Mark West
Swollen
By Mark West
"Oh my gosh!" said my wife as she looked at my daughter during dinner a couple of nights ago. "Did the sitter say anything about her eye?" At this point I looked at my daughter and noticed that her left eye was beginning to swell.
Our daughter told us that she fell and banged her head on the slide at the sitter's that afternoon. She said that the sitter didn't notice. I felt terrible for my little girl. She tends to stumble a lot, not due to clumsiness, but to the hurried pace she keeps. She is always running full throttle.
Day two, the eye is swollen shut. A trip to the doctor left us with fears of staph infection due to a scrape just above the eye where apparently she hit the slide. We were instructed to keep a mindful eye to the evolving state of the swell. Any increase or lack of decrease should result in a return trip. Our hope is that the swelling continues to reduce, leaving a big black eye.
A lot of people are watching the stock market with the same mindfulness. May 6th, just three weeks ago, the market had a "Flash Crash." The Dow Jones Industrial Average (DJIA) dropped more than 1,000 points in a half hour. WOW! Analysts have been in a tizzy trying treacherously to explain what happened.
I'm not so worried about "what" happened as I am concerned about the "why ." In this sort of scenario the "why" allows us to learn and adapt, the "what" just places blame.
It is interesting to note that all three of the major U.S. indexes have dropped more than ten percent since May 6th, indicating a Market correction. What we must understand is that the Market is swollen and still contains the same underpinnings that caused the correction. Simply, the correction didn't correct the underlying issues pressuring the Market.
A little tidbit of background tally will help us on our way. Realize that the Stock Market is important to you whether you are investing or not. The Market is a thermometer for the economy. Mind you, this does not mean that if the Market is up the economy is good and vice versa. What it does mean is the same impact factors affect the Market as they do you and me. The Market collapse didn't cause the Great Depression, but rather was the result of the Great Depression.
In the '80s we faced a "little Depression" in the wake of the Savings and Loan scandal. Interest rates were jumped to around 25% to compensate for the economic freefall. As the crisis passed, President Reagan signed Executive Order 12631creating the Working Group on Financial Markets (WGFM). Consisting of the Secretary of the U.S. Treasury, and the chairmen of the SEC, FED, and the Commodities Futures Trading Commission, this group was given the mandate to investigate, analyze, and prevent future economic crises.
The Plunge Protection Team (PPT), as it's often descriptively called, is given the duty of protecting investments. Weapons of mass financial destruction have been entrusted to them. Everything from currency (dollar) inflation/deflation, as well as the ability to stop the Market in its tracks...as it did May 6th, is at its' disposal in fighting economic recession.
We call this the Invisible Hand of the Market. As is typical with government intervention, unintended consequences have deformed the economic cycle. Mainly, we have a Market value absent more than two decades of genuine price discovery.
What is price discovery?
Anyone, like me, who is trying to sell a house, will be very familiar with this process. When you decide to sell your home an appraiser sets a value...say $150K. So you put the house on the market to sell. What if the only offer you can get is $130K? Guess what, you've discovered the genuine market price of your house...this is price discovery.
Unfortunately, governmentmanipulation intervention of the Market has prevented genuine price discovery because every time it plunges, the Invisible Hand steps in to stem the tide. We now have a Market that is over priced...swollen.
Imagine yourself, as an investor, fearful that the stock you own isn't worth what the manipulated Market places as its' value. Imagine further that you have built a bubble of other investments (derivatives) based on the value of the underlying stock. The LAST thing you really want to see is genuine price discovery. Factually, you are willing to jump at the first sign of a Market sell-off. Viola...1,000 points gone in half an hour...a Flash Crash!
Lack of price discovery is a reason for the swollen state of Market affairs. Yet it is not alone!
America is a decade overdue for a real recession. The longer we allow our representatives kick the can to the next Administration and Congress the worse the economic crisis will be when it occurs.
What we are seeing now is minor compared to what will happen when the cumulative imbalances of our debt begin to unwind unless we act soon to ease the process.
My upcoming columns will expose the impact factors involved in crippling the economic evolution that we need to happen. Impact factors such as national/individual debt, zombie corporations, geo-political strife, and societal acrimony in combination weigh on the Market on some level every day. I will also discuss what a real recession is versus this manipulated recession we are currently enduring.
For now, watch with a mindful eye the swollen state of Market affairs. Watch and hope that the swelling reduces and that all we are left with is a big black eye.
