Guest Author - Tony Daltorio
Many people have asked me this past week - what is going on with the stock market? Why is it plunging every day? A stock market is a reflection of human emotions such as fear and greed.
Right now the stock market is in the grip of total fear and panic. Part of the problem is that the people in positions of power in Wall Street have never seen a true bear market such as the 1930s or the 1970s. The bull market began in the early 1980s and that is all they have ever known. So many Wall Street firms are in full panic mode right now and are literally liquidating everything they own and putting it all into US government Treasuries.
FEAR and PANIC IS EVERYWHERE
Evidence of this panic can be found everywhere. 3-month Treasury bills are basically yielding ZERO! 2-year Treasury notes are yielding less than 2% - a record! Even 30-year Treasury bonds are yielding less than 4% - a record! Wall Street is predicting a deflation worse than what occured during the Depression of the 1930s!
Also at record levels are corporate bonds, both high grade and junk bonds. Yields for corporate bonds are at record highs - they have never yielded such a high rate ever in the history of the country!
Basically what Wall Street is saying right now is that nearly every company in the US, including blue chips such as GE, Boeing, Coke, Citibank, McDonalds, Microsoft, etc. is going out of business in the next few years and will never pay back their bonds! This is insane! What nonsense! Even at the height of the Depression in the 1930s, this did not happen.
WHO WILL GO OUT of BUSINESS?
Who will actually go out of business? Obviously some companies will go out of business (GM?). But I believe that most companies will be fine. I also believe that the only companies who will go the way of the dinosaur are the moronic Wall Street firms that are right now liquidating everything they own around the globe and buying Treasuries at ZERO per cent!
Why do I say that? The US government has already announced trillions of dollars worth of "bailouts" for the US economy. The incoming Obama administration will most likely announce trillions more dollars worth of "bailouts" for the US economy.
To pay for the trillions that will be spent, the US Treasury has to sell Treasury securities - bills, notes, and bonds. There isn't enough money in this country to pay for it all. The funds must come from overseas countries that have the money such as China and the Middle East. Foreigners already buy more than 60% of our Treasuries currently!
The problem is that America has exported her problems. Every major country around the globe now has severe economic problems. These countries have major funding needs themselves. For instance, China has over $2 trillion in reserves. But they have already announced a stimulus package in excess of half a trillion dollars and there is more coming.
Countries from Europe to Asia to the Middle East will keep their money at home and take care of their own problems. It's simple human nature. Yet, Wall Street is assuming that these countries will let their own people starve to bail out the US and Wall Street. What arrogance!!
So what will happen? In an effort to attract foreign money, the US will eventually have to raise interest rates. The Wall Street dimwits who bought Treasuries at 0% will see the value of those Treasuries collapse as rates rise to 5% or whatever. And the foreign investors will probably still not buy Treasuries.
So then, what will the US do? They will have no choice - The Federal Reserve will simply "print" the money to buy the US Treasuries, creating Monopoly money out of thin air. This creation of Monopoly money will drive the value of the US dollar much lower.
In this type of scenario, the "stuff" that the Wall Street dimwits have sold - real assets such as gold, oil, gas, metals, and real estate would rise tremendously in value on a relative basis. This would also apply to companies that have "real" businesses such as industrial companies such as Boeing or consumer companies such as Microsoft and McDonalds, not paper-shuffling Wall Street companies.
It will be the Wall Street companies run by greedy, dim-witted executives who will go the way of the dodo bird. Good riddance I say!
Look at how hard Wall Street is fighting the proposed bailout for the automakers. History buffs will recall the saying - "Millions for defense, but not one cent for tribute!" Wall Street has completely twisted the saying to read - "Billions for Wall Street, but not one cent for Main Street!"
BULLETIN! According to NBC News, President-elect Obama will announce that his new Treasury secretary will be New York Fed president, Tim Geithner. This is terrible news for Main Street. Either through his stupidity or duplicity, this is the man who was supposed to be supervising Wall Street but instead turned his head away from all the shenanigans going on in Wall Street.
I guess the millions of dollars that Wall Street contributed toward the Obama campaign has gotten them the Treasury secretary they want. So much for change!
