by Dave Kranzler, Investment Research Dynamics:
“There are no markets, only interventions” – Chris Powell, Treasurer and Director of GATA
To refer to the trading of stocks as a “market” is not only an insult to any dictionary in the world that carries the definition of “market,” but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system. By the way, without free markets you can’t have a free democratic political system.
The U.S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U.S. Government via the Treasury’s Working Group on Financial Markets – collectively, the “Plunge Protection Team” – via “quantitative easing” and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market. Capitalism does not work without free markets.
Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan). In response to this belligerence, the even more geopolitically belligerent U.S. is testing nuclear bombs in Nevada. The world has not been closer to the use of nuclear weapons since Truman used them on Japan. The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.
To compound the problem domestically in the U.S., the financial system is now staring down a potential financial catastrophe that no one is discussing. The financial exposure to the tragedy in Houston is conservatively estimated at several hundred billion. Insurance companies off-load a lot of risk exposure using derivatives. The potential counter-party default risk connected to this could dwarf the defaults that triggered the AIG and Goldman Sachs de facto collapse in 2008. The stock “market” should be down at least 20% just from the probability of this occurrence. Forget the hurricane issue, Blackrock estimates that insurance investment portfolios could lose half a trillion in value in the next big market sell-off. Toxicity + toxicity does not equal purification. The two problems combined are the equivalent of financial nuclear melt-down.
Last night after the news had circulated of the missile fired by North Korea, the S&P futures dropped over 20 points and gold shot up $15. As I write this, the Dow is up 50 points, the SPX is up over 3 points and gold has been taken down $20 from its overnight highs. Yet the two catastrophic risks above have not changed in potential severity. Pushing around the markets is another propaganda tool used by the Government in an attempt to control the public’s perception. In the words of the great Jim Sinclair, “management of perception economics,” or “MOPE.”
The good news is that, while the systemic puppeteers can control the markets in general, they can’t control the individual parts. There has been a small fortune to be made shorting individual stocks. Today, for instance, Best Buy reported earnings that predictably “beat” the Street estimates but it warned about future sales and earnings. The stock has plunged 11% from yesterday’s close. The Short Seller’s Journal featured Best Buy as a short in the May 28th issue at $59. The target for this stock is $12.50, where it was in 2013. I recommended some January 2019 puts as high probability trade to hit a home run on this idea.
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