This too shall pass.
© Mark West
May 27, 2010
"Oh my gosh!" said my wife as she looked at my daughter during dinner a couple of nights ago. "Did the sitter say anything about her eye?" At this point I looked at my daughter and noticed that her left eye was beginning to swell.
Our daughter told us that she fell and banged her head on the slide at the sitter's that afternoon. She said that the sitter didn't notice. I felt terrible for my little girl. She tends to stumble a lot, not due to clumsiness, but to the hurried pace she keeps. She is always running full throttle.
Day two, the eye is swollen shut. A trip to the doctor left us with fears of staph infection due to a scrape just above the eye where apparently she hit the slide. We were instructed to keep a mindful eye to the evolving state of the swell. Any increase or lack of decrease should result in a return trip. Our hope is that the swelling continues to reduce, leaving a big black eye.
A lot of people are watching the stock market with the same mindfulness. May 6th, just three weeks ago, the market had a "Flash Crash." The Dow Jones Industrial Average (DJIA) dropped more than 1,000 points in a half hour. WOW! Analysts have been in a tizzy trying treacherously to explain what happened.
I'm not so worried about "what" happened as I am concerned about the "why ." In this sort of scenario the "why" allows us to learn and adapt, the "what" just places blame.
It is interesting to note that all three of the major U.S. indexes have dropped more than ten percent since May 6th, indicating a Market correction. What we must understand is that the Market is swollen and still contains the same underpinnings that caused the correction. Simply, the correction didn't correct the underlying issues pressuring the Market.
A little tidbit of background tally will help us on our way. Realize that the Stock Market is important to you whether you are investing or not. The Market is a thermometer for the economy. Mind you, this does not mean that if the Market is up the economy is good and vice versa. What it does mean is the same impact factors affect the Market as they do you and me. The Market collapse didn't cause the Great Depression, but rather was the result of the Great Depression.
In the '80s we faced a "little Depression" in the wake of the Savings and Loan scandal. Interest rates were jumped to around 25% to compensate for the economic freefall. As the crisis passed, President Reagan signed Executive Order 12631creating the Working Group on Financial Markets (WGFM). Consisting of the Secretary of the U.S. Treasury, and the chairmen of the SEC, FED, and the Commodities Futures Trading Commission, this group was given the mandate to investigate, analyze, and prevent future economic crises.
The Plunge Protection Team (PPT), as it's often descriptively called, is given the duty of protecting investments. Weapons of mass financial destruction have been entrusted to them. Everything from currency (dollar) inflation/deflation, as well as the ability to stop the Market in its tracks...as it did May 6th, is at its' disposal in fighting economic recession.
We call this the Invisible Hand of the Market. As is typical with government intervention, unintended consequences have deformed the economic cycle. Mainly, we have a Market value absent more than two decades of genuine price discovery.
What is price discovery?
Anyone, like me, who is trying to sell a house, will be very familiar with this process. When you decide to sell your home an appraiser sets a value...say $150K. So you put the house on the market to sell. What if the only offer you can get is $130K? Guess what, you've discovered the genuine market price of your house...this is price discovery.
Unfortunately, government
Imagine yourself, as an investor, fearful that the stock you own isn't worth what the manipulated Market places as its' value. Imagine further that you have built a bubble of other investments (derivatives) based on the value of the underlying stock. The LAST thing you really want to see is genuine price discovery. Factually, you are willing to jump at the first sign of a Market sell-off. Viola...1,000 points gone in half an hour...a Flash Crash!
Lack of price discovery is a reason for the swollen state of Market affairs. Yet it is not alone!
America is a decade overdue for a real recession. The longer we allow our representatives kick the can to the next Administration and Congress the worse the economic crisis will be when it occurs.
What we are seeing now is minor compared to what will happen when the cumulative imbalances of our debt begin to unwind unless we act soon to ease the process.
My upcoming columns will expose the impact factors involved in crippling the economic evolution that we need to happen. Impact factors such as national/individual debt, zombie corporations, geo-political strife, and societal acrimony in combination weigh on the Market on some level every day. I will also discuss what a real recession is versus this manipulated recession we are currently enduring.
For now, watch with a mindful eye the swollen state of Market affairs. Watch and hope that the swelling reduces and that all we are left with is a big black eye.
This too shall pass.
© Mark West
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