PAY CLOSE ATTENTION TO ‘MARKET MANIPULATION’ SECTION HEREAFTER AS TO HOW THE LATEST BUBBLE-FRAUD PRE-CRASH IS BEING ACCOMPLISHED:

Peter Cooper: This Tuesday (3-9-10) will mark the anniversary of last year’s US stock market low. Since then the market has rallied by 70 percent in a recovery only slightly less suspicious than a Madoff hedge fund.

A year ago uncertainty hung over the Dow and S&P 500 with the possibility of an economic depression and the potential nationalization of the entire banking system. But what has happened since then did not fall so far short of this extreme.

THE GREAT RECESSION

The economy has undergone its biggest post-war contraction and unemployment has soared to 15 percent, including the long-term unemployed. With 36,000 jobs lost last month this rise might be slowing but it is not yet decisively over.

Meanwhile the ‘too big to fail’ banks like Citibank (C) remain effectively nationalized, although a great deal of the emergency facilities granted to the banks have been withdrawn.

But bank lending is still seriously down on a year ago and the credit crunch remains a reality for millions, not least of whom are the several million home owners with mortgage resets that will land them in foreclosure over the next couple of years.

Housing sales and auto sales – the two biggest drivers of the US economy – remain deep in recession, not to say depression – as they have fallen into a trough from which it is hard to see a way out. There is no catalyst for a recovery or one on the horizon, indeed quite the reverse for housing in particular.

MARKET MANIPULATION

We are indebted to some of our loyal readers for providing an answer to the conundrum of why the stock market has recovered so dramatically when the reality of the economy has been so weak. To quote from a recent article on zerohedge.com by Tyler Durden about the fourth quarter of last year:

Anyone looking at their 401(k) portfolio performance since the end of August will undoubtedly be very happy (and extremely surprised), as the market has climbed steadily higher despite i) increasingly declining trading volume and ii) consistent and material withdrawals from domestic equity mutual funds.

Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September. The reason for that: all the upside since September 14th has come exclusively from after hours action.

Every single day, minimal volume pushes the futures index higher. Good news, bad news, it don’t matter to the Goldman S&P and Russell 1000 futures desk: they just lift every micro offer, giving the impression that the market is unstoppable, often leapfrogging each other as the latest viagra’ed GDP or unemployment rumor is spread.

Come morning, it is time for the HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools. In a nutshell, this is the secret of the past quarter’s phenomenal market performance.

So this is what has fooled us, and we are humbled! Perhaps we should have expected this with the benefit of hindsight. The largest Fed intervention in markets in history could hardly take place without doing something equally big in the stock market. Why should market forces be allowed to work for equities and not bank liquidations?

Looking forward, however, what the Fed has created is another huge bubble in US stock market valuations. Not only are stocks expensive given the reality of the economy. They are also being artificially inflated in value by outright manipulation aided by the cheap money doled out to investment banks.

DIVIDEND SUPPRESSION

That is why the market will allow dividends to persist at an average of two percent while the long-term average dividend is double that amount – implying that share prices should be half what they are today. It needs little imagination to see what must happen in the near future: the mother of all corrections.

Of course timing such a crash is very tough. The manipulators will want to do it to suit their purposes. For example, if they wanted to sell a lot of bonds and were finding it difficult then a nice stock market event would power the bond market back up – perhaps into its final bubble spike?

Short covering might drive the stock markets a little higher this week but staying on the short side is the only viable strategy as a preparation for what is to come.

Why the surprise-the same reality disconnect before the last bubble-crash and the one before that!

SEEKING ALPHA/HANNON I remain in awe of the market. Despite a steady stream of news that is either poor or unremarkable, this market continues higher. Although we have not witnessed blockbuster, high-volume days that crush the bears, a steady climb has allowed prices to approach those of recent weeks.

Although I'm impressed with this performance, I still remain wary. At this time of year I begin poring over annual reports, and the picture is not pretty. In general, companies have strengthened their liquidity positions, yet operating metrics continue deteriorating. As margins erode, the disconnect between how companies are performing and how the markets are behaving concerns me…

A more optimistic but much less realistic view:

SEEKING ALPHA/CORSON I disagree and think the situation is worse than that.

Reasons Roubini cites for the 20% "double dip" scenario are the following:

The bad economic data Roubini cites are very poor and dropping consumer confidence, tanking new home sales, existing home sales sliding, construction activity falling and new jobless claims stubbornly staying above 400,000. Roubini notes that while the Q4 GDP figure was revised upward to 5.9%, most of that figure, 3.9 percentage points of it, was due to inventories.

Since the end of February, the macroeconomic data for the US “have been almost uniformly poor, if not outright awful," Roubini contends.

I think Roubini is being too optimistic.

I place the probability of a double dip recession at 40% because of the further problems Roubini did not focus on which are developing in the financial sector as evidenced by declining M2, M3, the monetary multiplier, commercial paper outstanding, CDOs being sold, and the drop in GDP or down turn predicted by the new Predictive Financial Index recently developed by Goldman Sachs, Deutsche Bank, Columbia University, New York University and Princeton.

Too, the banking system is also known to be carrying a substantial “shadow inventory” of homes not on the market for sale. Rail traffic is stalled and where there is progress, it is too feeble. Our banks remain badly leveraged and loaded with bad debt. They survive only because of the abandoned mark to market rule… Indeed, my 40% figure for a "double dip" may be too optimistic.

Infowars.com Robert Singer March 11, 2010

The year is 2010 and to anyone not in denial, the industrialized nations have entered the greatest calamity the world has ever known:

• 35 Million Americans on Food Stamps: 12 Percent of U.S. Population on Food Stamps Highest Since Records Kept in 1969, and that’s before the Obama administration announced a planned three-year budget freeze on government discretionary spending. (My Budget 360)

• 18 Million empty houses in the United States and 39 million Americans who are no longer working or looking for work, and that’s before Federal Reserve finishes rewriting the rules of American “capitalism” as US Housing, the Automobile Industry and the American Dream are dismantled. (The 31-Year-Old in Charge of Dismantling G.M., David E. Sanger). “There are now well over 150 million Americans who feel stress over these things on a consistent basis. Over 60 percent of Americans now live paycheck to paycheck.” (The Economic Elite vs. People of the USA, David DeGraw)…

The article essentially says this is an orchestrated collapse engineered by the so-called ‘elite’. I disagree. As I’ve said before, the so-called ‘elite’ are but a bunch of vegetables, f**k-ups who would like you to think this continuing meltdown / decline / secular bear market is a function of their machinations, yet the truth is that their contribution, not to be discounted, to this global debacle is one of doing what these mental cases do best; viz., f***ing-up. Really! It’s quite that simple. Yes they’re greedy, self-serving, incompetent, dysfunctional, even criminally insane, but there is plenty of random folly to pass around, not the least of which, ie., continued wars though u.s. is defacto bankrupt, bailouts for and no prosecutions of massive securities frauds, etc., is in part owing to a very domestic defacto coup d’etat that has enabled further looting of the treasury with fog of war (Iraq, Afghanistan, “terror”, etc.) the distraction, among other diversions.