers, after all, they should have known better) that the trillions of dollars in mortgage loans made to people without adequate credit, jobs or income might just default and spread the contagion of massive debt default throughout the banking system.

Let's face it, they knew exactly what they were doing, peddling s&*t securities, disguised as top-shelf, AAA credit risk, by bundling together all of the garbage sub-prime, alt-A and payday loan-type mortgage junk into massive tranches of mortgage-backed securities and selling them to whomever came up with the cash. The bankers didn't really care that they would implode the system, knowing full well that their well-paid lackeys, aka bought-and-paid-for elected representatives of the US Congress and the Presidency would not allow them to fail. Besides, they had already absconded with billions of dollars in fees and other payments from the unsuspecting suckers they swindled.

Of course, this is now ancient history, as none of the bankers have gone to jail, nor even been investigated, much less tried for their egregious crimes. Instead we have the little show of insider trading by a couple of immigrants, Raj Rajaratnam (already indicted, tried and sentenced) and Rajat Gupta (indicted today on five counts of securities fraud and one count of conspiracy to commit securities fraud) to act as fall guys for the white, Wall Street elite.

Both are (were) rich, important and notably non-white and not natural-born American citizens. Rajaratnam was born in Sri Lanka and is of Tamil descent. Gupta was born in India. The message is clear. White guys who commit white collar crimes walk free. All others can, and likely will, be used as fall guys, protecting the brotherhood of the saintly banker elite. These guys may do jail time, but it won't be tough. Rajaratnam is already appealing his conviction and 11-year sentence, a process that could take years. Meanwhile, he's still free, at least until November 28. That's the date the judge set for him to surrender to authorities. Place your wagers on whether "Raj" flees the country or is admitted to a hospital. He suffers from multiple health issues, including diabetes.

It's pretty clear that these dark-skinned fellows are just actors in a well-scripted play that goeswell outside the bounds of traditional jurisprudence. Steal a car or a sell a dime bag of grass and justice will be meted out swiftly and surely. Steal billions of dollars and walk away.

So, expecting Wall Street to respond properly to the current European stupidity is just another example of the absurdity of economics, circa. 2011. Greece is already half-way to default, with Italy, Belgium and Spain close behind. Portugal and Ireland have lost their sovereignty to the international banking cartel, the citizens of those countries reduced to nothing more than indentured debt slaves. France teeters on the precipice of recession and the whole bunch will probably take down Germany - the only semi-stable country on the continent - with the lot.

All of that adds up to a buying frenzy of US stocks. If this isn't the most cockeyed, woeful example of irrational exuberance ever seen, I challenge anybody to make sense of it all. The contagion from the eventual failure of the Euro will spread like wildfire around the globe, affecting everything we buy, sell or touch. But until then, buy stocks, You can always sell them just before the next market crash.

Dow 11,869.04, +162.42 (1.39%)
NASDAQ 2,650.67, +12.25 (0.46%)
S&P 500 1,242.00, +12.95 (1.05%)
NYSE Composite 7,506.15, +105.33 (1.42%)
NASDAQ Volume 2,153,615,250
NYSE Volume 4,873,521,000
Combined NYSE & NASDAQ Advance - Decline: 4346-1278
Combined NYSE & NASDAQ New highs - New lows: 87-52
WTI crude oil: 90.92, -2.25
Gold: 1,723.50, +23.10
Silver: 33.31, +0.26

Are Penny Stocks Key to the Investment Future?

It's well known that small businesses produce the bulk of new jobs in America, year in and year out, but that thesis may be more prescient in a "muddle through" or stagnant economy, such as the one that has prevailed the past three to five years. While the general stock market has seen significant gains since the '08-09 meltdown, smaller companies, despite lack of adequate access to capital for many, have been flourishing.

Most big, corporate stock advisors or brokers will tell you that small caps are the way to go if you're looking for growth, but only nimble advisors outside the mainstream with great research, like Timothy Sykes, can offer you the next top penny stock.

Penny stocks come in all manner of varieties, from small restaurant chain concepts to high-tech startups to the popular "green" companies which don't generally get the press or the credit for their risk-taking mindset. Finding these companies requires a lot of time and research, something the average home investor doesn't have and that's the exact reason why scouring the web for information on particular companies may not be the best approach.

In addition to some of these companies having little time nor money to spend on press releases and public relations, by the time big breakthroughs occur, it's often too late, the stock having already made a significant move.

That is why it's useful to follow Sykes and maybe a few other experts in the penny stock universe, as gains on some of these top picks have produced extraordinary gains in a relatively short period of time.

Small business is the driver of growth in America, and penny stocks are the instrument by which the average investor can keep pace or exceed the ultra-insiders of Wall Street. Think about it. Wouldn't it be better to be in on the ground floor of a little-known company with a load of upside, than a run-of-the-mill S&P 500 company whose every move is telegraphed over CNBC and more than likely previously dished out to the big brokerages? Why pin one's hopes on the big Wall Street-connected companies, many of which are responsible for the high unemployment and tight banking policies that have slowed US productivity to a crawl, when you can invest in some of the most exciting, albeit risky, ventures on the planet.

