Crash Market Stocks - Financial Tips On Making Money In The Stock Market

Anyone who is familiar with this site, knows that I am a big advocate of Martin Weiss, whom I believe is accurate in evaluating the effects of our current fiscal practices. As we know, last week was a pretty critical meeting with Fed Chairman Ben Bernanke and congress. Since then, we have seen the market rally almost 500 points, which once again shows that investors are not picking up on the signs. Dr. Weiss outlines some of these critical signs and gives real, practical reasons why we should be a bit skeptical when feeling that we are out of the recession:

In his testimony before Congress last week, Ben Bernanke lifted the Fed’s skirt and gave us a glimpse of the disasters now sweeping through the U.S. economy.

But there are four bombshells he did NOT talk about:

FIRST and foremost, what’s CAUSING the economy to sink? The stock market has not yet crashed. Interest rates have not yet surged. Gasoline prices have not skyrocketed. There has been no recent debt collapse, market shock, or terrorist attack.

So what is the invisible force that’s suddenly gutting the housing market, driving consumer confidence into a sinkhole, and killing the recovery that Washington was so avidly touting just a few months ago?

Bernanke won’t say. But the answer is clear: The recovery had very little substance to begin with. Rather, it was, in essence, a mirage — a dead cat bounce bought and paid for by Washington’s massive bailouts, stimulus programs, and money printing.

Put another way, the recession never really ended. Yes, we saw some growth in GDP. And yes, thanks to that growth, some companies are still reporting better earnings — the news that spurred a rally in the stock market last week. But at the core of the economy, the fires that started the recession are still burning intensely.

SECOND, Bernanke failed to point how that …

The U.S. Housing Market Is Now LOCKED Into a Chronic, Long-Term Depression

Housing starts — the most important measure of the housing industry — is still a disaster zone.

Beginning in January 2006, they suffered their worst plunge in recorded history — from an annual rate of 2.3 million to a meager 477,000 in April 2009. Thus …

In just three years, 79 percent of America’s largest industry, impacting more Americans than any other, was wiped away.

Then, despite a series of government agency programs to shore up the industry … plus $1.25 trillion poured in by the Fed to buy up mortgage-backed securities … plus a big tax credit for new homebuyers, housing starts perked up ever so slightly: They recovered to an annual rate of 612,000 in January of this year.

But this recovery was so small, it retraced just 7.5 percent of the prior fall. In other words,

Even after massive government efforts, and even at the highest point in their recovery this year, the housing industry recouped less than one-tenth of its historic three-year bust from 2006 to 2009.

Worse, the housing industry has now resumed its decline.

The most alarming factor: Widespread “strategic defaults” on home mortgages.

These are defaults by homeowners who can afford to meet their monthly mortgage payments, but have deliberately decided to stop paying.

They realize their home is worth less than they owe on the mortgage — transforming it into a dead asset they’re willing to give up. They know their bank, already overwhelmed with foreclosures, won’t get around to evicting them for as long as two years, allowing them to live in the house cost-free. They also know this tactic can give them tens of thousands of dollars in extra cash. So they’re defaulting en masse and getting away with it.

End result:

• New supplies of foreclosed homes hitting the market as far as the eye can see …
• Bankers who would rather cut their wrists than finance new homes, and …
• A new slump in housing that’s worse than even some pessimists were expecting.

THIRD, despite his now-famous quote that this is “the worst labor market since the Great Depression,” Bernanke failed to reveal that …

Official Government Data GROSSLY Understates the Magnitude of Unemployment

Bernanke did not mention that the percentage of long-term unemployed in America is the worst it’s been since the government began keeping records in 1948. Two facts:

Fact #1: A record 4.39 percent of the work force — or 46.2 percent of the unemployed — have been out of work for 27 weeks or more. That’s DOUBLE the worst level ever recorded and TRIPLE the peak level seen in five of the past six recessions.

Fact #2: On average, America’s unemployed have been out of work for 35.2 weeks, also the highest on record.

Bernanke did not remind Congress that, based on the government’s own broad measure, the true unemployment rate in the U.S. is not 9.5 percent. It’s 16.5 percent — or seven full percentage points more than the figure Mr. Bernanke likes to refer to.

This broader measure includes workers seeking full-time employment, but temporarily settling for lower paying part-time jobs. Plus, it’s supposed to also include “discouraged workers” — those who have given up looking for work because there are no jobs to be found.

Nor did Bernanke confess that, during the Clinton administration, discouraged workers were “redefined” to EXCLUDE those who had been out of work for more than a year — and that definition continues to be used to this day.

That makes absolutely no sense. If they’re out of work for a year, they’re discouraged. But as soon as they’re out of work for a year and one day, it’s suddenly assumed they’re happily going about their life?!

Thus, precisely when economists now recognize that one of the biggest challenges of this Great Recession is long-term unemployment … the Obama administration, both parties in Congress, and all U.S. government agencies continue to exclude the longest term unemployed from every single one of their unemployment statistics.

