The Big Banks will not let the “market” drop.
By Daniel at 6 February, 2010, 11:46 pm
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I was bearish until it occurred to me that elevated stock prices are just part of the bailout/recovery plan. This is the only way to explain the sudden reversal in the stock market in March, the disproportionate rise of stock prices relative to the economy and earnings, and the lack of any significant correction in spite of continued underlying bad news.
Except for small downturns to make it look realistic, there will be no significant correction because the Big Banks will prevent it. In return for the fed/gov’t bailout goodies, the Big Banks were required to start moving the stock market up in March and then keep it up. Now after establishing huge positions after filling in the crater during March lows, all they have to do is fill in the pot holes to lure more investors in and keep the market moving up.
The Big Banks can start cashing out when the herd starts jumping in to prevent an obvious bubble, but not enough to trigger a sell off. Keeping the market elevated is also part of their restitution for screwing the middle class, and it helps prevent substantial market reform and regulation since negative public sentiment is subsiding.
Consumers become more confident as their net worth recovers due to stock market recovery and housing prices start to gain a little traction. This will be feedback loop to the Big Banks who will make more money off loans and more stable home prices.
In return, the Big Banks get recapitalized through equity offerings and investment/trading gains, and the ability to make huge profits on their new loans using free money from the fed. They also get bigger as smaller banks, which were left out of the deal, fail.
The stress tests were a side show to reinforce the scheme. They didn’t have to be too stressful because the assumptions were based on the plan working. Mark-to-market accounting rules were changed to allow Big Banks to keep toxic asset accumulation behind the scenes to help give the illusion that everything is getting better. To put the icing on the cake, the fed keeps feeding the press with their positive outlook which Big Media passes on without a blink of the eye.
Capitalism killed itself – perhaps it was the only way out. It is all a big show now - the stock market is basically a propaganda machine now – a vehicle to maintain the status quo of those at the top.
Thus, even though the bears have the best argument based on economic data, the stock market is still guaranteed to go up - the recovery plan is based on it.
- theBuddhist_Investor
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