If you're looking for an edge and don't mind high risk, Timothy Sykes and his website are probably worth the time to investigate.

Euro Finance Ministers Meeting Cancelled; US Stocks Take a Dive

Anybody with half a brain and even a cursory understanding of Europe's debt crisis (or, circus) could have and should have seen this coming a mile away: the meeting of European finance ministers, scheduled for Wednesday, has been cancelled. While the general summit of Euro zone nation leaders will still occur, as planned, the finance minister meeting was supposed to issue some kind of document or plan outlining the strategy of saving Greece and other nations from defaulting.

The 27 member ecofin meeting was supposed to have dealt with the recapitalization of many of Europe's largest banks, most of which have been decimated by ongoing debt issues in Greece, Portugal and Ireland. While this particular piece of the Euro puzzle has temporarily been put on hold, the general summit of Eurozone leaders will combine the bank issues with two other important elements: how to deal with the losses incurred by banks which loaned to Greece (the bond "haircut") and how large (and leveraged) the bailout EFSF fund will be.

As has been the case in the recent past, US stocks took a major hit on news that Europe was still inching toward a comprehensive solution. Expert opinion now believes that the Euro situation will take months and probably years to be worked out; any proposed solutions will have to go through a rigorous process of scrutiny and ratification by member nations. In the meantime, Europe is sinking faster and faster into recession and citizens are rightfully angered over the inability of leaders to come to any kind of meaningful consensus on the various great problems.

If this seems like deja vu all over again, it's because the Europeans are master foot-draggers, routinely missing deadlines and making delays - for any manner of reasons - on important, pressing issues. This is just more of the same, and the game is getting very old, very quickly.

Here in the US, the S&P/Case-Shiller 20-city and 10-city composite readings for August came in below their year-ago levels by 3.8 percent and 3.5 percent, respectively, though both indices edged up slightly over July, posting a gain of 0.2%. In essence, what the Case-Shiller survey found was that while home prices are still falling, year-over-year, they are not falling as quickly, though that's of little comfort to the millions of homeowners whose homes are worth well less than what they paid for them, a condition known as being underwater.

At 10:00 am EDT, the Conference Board released its latest consumer confidence reading, finding that confidence was at a level not seen since the depths of the 2008-09 recession, at 39.8. Also, only 9.1% of respondents are expecting business conditions to improve over the next six months, a depressing figure considering that the US is supposed to be a good 12-18 months into recovery.

Stock traders sense that things are not going well, despite the markets in October having one of their best months of the year. Sooner or later the truth will set everyone free.

Dow 11,706.62 207.00 (1.74%)
NASDAQ 2,638.42 61.02 (2.26%)
S&P 500 1,229.05 25.14 (2.00%)
NYSE Compos 7,400.82 146.81 (1.95%)
NASDAQ Volume 1,810,687,875.00
NYSE Volume 4,406,436,500
Combined NYSE & NASDAQ Advance - Decline: 1024-4602
Combined NYSE & NASDAQ New highs - New lows: 67-35
WTI crude oil: 93.17, +1.90
Gold: 1,700.40, +48.10
Silver: 33.05, +1.41

Euro Rising Amid Escalating Debt Crisis; Gold Worth $11,000/Ounce?

There are now differing views over the ongoing European debt crisis, which made Monday a banner day for the pair trade of short US dollar/long US stocks.

The view widely held by Wall Street influencers is the one promoted by the well-compromised "news" organization, Reuters, a proxy for the Wall Street/Washington oligarchy currently under attack by the Occupy Wall Street and other, spawned protest movements. Reuters reports that there is growing confidence that the EU leaders will forge a broad agreement with which to deal with the Euro-zone's debt issues by Wednesday of this week. Such wishful thinking pushed the Euro to a six-week high against the dollar, sparking the rally in US equities on the cheaper - for now - US dollar.

Alternately, NPR, in the embedded radio clip below, headlined its story Agreement On Debt Crisis Eludes EU Leaders, citing differences in approach by the various leaders amid calls for austere cutbacks in Italy to stem its own set of problems.



Realistically, nobody has a very good handle on where this is all headed, though widespread agreement seems a long shot. Greece has needed two rounds of bailout money already, and the country has been forced to suffer through doubt, derision, protests, strikes and riots in recent days as the government agreed to severe austerity measures, cutbacks in services and layoffs to help the government avoid running out of money.

Some kind of European plan is supposed to be released to the public by Wednesday, so there's probably no reason for stocks or the Euro/Dollar trade to deviate much until then. Details of the plan have been hashed about, though nothing is for certain except that it will include bailout money for some of Europe's largest banks (called: recapitalization) and some funding and dispersal mechanisms for the EFSF, the newly-created sovereign debt fund that is supposed to provide much-needed liquidity to the Euro system. Of course, the Euro money machine is beginning to look a lot like another global Ponzi scheme, with indebted countries providing funding through various channels to even-worse indebted nations like Greece, Ireland, Italy, Spain and Portugal.