This could go down in history as one of the greatest deceptions about the true state of U.S. labor markets. And according to John Williams of Shadow Government Statistics, it’s big:

When you add these long-term discouraged workers back into the jobless count, you find that the real unemployment rate in the U.S. is actually 21.6 percent!

FOURTH, Bernanke failed to point out that all this is happening despite …

The Biggest Government Interventions of ALL TIME!

The full scope of the government’s interventions is now official:

In its July 21 Quarterly Report to Congress, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) tabulates the government’s bailouts, stimulus programs, and money printing escapades since the debt crisis struck in 2007, as follows:

According to SIGTARP, at mid-year 2010,

• The Fed has pumped in $1.7 trillion through its massive purchases of mortgage bonds, Treasury bonds, and agency bonds.
• The FDIC has thrown another $300 billion into the pot, shutting down over 100 banks so far this year.
• The Treasury has pumped in a net of $300 billion in TARP money (even after paybacks), plus another $500 billion in money outside of the TARP program.
• Plus, several other government agencies have chipped in another $800 billion.

These official numbers are actually LARGER than we were estimating. We had the total pegged at $3.5 trillion (not billion), including the 2009 stimulus package.

SIGTARP has it at $3.7 trillion, excluding the stimulus but including a myriad other rescue programs — by the Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), the Government National Mortgage Association (GNMA), the Federal Housing Administration (FHA), and the Veterans Affair (VA).

But no matter how you count it, some outstanding facts are absolutely self-evident:

FACT: The enormous magnitude of the government’s intervention FAR surpasses anything ever witnessed in the history of humankind.

FACT: It’s not working! Housing is still collapsed. Long-term unemployment is the worst ever recorded. And the recovery, already anemic, is aborting prematurely.

FACT: Most important, it’s winding down! Through mid-2009, the government intervention programs tabulated by SIGTARP were being ramped up at a furious pace — a total of $3 trillion overall.

So over the 12-month period from mid-2008 through mid-2009, we estimate they were running at the average monthly pace of about $160 billion.

But since mid-2009, they have been far slower, running at an average monthly pace of only $58 billion, or just one-third the prior level.

And right now, the pace of new funds injected into the economy through these government rescues are merely a trickle compared to their earlier rate:

• No new stimulus is in the works.
• No new TARP funds are forthcoming.
• The Fed has wrapped up its bond buying splurge.
• And the ONLY significant continuing programs are for housing — the one area where the government has admittedly seen the WORST overall results, according to SIGTARP.

Bottom line:

If you were counting on the government to prevent the second major leg in this great double-dip recession, don’t hold your breath. To the contrary, the primary CAUSE of the second dip is the government’s conspicuous absence from sectors where it was, until now, the biggest mover, shaker, buyer, and financier.

Your ACTION

With this rapidly shifting quicksand, you must NOT be lured by Wall Street’s siren songs. You must not get trapped again in vulnerable stocks, mutual funds, or ETFs. Instead …

1. Greatly reduce your exposure to stocks, especially in sectors tied to housing, such as construction, home improvement, consumer appliances, and mortgage finance.
2. Move the proceeds to cash and cash equivalent, regardless of low yields.

Good luck and God bless!

Martin

Stocks once again showed volatility risk on Monday, as what was once a 140 point gain on the Dow in early morning trading, turned into 8 point loss by close. Investor confidence is experiencing intra-day shifts which can pose as a disaster for trading (especially with stop losses). As a result, sources have told me that a lot of money has returned to the sidelines for the time being as things become sorted out.

Today's blip happened when China announced their decision to float their currency. China hopes that the move will stimulate inflation and help with exports in their economy. However, other countries reacted negatively to the announcement, considering that China has been the bailout source for many economies. It will be interesting to see how this effects trading in the long term.

Meredith Whitney publicly announced her concern for a "double dip" in the housing sector. This is not a new theory by all means, but anything being vocalized by Whitney definitely gets investor's attention. As of late, it seems that whatever comes from her mouth, becomes a reality. Today it was dealing with the decline in the residential market.

This should not be that hard to fathom. Just as Whitney said, banks are now beginning to accelerate their foreclosure process. Last year, this could not happen due to the extremely large demand of foreclosures mixed with the large lack of staffing in the banks to handle all the paper work and processing. Well, the banks have been ramping up the past year and have rebounded quite well, from a stock price standpoint, and are ready to take over your property (for the most part). The days of not paying a mortgage for a year will soon be at an end. As we do see an increase in foreclosures, you better believe that it will directly effect supply and home prices.

In addition to this, unemployment pressures continue to beat upon consumers. Thus, delinquency rates continue to climb. As foreclosures continue to be on the rise, a suggestion for a recovering (or even stabilizing) residential market does not make sense. Economics 101 states the simple principle of supply and demand, which when you apply to the housing market, supply way outweighs demand. I expect steep housing price drops as we move out of the busy season of summer into fall and winter.

As a result the market continues to be a volatile instrument. I expect to continue to see large volatile swings, which can be fun for you day traders, and dangerous. I do still think there is much more long term upside on the short side of the market at this point. As more uncertainties pile up, it will be reflected into market trading. Happy Trading.