Monday, July 20, 2009

The Recovery Bubble

Hello All

I know I was surprisingly quiet today. I gotta admit, the $24 trillion TARP failure really bummed me out today.

The market continues to climb the wall of worry as Wall St cheers the earnings beats announced by many corporations in the 2nd quarter. Most of these beats are hogwash because they have been revised down so sharply. Lets also keep in mind that most of the companies are beating on the bottom line not the top line.

All this means is companies are job cutting their way to prosperity. How else do you think u6 unemployment has soared to over 16% in the span of a year? We all know that you can only cut costs for so long. You can't bring expenditures down to ZERO for Christ sake.

As the consumer continues to suffocate as a result of massive debt loads and job losses, earnings at our corporations will once again begin to sag.

I have to give the pigmen credit:

Wall St has somehow successfully turned the stock market into a feeding frenzy once again with all of their spin and lies. The problem here is we all know this all ends folks. Remember the last two feeding frenzies on Wall St? The tech bubble and the housing bubble? Stock holders ended up in tears by the time fundamentals came back to each of these markets.

I am going to call this current mania the "Recovery Bubble". I mean in reality that's what this is. I mean think about it: What is a bubble? Its an unsustainable Ponzi style feeding frenzy that's dominated by massive speculating and eventually ends with prices that are both unafforable and unsustainable.

We all know this is the case right now. The P/E's ratios are more insane today then they were during the tech bubble. Many companies don't even have any earnings in this current cycle.

Eventually, when the fundamentals come back like they always do, Wall St and the rest of the investors that bid these worthless stocks up to Ponzi style levels will end up getting their asses handed to them once again.

The stock market has become nothing more than a speculative bubble making machine. The "Recovery Bubble" will end the way all bubbles do: It will come crashing down slaughtering anything that gets in its path.

The Bottom Line:

Bubbles can sometimes last a lot longer then you think. Especially when the government has doled out hundreds of billions in free money to the banks. This financial firepower has allowed them to wreak havoc in a lightly traded market using computer trading programs.

I mean think about what the banks have going for them right now:

The banks are stuffed to the gills with cash. How? Well for starters, they have been stuffed with tens of billions in taxpayer dollars.

They are also able to make a killing on any new loans as a result of the steep yield curve. Any banker can make money with these types of favorable lending terms.

Finally, the pigmen have the benefit of a fed funds rate at near 0% which means they can rape the savers of this country by paying them almost 0% interest on their deposits.

This gives them a lot of financial bullets to fire at the S&P in the form of buy orders. Lets also not forget that their cash positions have been even further strengthened by the fact that they don't have to set aside as much money for their toxic assets anymore because there is basically is no more mark to market accounting.

In a nutshell folks: THE BANKS ARE LOADED WITH CASH at our expense. I wouldn't be surprised to see the S&P climb over 1000 before this thing all comes tumbling down.

I guess what saddens me most here is I am slowly beginning to realize that its not the banks that have failed this nation. We are the ones that have failed. Yes they created the mess, but we as a country never stopped them once we knew what was going on. I think perhaps we all need to look in the mirror when we are looking for someone to blame.

In fact, not only did we not stop them, we actually reinforced their terrible actions by giving them billions of dollars in TARP funds that allowed them to make even more money at our expense.

I will never understand why we reinforced such fraudelent actions. The TARP will go down as being one of the worst pieces of legislation in history.

Sadly, we only have ourselves to blame. We are the real failures because we sat here and let the banks rob us all blind without doing anything to stop them.

With $24 trillion in debt I don't think it even matters anymore. There is no way we can ever pay this back. Our total GDP is only $14 trillion annually. The debt numbers are only going to get worse as the economy continues to deteriorate.

I am starting to think its too late to save ourselves from total destruction when I see such staggering numbers.

Sorry I couldn't be a little more cheerier tonight. Its time to start making different arrangements in order to survive this nightmare. More on that later.


John Maynes said...

We are the ones that have failed.

Now you got it. :-)

Anonymous said...

This comment from Bernanke is telling: “...accommodative policies will likely be warranted for an extended period.”

In fact, Goldman expects (has probably been assured of) ZIRP through next year. Why? So TBTF banks can plunder overburdened taxpayers and earn their way out of the toxic cesspools of their bad bets.

Personal aside: My 11.9% VISA at Wells Fargo goes to over 19% next month. Wells gets the money they lend for nothing.

Anonymous said...

I wouldn't be surprised to see the S&P climb over 1000
No, now he got it :-)

Jeff said...


The fees are out of control.

I had a friend that paid his bill in full one day late on his BofA Visa card they hit him with a $39 late fee.

Bernanke's up. Lets see what this buffoon has to say today.