Anyone with a view of history longer than his or her current lifespan might have a better idea of where the Greek crisis is headed and it is most certainly not a happy place. Usually, when governments spend or steal too much of their citizens' money, overtaxing and under-delivering on promises and services, it means the end of the reigning regime, either trough violent overthrow or peaceful negotiation, though the former, albeit it's bloody features, has been more successful through the pantheon of history in securing the absolute rights of individuals while removing parasitic forces of government from the inflicted nation.

In Greece, it appears that the rowdy protesters have slowly but steadily been gaining ground and, with the emergence of Occupy Wall Street and other such groups, populist movements seem to be spreading faster than government efforts to defame or derail the groups. One interesting development was Michael Moore's appearance on CNBC this morning.

While the interview was not a first for Moore on CNBC, the filmmaker and champion of the "little guy" was allowed on air for over 11 minutes, and made some strong points on the inequitable economic situation facing all but America's wealthiest people. The piece is well worth the viewing time, as Moore made his case to Carl Quintanilla, a reporter and anchor who might just have something of a conscience.



One other story of note on the day is James Turk's elegant arithmetic in making his case why gold should be $11,000 an ounce. (PS: at a 16:1 gold:silver ratio - the traditional ratio - that would make the current silver price of around $31 per ounce, seem even more ridiculous. Something along the lines of $687/ounce would be appropriate.

Dow 11,913.62, +104.83 (0.89%)
NASDAQ 2,699.44, +61.98 (2.35%)
S&P 500 1,254.19, +15.94 (1.29%)
NYSE Composite 7,547.63, +116.53 (1.57%)
NASDAQ Volume 1,988,391,000
NYSE Volume 4,291,371,500
Combined NYSE & NASDAQ Advance - Decline: 4660-1018
Combined NYSE & NASDAQ New highs - New lows: 125-24
WTI crude oil: 91.27, +3.87
Gold: 1,652.30, +16.20
Silver: 31.64, +0.45

US Equities Rise 4th Straight Week on Euro-phoria, Earnings

Whatever happens in Europe over the next week or so apparently is going to be positive, if one reads the tea leaves of Wall Street correctly. Either that, or, a lot of people cashed in on some front-end options contracts, as today was October options expiration.

While a 200+ point gain on the Dow Jones Industrials is always a good way to end the week, in the current environment, there are still skeptics about, though caution has not been a solid strategy these past four weeks as the Dow put in its fourth consecutive weekly gain, amidst positive earnings news from a host of companies, including McDonald's (MCD), Honeywell (HON) and Verizon (VZ).

Thumbing their collective noses at naysayers and the protesters of the Occupy Wall Street movement, Wall Streeters pushed stocks to their highest levels since August 8th, and beyond the recent range that had kept the major indices bottled up for the past two-and-a-half months.

The Dow would have been down for the week without Friday's huge upswing, as Monday's 247-point decline took some getting past. For the week the Dow ended up 164 points, the S&P added 38, but the NASDAQ actually lost 30 points, mostly on the earnings miss by market leader Apple (AAPL).

Overall sentiment has turned bullish, though headwinds still prevail and caution is still advised by many. At least on this day, worries over the future of Greece, Italy and the Euro nations were out of focus and the market traded somewhat on fundamentals provided by strong earnings from a host of companies.

It was an odd day in that almost everything was up, including favored commodities, oil, gold and even silver.

Economic data continued to suggest sluggish growth as unemployment claims were down, though not by much, and leading indicators edged 0.2% higher. Existing home sales were disappointing, reported on Thursday at an annual rate of 4.91M for September. The US economy is still balanced on a precipice, buoyed on one side by smashing results from corporations, but weighed down by housing, employment and the European debt crisis.

For today, at least, the stock market shrugged off the negativity and moved ahead boldly. That will likely change in coming weeks as Europe continues to grapple with its over-leveraged conditions and US banks try to hide behind earnings manipulations. This is still not a bear market, though it could become one with more ease than most realize, though it is in everyone's best interests to keep the carousel turning.

Dow 11,808.79, +267.01 (2.31%)
NASDAQ 2,637.46, +38.84 (1.49%)
S&P 500 1,238.25, +22.86 (1.88%)
NYSE Composite 7,431.10, +157.20 (2.16%)
NASDAQ Volume 1,976,088,875
NYSE Volume 4,858,157,000
Combined NYSE & NASDAQ Advance - Decline: 5308-1180
Combined NYSE & NASDAQ New highs - New lows: 98-33
WTI crude oil: 87.40, +1.33
Gold: 1,636.10, +23.20
Silver: 31.19, +0.91