Saturday, October 06, 2012

Orwellian Financial Market Dynamics Part Two - European Union Sovereign Debt vs S&P 500



In the chart above, the blue data point is an intraday look at the S&P 500 index. Red is a composite index of European sovereign debt. The blue and red lines are linear regression lines of the respective indices. Notice any similarities? When the coast is clear on liquidity, be it quantitative easing, a promise to save investors by the EU central bank, a covert bailout of the investor class or what, Frankenstein finance pushes a button that purchases all financial assets simultaneously. Push a button and buy European debt and related swaps, SIVs, Shivs, or whatever. Push that same button and simultaneously buy S&P futures contracts, options, etc.

The massive leveraged interdependencies of financial markets created by Frankenstein finance is unprecedented. Literally, everything is interdependent with everything else. If you have to sell European bonds to cover impending risk, you also have to sell S&P futures. This is simply an example. The list of interdependencies and uncontrollable complexities are endless. This is what is possible when private, for-profit monopoly capital has been deregulated and given unlimited access to free money provided by the looting of a nation’s treasury. All capital is exposed to the same instruments and all instruments are correlated. Endless money for criminals to inflate financial assets to the moon and mint record profits while stealing from society. Around the globe no financially-traded asset has any relevance to intrinsic values or common sense. This is the Internet bubble on steroids.

All of this free money and leverage in the system has distorted true price discovery. People in the bubble ignorantly believe true prices and fundamentals are reflected in assets today. That’s laughable. True price discovery is impossible with so much leverage in the massive liquidity bubble. We don’t have working markets today for just about anything. And, we haven’t for a long, long time. At least since 1995 in some assets. An argument could be made since about 1980 in other markets. Anyway, an unintended consequence of the financialization of the U.S. (deregulation of capital) and the resultant leverage built into the global economy is that all markets are distorted. Globalization itself is a distortion of working markets. Deregulation of the world’s reserve currency simply created larger and larger leveraged financial aberrations. The biggest are the Wall Street bubble, the global economic bubble, the China bubble, the investor class bubble and resultant hyper-consumerism. Within each of those are other bubbles like the profit bubble, the advertising bubble, the debt bubble, the CEO pay bubble, the wage bubble in entertainment and sports, etc. All of which and more have been talked about on here over the last seven plus years.

There is no true discovery needed for most any market to work. That’s just not financial markets but also employment markets, wage markets, trade markets, defense equipment markets, etc. Even in politics, there is no market. The market has been distorted by two parties rigging the game with all of that leveraged money created by the financial bubble. There is no discovery of basic, unleveraged supply and demand characteristics have been distorted by political-corporate tampering and deregulation. Looking at ISM or monetary aggregates or stock valuations is almost laughable.

Now, the question is why did all of this happen? Well, some day, I’m going to tell you. And, I think it will blow almost everyone’s mind. No one has ever talked about it. But once you understand,  it will become self evident.  And, you’ll know capitalism is almost certainly dead.

posted by TimingLogic at 9:49 AM