Thursday, October 04, 2012

Orwellian Financial Market Dynamics–Part One




I want to show readers something that is extremely disconcerting and representative of the dystopian world we currently live in. Above in blue is the price of Caterpillar, the U.S. heavy equipment and engine manufacturer. On the same chart in red is the Dow Jones Asian Basic Materials Index. In other words, it is an index of Asian companies, ex-Japan, that are involved in the basic materials industry in Asia.

Do you see anything strange? Well, you most certainly should. The correlation is essentially 100%. I have noted on here many times the correlation in many markets and how those correlations are increasing. As noted on here some years ago, there was once a time when the overall market was highly correlated to the S&P. That was 1987. While I was too young and too preoccupied to actually live through 1987, that was another famous Wall Street crash. And, just like today, Wall Street was using massive leverage in some belief that it was “insurance”. Some grand new scheme had been created by the financial criminals to ensure losses were essentially a thing of the past. Sound familiar?  Derivatives – leveraged hedges, quantitative finance and endless backstopping by the Fed give the same illusion today.

Whether it is the dollar, the euro, European debt, emerging markets, commodities, Treasuries, the S&P, the Dax, the yen, gold or whatever else you care to consider, the correlation factors amongst most markets are nearly 100%.

What do these tight correlation dynamics tell us? They tell us that computer-driven algorithms control all global markets. All of them. I think it was six or seven years ago that I linked to a source that Japan’s Nikkei trading was more than 70% computer programs. And, I have shown a substantial amount of charts that show how volume has increased to the point that individual stocks and exchanges are actually turning over all shares in a matter of a few days. ie, As an example, that all of the shares in the gold ETF exchange hands in two days. That isn’t investing. That is manipulating, gambling, stealing, etc. ie, Quantitative finance as taught at Harvard, Yale and other leading MBA programs in the U.S., France, Germany and Britain in particular is responsible for these tight correlations. And, so are the governments and regulators who sit back and let this manipulation take place.

The chart above is a glaring example of how trillions and trillions of dollars of free Federal Reserve money, hedge funds, Wall Street trading desks and the like (also mostly big British, French and German banks) are all using the same computer-driven algorithms to push a button and buy/sell assets around the globe. And how they have the same programs buying the same assets in markets that have traditionally been economically-correlated. In other words, when basic material stocks in China are purchased by the big computer in the sky, Caterpillar, who feeds directly into Asian basic material industry growth and directly benefits from it, is also purchased by the same Big Brother computer programs. All at the same time by all of the firms involved in this Ponzi scheme because they are all using the same algorithms in stocks, bonds, commodities, currencies, etc.

That’s what happens when you have a private, for-profit monopoly in capital. All of the players can direct all of the capital into the same assets at the same time to create massive distortions, massive inflation and massive bubbles. And, let me tell you, traders love massive distortions, massive inflation and massive bubbles because that is how they loot society with returns in the thousands and thousands of percent return. You can’t get that type of return by investing in a factory making shoes in the U.S. You’d be lucky to get 5% return. And, that is why the U.S. is dying. Because Ronald Reagan, George Bush, Bill Clinton and Barack Obama’s policies are killing our nation. None of this has anything to do with the Federal Reserve. Other than that facility is used by looters to steal from our nation.

This dynamic is only possible through the deregulation of global capital. And, what have the looters been doing since the mid 1970s? Deregulating capital. (Mostly from Reagan on) That was the lynchpin of Reagan’s economic policy. Mind you, this is the capital in capital(ism). This most certainly is capitalism. You may not want it to be capitalism as you perceive it should be, but this is what deregulated capitalism looks like. Economic slavery, looting, corruption, poverty, exploitation and even death.

Obama, Bush II and Clinton continued this deregulation with the global economic policies they endorsed as well as Obama’s very secretly negotiated TPP Agreement that has just sprung up publicly. Bush I? Well, it seems to some degree he actually tried to take back some of what Reagan started. That’s no surprise since he called Reagan’s policies voodoo economics while running against him for the Republican nomination in 1980. How would the world have been different if George Bush I had won the 1980 election? We can only guess. But the looters, thieves, predators and the like made sure he was a one term president when they saw he was actually sanely trying to bring the system back into some kind of balance. Oh, but deregulated capitalism’s looters apparently had Bill Clinton in their pocket because no president in our history was so destructive of democracy and our economy in favor of policies that enriched the looters. Bill Clinton, a bureaucrat with no business skill who has never invented or created anything that benefited society, has made $250 million since his presidency. How did he do that? Rolodex cronyism. Calling in favors from the looters. Did George Bush I or II do that? Hardly. Democrats who wax poetic about Clinton and Gore and the moral authority of their party need to pull their heads out of their asses. Gore was a large part of those policies during the Clinton presidency.  And, he too has made well over one hundred million dollars under the same dynamics as Slick Willie.

We have never, and I do mean never, seen any type of financial markets like today. Not only in the U.S. but globally. The correlation could be direct or inverse but it really doesn’t matter. A chart like we see above is a sign of the times. And, it should scare the hell out of you. This system has never been tested under stress. That is, except for 2008. How’s that working out for you? We have railed on here time and again about the Frankenstein Wall Street has created and the instability it has created. And, how Obama’s reform simply provided 2,500 pages of new red tape that allowed the looters to continue their hegemony over competition. And, still the system remains.  And, still the looting continues.

The levels and prices of financially-traded assets have no meaning other than to tell us who is in control and how big the bubble is. Positive, bullish price action in financial assets tells us the status quo looters are in control. When the system starts to experience crisis or shocks, no one is in control. Nothing has anything to do with the economy.  It simply is a reflection of whether the looters have access to society’s capital through stealing, looting, bailouts, quantitative easing and corruption.  And, given we live in nonlinear times where the quantitative factors these models were built upon are eventually going to fail left and right as they have been since 2008, (hedge fund returns are imploding, Wall Street trading desks are losing more and more money and taking larger and larger risks as king jamie dimon can attest) at some point this system is going to become so destabilized that no one will be able to save it.   It’s simply a matter of when.  Of course, none of that is new to long time readers on here and people who understand what is really going on in our dystopian reality.  But, it’s time is certainly closer as we’ll discuss more in the upcoming second half of this post.

If you are “investing” (more aptly described as playing or gambling) in any financial markets, all I can say is you had better know what you are doing. And, mind you, I don’t believe any CEO on Wall Street has a clue as to what they have created.  Literally.  Seriously.  Nor do I believe anyone in the financial press or in the SEC or in political oversight positions have any idea what they are doing, just to give you some perspective. Now, that being said, this is not financial advice.  I don’t give financial advise as my Terms of Use and Disclaimer clearly point out.   Talk to your highly-qualified, classroom theory-trained, Harvard-educated Wall Street-endorsed financial advisor for investment advice

posted by TimingLogic at 9:53 AM