Custom Search

Thursday, January 21, 2010

There is No Contrarian Upside Play to a Ponzi

[edit: I cut a few profane words out]

I was just pondering all the recent events that have taken place over the last few days from the Massachusetts election to Obama turning hard on the banks. It all of course can be best explained by Elliott Wave theory.

If this is a true Primary wave [3] down in a cycle wave c, then social mood has already turned south and the markets are just now reacting. This can probably be seen somewhat in several "consumer confidence" type charts that came out recently in which mood dropped very drastically and unexpectantly.  The corrective P2 wave is now likely over and mood is shifting for the greatest down wave we have ever seen as a nation.

And of course it was predicted that social mood will eventually come to bear on the "herd" - i.e.- the government.  The government's actions lag badly the will of the people, but given enough time, it will catch up. And what is the mood of the people?  Pissed I would say about several things.  A Republican winning in MA is one such piece of evidence (I think any incumbent is in danger - Dem or Repub - i.e. - throw all the bums out).  The number one thing is economic and specifically fiscal irresponsibility and obvious corruption of the Congress and our political leaders and the corporate cronies.

The general populace has already started to contract its balance sheet and the government was lagging badly by partying like its summer 2007. Social forces are now unleashed that will help prevent the government from spending like they did in P1 and P2.   The political will to spend lavishly on corrupt projects and pork is slowly coming to a halt. Not to mention when the banks get in trouble yet again (which they will), who will have the political courage to bail them out another round?  Another $100B to AIG? You think?  Think again.

So government has finally sensed that there is real anger and the most common theme between the political left and right is the banks, greed and such. So the attack on banks have begun in earnest which can be expected at the beginning of P3 . But the actions are too little too late as forces are already in motion. Besides the real problem is that government will not help in the areas that people need help. Perhaps its a bit of political theater: focus the people's anger on an enemy in order to deflect. I happen to think the banks are a good target. I too am pissed at the banks and I have no doubt that Obama  and many other politicians are too.  I actually sympathize. But in end, some revenge and justice may be extracted (GS's coming doom), however, there is no direct benefit to the average American. Mood will still be sour.

But of course this punishment will have a negative affect on the middle class as all punishments on corporations results in that punishment getting passed down to the people in some form or another. Particularly the banking system as it is structured now. So in no way will it squelch the general anger of the populace. It will in fact compound it. Attack on the banks will have no real impact on average Americans except in the negative ironically.

(Not that the banks don't deserve it or this is not a good thing in the long run, its just that it will help no one's balance sheet problems and will help expedite a collapse in asset prices)

What American household balance sheets need more than anything is a moratorium on interest rates for their credit cards, their mortgages and loans. And that will not happen.  Hey we are willing to pay our debts, but a losing battle is a losing battle.  With interest rates so low so long, they have only one place they can go: UP! So Obama can punish the banks all he wants but in the end, it will actually exacerbate the situation by causing stock assets to drop, interest rates to rise and compounding pension and budget problems nationwide.  And no American will be directly helped and actually in the end be hurt. And hence I can predict that social mood will not perk up, it will turn even worse. The snowball is in motion down the hill and it will steamroll everything.

Asset mania has peaked. The future actions of the government will ensure that it remains so. Risk is being reduced and now forcibly so upon the banks. It was predicted.  Every action the government takes will cause the further financial destruction of assets and a further financial death spiral. Count on it.

Simply put, everything the government touches turns to crap and the people know it.  Hey $13T in debt - $100 T in promises...need I say more?  Why do you think people are drawing the line at health care?

At the bottom of the bear market they will enact great laws to prevent this from ever happening again. And of course so what?  By then there will be no need for the law as the bear market will have laid waste to the entire world. Ironic. Nature forces mankind's hand. Play with fire too long and the forest will burn down.

But we are no where near that spot yet. First we must recognize the Ponzi for what it is.  And I believe that is slowly happening to Americans.  We suck at math but eventually the number Trillion gets thrown around enough and we gain a certain consciousness. Indeed its happening. Lots of predictions that we have "XX" % to go on the upside and then...all bets are off.  Oh why say that?  One reason: massive debt loads. So the perception of a large Ponzi scheme has now infiltrated the consciousness of most every market predictor out there. And of course the common man is coming to realize. People are pulling their money. They trust no one anymore. Our rotten politicians have ensured the trust bond is broken.

THERE IS NO CONTRARIAN PLAY TO THE UPSIDE WHEN A RECOGNIZED PONZI SCHEME BECOMES SELF EVIDENT!  This is a law of Ponzis! In fact the moment they are realized to be Ponzi's they collapse rather quickly.  This is why I think P3 will "keep on keepin on" downward even when the point where a contrairan would want to play the long side.

Americans are also mad because we did what we were told. We invested in stocks, ran up debt to "consume", bought houses in the "ownership society" and supported the economy. And we sucked off the tit of big government which it promised us for decades that it would take care of us. And we seen our sons and daughters and brothers and sisters go off to war to protect it all. We did what we were told, now its seems like it was a big fat pack of lies. Just look at any unfunded pension plan.

However, our country and way of life is worth protecting but it is all screwed up at the moment. And in our effort to either "correct" things or to keep the status quo running as long as possible we will surely sacrifice our liberties in vain and clamor for more government! UGGHHH!  Underneath it all, Americans know they share in some the blame and they have already begun to correct.  But they do not share in the absolute corruption of the criminals that truly ran things into the ground beyond repair. They need to go to jail.

So even if we round up and prosecute every criminal that had a hand in the financial destruction, we will still have not one problem solved at the household level.

The ironic thing is most people are instinctively reaching for more regulation when the problem has not been lack of regulations in place, but enforcement.  What a mess. And there will be no best solution.

The math is simple: We need to destroy the excess debt and break the debt promises at all levels of society. And yes along the way, jail the criminals of which there are many. And yes it will be very painful but if we don't allow it to happen, fascism will surely result.   I don't want to sacrifice liberty for the illusion of security. In the end of course we would have neither.

And least you think I am anti-capitalistic, nothing can be further from the truth! TRUE capitalism would have washed the excess fraud and corruption and risk from society long before it got out of hand. But our corrupt overlords distorted the system and outlawed true capitalism.  Americans are angry at "socialize the risks and privatize the profits". We are not dummies.

Ok so we may go broke, but at least we should still be free.

I am not sure how it will all play out, but the math is pure and simple and doesn't add up. And until it does, this bear market will not be over.

Sorry I rambled.  I have little time.

blog comments powered by Disqus