Rally To Fall Apart

For the very few readers I have left (I apologize for my lack of posts), I wanted to update you on where I think the market is headed.

You won't be surprised to know I think the stock, bond, and commodity markets are SEVERELY over priced.  We are headed for a fall that will decimate almost all asset prices.

Personally, I am outright short markets and individual stocks and in cash.*

As I have said before, we have just experienced a 30-40 yr bull cycle, driven by debt (credit expansion), central banks manipulation of money supply, demographics, and speculation.

The increase in prices of stocks, bonds and commodities we have seen since the 2009 bottom has not been driven by economic growth or value creation of any kind.  It has been "created" by central governments around the world printing money.  This money was given to the banking sector, and they have been speculating with it in the financial markets.  I do not know how long this manipulation of markets can continue, but I can see that it unsustainable.

The suspension of "mark-to-market" accounting rules in March of 2009 was the catalyst for the current rally.  Without this suspension, it would be apparent exactly how unhealthy our banks are.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agfrKseJ94jc

In layman's terms: FAS (Financial Accounting Standard) 157, required banks to value their assets (mainly outstanding loans) quarterly by marking them to market.  There is much debate about whether this practice exacerbated the 2008 financial crises.  In my opinion, marking assets to market is an ESSENTIAL tool for determining the health of financial institutions, and provides information that is absolutely critical for investors to have if they are to buy stock in a financial institution.

The suspension of FAS 157 by the Financial Accounting Standards Board allowed, and continues to allow, financial institutions to lie about the value of the loans they hold on their books.  This makes everybody feel better in the short run, because they can deny the fact that most of our large financial institutions are indeed insolvent.

Imagine if you could go to the bank and get a close to 0% loan, to use in anyway you pleased, with no collateral (or if collateral was required, you could just make up its value)!  Now;  imagine you could do this indefinitely, and when it became clear that you couldn't make the payments on this loan, the bank would just give you another one to use to pay the first, and there would be no impact on your credit rating.  Would this affect your behavior at all?

Of course it would, and this is the current arrangement many large financial institutions have with their bank (The Federal Reserve).

Still think this rally is sustainable?  Think again.

If you want to more information, or want to understand more about what caused the economic boom of the last 40 years or so, I recommend reading "The New Depression:  The Breakdown of the Paper Money Economy" by Richard Duncan.

*As always, trade at your own risk.  I am not advising you in any way.  You should seek the advice of a financial professional for investment advice.