The Post-Bubble Malaise

Weekened Edition
September 18-20, 2009

Sorry, But It's Still Doom and Gloom All the Way to the Horizon

The Post-Bubble Malaise

By MIKE WHITNEY

We keep hearing that "The worst is behind us", but the spin doesn't square with the facts. Sure the stock market has done well, but scratch the surface and you'll find that things are not as what they seem. Zero hedge--which is quickly becoming the "go-to" market-update spot on the Internet--recently posted an eye-popping chart which traces the Fed's monetization programs (Quantitative Easing) with the 6-month surge in the S&P 500. The $917 billion increase in securities held outright equals the Fed's $1 trillion increase to its balance sheet. In other words, the liquidity from the Fed is following the exact same trajectory as stocks, a sure sign that the market is being manipulated.

Surprisingly, traders seem to know that the Fed is goosing the market and have just shrugged it off as "business as usual". Go figure? Perhaps it pays to take a philosophical approach to market rigging. Who needs the gray hair anyway? The result, however, has been that short-sellers (traders betting the market will go down) who have placed their bets according to (weak) fundamentals, have gotten clobbered. They appear to be the last holdouts who still place their faith in the unimpaired operation of the free market. (Right) Here's how former hedge fund manager Andy Kessler sums it up in a recent Wall Street Journal article, "The Bernanke Market":

"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."

http://www.counterpunch.org/whitney09182009.html

This is all shuffling the deck chairs....

of how this country always has to do the wrong thing and have it fail miserably before it does what it should have done from the very beginning.

The problem is that Obama understands that jobs rebuilding the infrastructure are the key. He just can't get that past a bunch of Wall Street Democrats in his own administration and in Congress, the vestiges of the Clinton "New Democrat" heyday.

The problem has been exacerbated by the dearth of recent Democratic administrations. Quite simply, the pool of experienced help was very, very small.

We all know another "jobless recovery" will be unacceptable to people out of work and to most Americans who know they're barely clinging to solvency. Perhaps it will be a repeat of the last Great Depression and circumstances will force conservatives to the left.

I certainly hope so. We and our country depend on it.