During our presentations regarding the outlook for stocks over the next few years we list several reasons why there is a strong possibility of a long term trading range similar to the seventies (see chart). If you are a regular reader you are probably familiar with these. Today we want to cover one that is beginning to prevalently unfold in the headlines and we think could buckle investor confidence for some time to come. Because of the general gist of this piece a review of the disclaimer below is a good idea.
The Bernie Madoff Ponzi scheme is the most notorious example and has been well chronicled in the press. So much so that his last name has become an obvious verb in Wall St. circles. Smaller scandals are surfacing weekly as the regulators appear to be attempting to make up for all the whiffs they have made over the last few years. We tend to give people the benefit of several doubts before we assess their work and at this point we feel the regulators of this past decade have failed so incredibly miserably or have aligned themselves with the fat cats of Wall St. at the expense of small investors.
We believe these less than honorable actions of Wall Street’s elite will inhibit investors comfort level in putting funds to work in the stock market. The level of reluctance and suspicion is understandably palpable. A little due diligence, transparency, and connecting the account statement dots are the key in our estimation to prevent being part of a scam.
It is historically typical that Bear markets reveal the scams camouflaged in the system, and we believe you are going to see more transgressions uncovered over the next couple of years. What we think will confuse the masses most is when some of these situations are eventually revealed to be significant contributors or at the actual core of our financial meltdown, why our policymakers and regulators let it unfold? People will finally get the true story of the inner works of these strategies and say “Why aren’t these guys behind bars?” and “Who was watching the hen house?”
There has been ample evidence that some institutions have colluded to gang up on our financial companies with a multi-pronged attack of using illegal naked short selling, manipulation of the Credit Default Swap market (CDSs are an unregulated security that allow players to essentially bet on the demise of a company), and spreading rumors about the financial health of the company. The fact that many of these financial companies have had to “mark to market” illiquid and hard to price assets negatively impacting their working capital compounds their problems. If you are a current owner of GE stock, we believe the company was a target of this strategy for the last month. To be clear we have no specific evidence of this, but for the way the stock acted the last several weeks.
We strongly suggest that if you would like to increase your knowledge about this and several other areas that players have essentially embezzled money from our financial system at all of our expense visit www.deepcapture.com. These investigative journalists have made some fairly extraordinary accusations with what appears to be hard evidence. We have been hoping that our new administration would have done something about these issues by now. We believe if they reinstituted the uptick rule, curbed abusive short selling and rumor mongering with criminal penalties, clean up the fails to deliver in the system, and relieved banks of mark to market (there is a meeting on this topic in Congress this week) on their illiquid assets we could have a 20%+ rally in stocks. We think that would boost the confidence of the consumer, investor, and most importantly the lenders. Essentially we reverse the confidence spiral from down to up.
The fact that so little is being done about these issues leads me to believe something is going on behind the scenes. Last summer/fall when the SEC curbed naked short selling in financial stocks, the stocks lifted both times. Sure there was some disruption to the system and short sellers were compromised, but that seems minor compared to losing a stable financial system. Our understanding (we are not a hard core balance sheet/ income statement kind of guys) is that if these financial institutions have a little time to let these loans play out, most of them will work out. What confuses us is that there is not even a conversation about why policy makers are not taking these steps.
All right … got a little off topic there. The initial point was that the orgy of fees, leverage, and unethical management that emanated from financial engineering lining the pockets of short sighted greedy Wall Street/Washington insiders may have a lasting effect on the confidence (there’s that word again) investors have in the markets. First the story has to come to Main Street and we think that is unfolding.
We realize we made some bold assertions in this missive and did not cover much of the details to make our case, but space does not allow for that. Again we strongly suggest that you review the Deepcature website (it is constantly updated) and draw your own conclusions. We think you will be quite surprised about what may be happening below the playing surface of our financial system.
Final Thought
“Credibility comes less from the statements you make and more from the questions you ask”
– the stock market taught us that one
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