So Much For Free Markets...
After plunging to new multi-month lows earlier in the week, stocks finished out last
week barely changed. The S&P 500 edged up a fraction of a point, the Dow slipped
about 10 points and the Nasdaq composite climbed just over 22 points. Gold got
hammered and so too did the dollar as the U.S. Dollar Index plunged to a new
2-year low.
The most interesting thing about last week's trade was central bank (and their
cronies') intervention so blatant that even a die-hard believer in honest free
markets like me had to finally toss in the towel and accept the"Fed manipulated
markets" conspiracy theory. We all know that the central banks intervene in the
currency markets and there's a whole lot of evidence that they push the stock
market around as well. But last week it got personal when they crushed the gold
market.
Ok, perhaps I have no concrete data that the Fed was involved. But you tell me
something's not going on behind the scenes when Worldcom falls out of bed, the
markets plunge overnight, the dollar goes into the sewer, and yet gold, which
surged in foreign markets, somehow manages to turn lower on the Comex.
The stock indexes plunged to new lows last week and things got so ugly that some
naive"analysts" started using the"c" word (capitulation, that is) with respect to the
Worldcom news. Indeed, it looked as though the financial world was splitting at the
seams and yet gold mustered only a tiny little whimper at the open of U.S. trade
before flipping over, its belly in the air, later in the session. Disgusted with having
to do battle with a cabal of no-integrity manipulative bankers, gold bulls threw in
the towel later in the week, pushing cash gold to a 1-month low.
Why push around gold? Because it's a small market that is easy for the Fed to push
around. Because everyone and his grandmother can see that the Fed has LOST THE
DOLLAR AND STOCK MARKET WARS. Try as that wrinkled old codger Greenspan
might, the dollar just keeps sliding and the bear market just keeps bear marketing.
It's out of his hands. THE ONLY NOT-UTTERLY-TOTALLY-AND-COMPLETELY-BEARISH
SIGN LEFT OUT THERE IS THAT GOLD IS TRADING UNDER $330. It's the only
"evidence" that things might not be as bad as they look. But it's a false signal.
It's obvious that the Fed is very well aware that, from a technical perspective, gold
over $330 would serve as absolute confirmation that a major gold bull market is on
and that the Fed has lost control of our markets and monetary system.
Pity the poor"genius" Greenspan (if you consider ramming easy money down the
throat of a credit-addicted nation and thereby creating a bubble of epic proportions
genius, that is). The stock market won't respond to his desperate yet feeble
attempts to shore it up, the dollar slipped out of his gnarled fingers a long time
ago, and his only legitimate tool, jacking around interest rates, (which, by the way,
could much more efficiently be jacked around by the market than by a tight-lipped
secretive mini-society of bankers) didn't do a damn thing. Call it impotence. I hear
it happens frequently at Greenspan's age. You might say the jig is up and the tired
old tools ain't working anymore.
(Hopefully that statement won't get me a visit from a dark van with government
plates. These days it's not very"patriotic" to"diss" the men in dark suits, don't you
know. I wouldn't be surprised if"dissing the Maestro" is on the"USA Patriot Act" list
of anti-terror no-nos. God knows everything else is.)
So what's left? Bully the gold market. Contrary to media declarations that gold died
a long time ago, it has always been and continues to be a darn good barometer of
economic health and the state of a nation's currency. And that barometer has been
trying desperately to warn that something is amiss. So Uncle Al and his cronies go
to work rigging the market so that no one can observe the bloody obvious.
You can knock the mercury out of the thermometer but it won't stop the weather
from being hot.
No more whining. We must accept that the central bankers are players in this
market, even though they have no legitimate purpose there. Traders, hedgers,
speculators - they all fulfill a vital purpose and make the markets work. The Fed
isn't a hedger, trader, or speculator. It's a manipulator whose sole purpose is to
push the market around enough that people don't know what's really going on. Their
only purpose is a feeble attempt to undo the very disaster that they've created by
stealing our money and backing it by nothing more than the words"In God We
Trust", by selling us more debt than can ever be serviced. But they're here, in the
market, and we have to work around them.
Here's the good news if you're short stocks, short the dollar and long gold: the Fed
has been manipulating the markets for years and it's no longer working. Take a look
at a stock market chart or a dollar chart and you'll see right quick just how effective
they've been. Their ammo has run dry in all markets but gold and eventually, it will
run dry there as well.
No one but no one is bigger than the market. Bullying a market only forestalls the
inevitable and serves only to lay the foundation for an even larger move when the
market finally overcomes the manipulators.
Arguably there was plenty of intervention in the stock market as well last week. (I
refer the reader to www.fallstreet.com for a lot of good stuff about the"Plunge
Protection Team"). Someday someone will write a book including a chapter on how
our heroic Fed"averted a stock market disaster" following the Worldcom news. Or
maybe not, given that the bigger story will be how the Fed finally lost the war
entirely and the markets fell to more realistic and appropriate levels.
And every bubblehead on CNBC and all the cast and crew of the usual parade of
bullish-in-a-bear-market ninnies were muttering"capitulation" over and over and
over and over again. Have you noticed that when you repeat a word enough times it
seems to lose its meaning?
Capitulation HAS most likely lost its meaning. Oh, it will come because the market
must eventually bottom. At some point, the last remaining bullish hold-out must
throw in the towel. But will capitulation look like everyone is expecting it to look?
Probably not.
A watched pot never boils, they say. And as long as everyone is looking for a
bottom, a bottom won't happen. When everyone understands the concept of and is
looking for"capitulation", it's not likely to happen, at least not in the way they're
expecting it.
Perhaps you've walked around your home naked, scratching yourself in places you'd
never scratch yourself in public. But were you aware that the neighbors were
watching, undoubtedly you'd behave differently. So too capitulation. All that intense
observation of the market, the looking for capitulation will undoubtedly change
capitulation's behavior if you will.
Oh the pundits will find what they think is capitulation. Just like a jealous husband
will find"evidence" that his faithful wife is cheating on him. Look hard enough and
twist the data around enough and you'll find whatever you're looking for. A racist
will find plenty of"evidence" of fault with minorities. New Age"angel-freaks" will
find plenty of proof that angels do the housework when they're gone. And perpetual
bulls will find capitulation even when it's not there.
Maybe they saw something last week that in some bizarre, exceptionally remote
manner signifies capitulation. And maybe the market will rally. In fact, it likely will.
Heck, buying a major low is a"no-brainer". The gamblers and knee-jerk technical
traders will almost undoubtedly push the market higher soon. But will it mark THE
bottom?
Not likely. We're in bear market and stocks are still overpriced. The dollar is
plunging and sentiment toward U.S. assets is only BEGINNING to turn negative.
Think about it: this market has fallen for TWO years while MOST of the public and
the Wall St. & CNBC buffoons have been bullish. What do you think when will
happen when folks here and overseas start getting bearish?
You do the math. I can't count that low...
Mark M. Rostenko
editor@sovereignstrategist.com
Copyright 2002 by Mark M. Rostenko and The Sovereign Strategist
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