Anonymous said...

c'mon, you know he is really smart man. I mean try getting to his level, PhD, professor and all that stuff. They are not as dumb as you might think. And sometimes to quote someone else "they have to play the hand they have been delt" or "they have to go to war with army they have and not the army they wished to have"

Jeff said...

Yes he is a smart guy. Perhaps I should have used the word crook. The fed raped the taxpayer and he is at the helm. He did have a tough hand but he could have handled this in a much more transparent way.

Mark said...

"I am going to call this current mania the "Recovery Bubble". I mean in reality that's what this is. I mean think about it: What is a bubble? Its an unsustainable Ponzi style feeding frenzy that's dominated by massive speculating and eventually ends with prices that are both unafforable and unsustainable."

How exactly is a bubble in the stockmarket a "ponzi style feeding frenzy"? There is simply nothing like a ponzi scheme going on in a stockmarket bubble. Yes compnaies borrow. But this is far from amounting to a ponzi scheme. Thanks to SOX, people can see where money is comiung from on the financial statments of publicly traded companies and this info is taken into account when responsible investors valuate companies.

Can you please explain to me how a stock market bubble is a "ponzi style feeding frenzi"?

Anonymous said...

There's a growing distrust of the Fed on the part of the public and Congress, as well there should be.

Bernanke is smart. He is cunning. He is myopic. And, he works for the banks. Fed independence is a farce and Bernanke's policies are a failure.

Here's what William Greider, author of Secrets of the Temple recently wrote:

"Like the largest banks that have been bailed out, the Fed was a co-author of the destruction. During the past twenty-five years, it failed to protect the country against reckless banking and finance adventures. It also failed in its most basic function--moderating the expansion of credit to keep it in balance with economic growth. The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed. The central bank was derelict in enforcing regulations and led cheers for dismantling them. Above all, the Fed did not see this disaster coming, or so it claims."

CT-Hilltopper said...

The sad thing is, the American people started to fail themselves long before the issue of TARP was ever even laid on the table.

We let the banksters lead us into buying much more house than we needed, then refinancing every couple of years to pay for our vacations, our cars, our kids tuitions. It was easy money at low interest rates. Don't worry about the resets, the rates will still be low, we'll just roll you over into another low interest rate loan in another couple of years. You want to take out more money to buy a boat, remodel your kitchen, build a patio? Of course we can add that into your loan, or we can just give you a HELOC and you can write your own checks against the equity in your home anytime you want something.

People were buying everything they wanted, whether they could afford it or not, using their homes as their own personal IOU's. That's all coming back to haunt them with a vengeance now.

People tapping into their home equity to play the stock market. Thats another one. You can't fix stupid.

That's the one thing in this whole mess that you have to realize, Jeff. You just can't fix stupid. I've seen person after person come on these blogs and ask what it will take for people to "get it". Well, most wont "get it". The ones that are going to "get it" have already gotten it. Most of the stragglers wont see it until it is far too late to do anything about it. And they did it to themselves. And it's their own damn faults. But they'll never see that, or at least they'll never admit to it.

Many of us did try to stop TARP. We tried calling our duly elected public officials, who promptly blew us off and voted for it anyway. You get what you pay for, don't you Goldman Sachs, Citigroup, JPM? Maybe we lowly wageslaves should pass the hat around and just bribe the politicians instead of voting for them. Maybe we can get something useful done for a change.

Jeff said...


I am generalizing when I say that. Some companies do deserve higher valuations.


How can you trust any financial statements right now when it comes to financials when there is no mark to market accounting.

The market is for the most part a Ponzi scheme because most of the the financial assets on the banks books are marked to myth versus reality.

Holding AAA garbage CDO's at 100 cents on the dollar is ludicrous.

As a result, most of these profits aren't real(especially anything financially related). Goldman earned $3 billion for the quarter but overall there balance sheet got slaughtered.

If the financials all had to mark there level 3 assets to market they would all be insolvent.

Its a Ponze scheme because the valuations are not accurate just like they weren't accurate during the tech bust.

As a result, companies have P/E ratio's that are absurd. Thats how I see it.

There are exceptions of course when you look at it company to company.

Jeff said...


Awesome quote.

When this is all said and done I believe we will learn some great lessons around greed and power.

Hopefully we never make the same mistakes again.


"you can't fix stupid"

Sadly I agree.

Many are about to get pounded once again as they jump back into the market at the time when the smart money is about to bail.

Once again invetors will be left holding the bag.

Geoffrey said...

"In a crisis assets always return to their rightful owners."

Andrew Mellon (US banker, secretary of the treasury 1921-32)

We're seeing a massive consolidation of financial power.