Wretchedness of Market "Management"

Wealth cannot be dropped by helicopters. The solutions to the issues facing humanity lie beyond the realms of finance.

The first four charts below require no further comment. The Dow Jones consists of 30 stocks and it did not break to a new low on June 30th 2010. The Standard and Poor consists of 500 stocks and it did break to a new low (Charts courtesy stockcharts.com)

The next two charts reflect a different scale (2% X 3 box reversal)

If you study the next chart below (5% X 3 box reversal) you will see what happened following 2003. The market spiked from 865 to 1553 and then pulled all the way back to where it started from. "Theory" says, the market will pull back this time to at least 677.

The two upward spikes (from 2003 and from 2009) were caused by Fed intervention.

Not how bond yields dropped to a new low in 2003

Note how, from the chart below, M3 money supply spiked upwards in 2003, then fell in 2004 and then was ramped upwards until early 2010 (Source: http://nowandfutures.com/key_stats.html)

In early 2010 the ramping stopped. In early 2010 equity markets gave their first major sell signal. (See: www.marketoracle.co.uk/Article16769.html written by this author and published on January 25th 2010)

Note also how the bond yield tanked immediately following the September 2008 crash - which crash was anticipated in the opening chapter of Beyond Neanderthal (published in June 2008).

The current market behaviour was also anticipated in the following article: www.marketoracle.co.uk/Article11361.html (Published June 16th, 2009)

In this June 2009 article reference was made to an earlier article - published in March 2009 - which explained why the rising stock market prices should be regarded as a technical bounce within a Primary Bear Market. (See: http://www.marketoracle.co.uk/Article9758.html)

Conclusion

In the interests of avoiding a long and rambling dissertation, the following is the "bottom line" conclusion of all the above and the preceding articles referred to (and some which I have also written but were not referred to here):

The Federal Reserve System does not exist for the benefit of the voting public. Whilst, ostensibly, it manages markets to smooth out the booms and busts, the reality is that it artificially prolongs the boom which, when the cycle reverses, results in a Primary Bear Market which is more savage than it would have been had the market just been left to its own devices. The reality is that the primary beneficiaries of the machinations of the Federal Reserve System are those who participate in the financial markets. These beneficiaries, when the markets eventually top out, fall away, glutted and satiated - leaving those who populate the opposite end of the financial spectrum financially destitute, confused and wretched. Wealth is created by entrepreneurial value-add activity. Economic growth is "driven" by small businesses which are owned by entrepreneurs and which are established to fill gaps in the market place. But these drivers are the visible drivers. The invisible driver is "energy". The emergence of a new energy paradigm drives the emergence of new technologies. The new technologies are adapted to facilitate the creation of new products which replace legacy technology products. The "enemies" of these new technology products are the owners of the legacy technology products who are fat and happy. They do not want change. So they divert part of their cash flows to buy political influence to block the change. At the end of the day that is why the Kyoto Protocols were not ratified by the USA and Australia. The arguments regarding Carbon Dioxide causing Climate Change were just a side show. Climate change is driven by Astronomical forces. CO2 plays a small (but significant) role.

Author Comment

For almost 40 years I have been thinking about the drivers of world economic activity - but from a sociological perspective as opposed to a materialistic perspective. The next "wave" of energy will be Natural Gas but, in my view, it will not be sufficiently powerful to drive the world economy to new heights. The reason for this is that the world's population has grown too large, too quickly; which is why the "energy per capita" output of fossil fuels has recently begun to contract. In my view, the sociological issues will not be addressed (as they have in historical times) by a relatively short, sharp, war. The US, for example, has seen its Defense Spending fall from 9.2% of GDP in the Cold War to around 4.2% today; and this ratio will likely fall further because Baby Boom entitlements are crowding out defense spending. In any event, nearly half of the US's personnel on the ground in places such as Iraq and Afghanistan are contract workers. Wars are won on heroism. Money is not a cause to die for. When they are facing death, contractor behaviour will become unreliable. Therefore, the economic pressures will be long and lingering. The best we can hope for is that the Natural Gas wave will allow us to tread water whilst the world's economic infrastructure is repaired. This will likely take 10-15 years from now. From 2025 onwards a new energy paradigm will (in theory) become sufficiently commercially viable to drive the world economy to new heights. There are those who believe that paradigm will be Nuclear Fission. I am currently drafting the manuscript of a factional novel - due for completion in 9-12 months time, which will take a hard-nosed but even-handed look at nuclear fission. The obstacles to success of Nuclear Fission as an economic driver go beyond merely technical issues. They go to the heart of how modern society is structured. In the meantime, Beyond Neanderthal remains (in my view) an unusually important book because it takes a holistic view of human society from the year 3,113 BCE to the present day. It examines the human issues which will need to be addressed, regardless of which energy paradigm we may finally embrace. It also examines - in some detail - a possible alternative to nuclear fission. We need to stop kidding ourselves. Whilst wind and solar are technologically very valuable and important technologies, they currently produce a tiny proportion of the total energy consumed in the world. I have heard some scientists make the case why "base-load" energy will be capable of being provided by solar and wind. They may be right, but that will require a paradigm shift in energy storage technologies (batteries). Lithium batteries are currently the "fashionable" proposed response to this challenge. Let's not kid ourselves. What is needed is "industrial strength" energy storage technologies. Beyond Neanderthalis a factional novel which proposes an alternative, outside-the-box, industrial strength response. It can be ordered via the website below or via Amazon. There have been claims made (credible at face value) that when gold is modified in a specific manner at nano-particle level it becomes electrically superconductive. Superconductive material has properties which will allow for storage of large (industrial strength) charges of electricity. The modification process was patented in 1989 under British Patent #GB2,219,995A.