Say It Ain’t So…

Just like in the past two years, the stock market had decided that the strong fourth quarter of business should translate into a bone-fide economic recovery. But like in the past two years, it is just not so. But that hasn’t stopped the Wall Street Brain Trust from preventing even a 1% pullback in the major indices during these past months. In fact, it has been one of the best stock market performances in history.

Many on Wall Street and in the Media will tell you the same standard stuff you hear all the time. You know, the stuff that sounds analytical and important. But it is all total bullshit. Crap, I tell ya. The market is up solely on FED and ECB stimulus. And lately, most everyone knows the truth, yet they buy with a nod and a wink. The fact is that markets around the world are dependent on the free money regime and without it markets would be at least 20% lower.

Over the past few days there has been rumbling that more stimulus will have to wait. I think that is a lie. History and statistics prove that Chairman Bernanke is here to shower the economy with cash to prevent the deflation that caused the Great Depression. This is his purpose in life and it will not stop as long as he is Chairman. But the market’s rally has become “otherworldly” and way too speculative. That creates undue expectations that cannot be met, and if that happens, the wheels could come off the bus, again. Certainly few want that.

My take is that there will certainly be more QE. But in order to justify it, the markets must “discount” an economic slowdown by dropping a thousand or so Dow points or a hundred or so SPX points. In order to get more QE, Bernanke must dampen the speculation that there will be more QE. Make sense?

My long-standing top to this market phase has been the April 16 deadline of 401k/IRA contribution for 2011 tax deductibility. If yesterday was beginning of a true corrective process then I’ve come up a week and a half short.

But not to worry as there will be Fed-Heads out in force over the next few days promising to do “whatever it takes” (buying shit in the open marketplace) to get the stock market and banks out of any negative environment. They know that near-term stock market performance is the only thing that matters to corporations and the investor class.

They say that no man or entity is bigger than the markets. Bullshit.

What we’ve been saying here for years has now become common knowledge:

The economy and financial markets are disconnected.

Banks will be saved at the expense of all other entities.

Bernanke, etc. will print money, keep interest rates near zero, and perform any and all manipulations possible for their entire tenure.

Inflation must be bought to overcome deflation.

Consumer and Corporate confidence is directly linked to near-term stock market performance. Nothing else carries any statistical significance.

Fixed income, commodity and equity markets are manipulated by Central Banks with full government blessings and that manipulation is widely accepted and in fact required.

The last bastion of the individual investor is through retirement accounts.

There can be no market corrections until after April 15 deadline for retirement account contribution deductibility.

The Democratization of Wall Street is dead and replaced by HFT.

I’m sure that I’m forgetting many important market or structural factors. Please contribute if you can think of any!

It’s all clear to me now. Soon, stock market gains will roughly equal securitized housing market losses. Then the housing securitization market can be retired until the next housing bubble that will start in about 2020, when Chinese and European immigrants come streaming through our international airports.

We all know that the plan at the highest levels of government has been to “get the stock market up” at any and all cost and at the expense of everything but banks. They know that the “well off” can only feel good about themselves and future prospects if their 401k’s are performing adequately. Additionally, short-term corporate confidence, spending and hiring can only be positive on the heels of an appreciating stock price. Who want to hire/spend with a trashed stock?

So the increase in the FED’s balance sheet is $7 trillion or so, roughly equal to the 30% or so markdown for housing losses. And Obama is the Magic President that doubled the stock market in three years. The opposition’s plan to hurt him through high gas prices won’t touch him. The deck is stacked, resistance is futile.

Today Geithner and Bernanke are out talking about how great/shitty things are and that they will need to save the system for a “long time”. ZIRP must be forever and it will be. It is all noise and the seeds of a great/disastrous economy have been sown. We all know that the FED and Treasury are bigger than the markets at this point in history and there is no use fighting it.

Here is some perspective: Investors have withdrawn about $400 billion from equities since 2007. In the three months since Christmas, Apple alone has added more than $200 billion in market value. One stock in three months has made back half of what was lost from all equities in the past four year. So it is easy.

Don’t worry about a thing as markets have proven that nothing can hurt them for the moment. Remember, no fundamental or technical damage can/will be inflicted on markets before April 15, the day that individuals can contribute to their 401k/IRA for 2011 taxes.

Individuals have left the market in droves and mostly only buy stocks or funds with their retirement accounts. And after a six month, 30% run in the SPX, it only makes sense for the odd-lotter to pay up for their equity exposure. After all, those who bought when things looked the worst must sell to those who mistakenly (over & over) buy when things look much, much better, if you believe the propaganda.

So the market will simply “Phone it in” for about another month or so.  Enjoy the quarter end markup that is about to commence. Don’t worry about negative divergences or anything else because this year just has to be different (from last year & the year before).

While virtually the entire world’s financial markets are in “Full Costanza Mode”, there is a high level of risk as the latecomers take the market parabolic before the April 15 401k-IRA contribution deadline.

Sure, the parabolic part is fun and rewarding if you are properly positioned, but it almost always ends in just as steep of a descent once the energy is spent.

As a counter to “chasing”, may I propose an idea that has been truly undervalued: Taiwan. It is the place of the most highly precise technology manufacture. It is also the place at constant odds with “Mainland China”. I won’t get into a 20th Century history of China/Taiwan relations but suffice to say, there has been a “China Discount” on Taiwan shares since forever.

Relations between the two China’s have been thawing with a new Taiwanese Administration and today a new law has been proposed allowing larger Chinese investment in Taiwanese firms. Currently a Chinese firm can only own 10% of any Taiwanese company. The new proposal ups the potential stake to 50%. That is a sea-change for the investing environment and could lead not only to new investment but perhaps a multiple expansion as tensions ease further.

There are only a handful of Taiwanese ADR’s and the iShares ETF symbol EWT but remember, Taiwan is an investment story and not a trading story.

Taiwan To Raise Ownership Limit Of Chinese Investors In Taiwan Tech Firms To 50%

TAIPEI (Dow Jones)–Taiwan’s government plans to raise the ownership limit for mainland Chinese investors in Taiwanese technology firms, probably by the end of March, an official from the Ministry of Economic Affairs said Friday. The person, who asked not to be named, told Dow Jones Newswires the new rule–which will require final approval from the Cabinet–would allow Chinese investors to own up to a 50% stake in any Taiwanese tech firm, from 10% currently. The new rule would apply to companies including flat-panel and semiconductor manufacturers, the person added. Although the once-frosty relations between Taipei and Beijing have thawed since Taiwan President Ma Ying-jeou took the office in 2008 and that the 10% limit has been in place since March last year, investment from the mainland into the Taiwanese tech sector is virtually non-existent.

It would make sense that after terrific near-term gains, you might sell the news of a FED meeting news release. But in this market you must embrace the perfection of the ever-levitating prices.

Have you reached your long-standing targets of positions you bought this year? Last year? Five years ago? Just raise those stops accordingly. Do not sell for fear of missing upside.

And most importantly, YOU MUST NOT HEDGE AGAINST RISK. If you do, you will lose that capital in its entirety. Volume and overall market participation is truly secondary when there is no selling.

Think about this: Alan Greenspan created an ever liquid and expanding financial marketplace, bereft of any and all regulatory oversight. When he knew that it would crash and burn, he retired and passed the position to a “ringer”.

Bernanke is the guy who’s entire academic career was built on fixing the wrongs of the Great Depression. You all know about “Helicopter Ben”. It was all by design and aside from a few hiccups, it is working perfectly.

So embrace the horror of “The Perfect Market that Only Goes Up” (until April 15th).