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The modern Information Age is impacting every sector of our economy, most particularly including the reporting of economic cycles and their duration (length), along with the manner in which information is processed.
Academia continues to lag in almost every instance all important changes in fact-based systemic changes, focusing on what has happened, rather than what will happen, and how it will come about.
One system this elemental change has not impacted positively is our legal system, bending under their continuing overload, and radically resistance to both change and modernization. If anything, they are trying to slow down our legal processes, acting with less and less transparency.
The naked shorting scandals in all securities are painful and incredibly accurate demonstrations of this. People have known for decades that the counterfeiting of securities in all forms coupled with unenforced settlements of trades had negatively impacted every form of pricing of all securities and derivatives across the board. Denial (and I am NOT talking about a river in Egypt) has become a crutch used by the manipulators and their mouthpieces, creating a form of logic that now says the “science of knowledge” (Epistemology) does not have to be based on facts, particularly if they are “Inconvenient” for the ability of the mainstream populace AND ITS LEADERSHIP to perpetuate myths.
Securities are now priced well in advance of coming moves, based on anticipation of trends predicted by statistics which can easily be manipulated, but which, when once assembled, are almost universally distributed on an instantaneous basis, to a matter of hours or days, when in the past, this kind of information would reach the public with delays of months, and sometimes years. The impact of this is that the duration of cycles are now dramatically shortened versus their past history, and the volatility of prices (amplitude being the correct word) is magnified.
It is our Government, Legal and Business processes that are not keeping up with the fundamental change in the environment. They are losing their ability to manipulate, obfuscate, lie, maneuver, protect and otherwise jerk the people of this country around, yet still they come up with new mechanisms to delay the inevitable increases in transparency by every trick they can construct or invent. The public isn’t as totally blind as it was a decade ago, as every day more Americans and foreigners become more computer literate, allowing them whole new techniques to determine if they are being abused or manipulated. They want answers, and they won’t tolerate much more horse manure.
One great example is failures to deliver Treasuries, with such failures now exceeding $2.5 Trillion according to the New York Federal Reserve Bank. Only now do they admit they have no penalties for such failures, and they are now trying to put laws in place to punish those who engage in settlement failures by strategic design. I am afraid that horse is out of the barn, years ago. If the pattern is followed, they will probably take years to put such rules and laws in place, just at the “changes” (Are you kidding me?) in short sale rules took 7 years to get put in place and then were a total cluster bomb of a failure.
In a world where transparency and justice should be obtained more expeditiously and with greater clarity, just the opposite is occurring. The outcome is that the American people don’t trust our investment systems, or our Government. Their loss of faith is as profound as that which accompanied the Great Depression. How many times do professionals have to be told that investor confidence as reflected in the indices was not restored after the 1929 Raid until 1954?
We face a disastrous job crisis, one that can only be solved by creating jobs, which means focusing our finite and limited capital on those efforts that will stimulate the economy, restore investors confidence in small business, fund credit for all businesses, and more. We are in a War as serious and deadly as any shooting War. When a society must wage War, it cannot do it in half measures, nor can it have any focus other than winning that War. Any agenda that doesn’t recognize this is going to not only fail, but threatens our civilization. What is dumbfounding is that many leaders think that our GNP and the taxes it produces happen magically, and not from the sweat of risk takers.
Some 80% of all small business funding involved an individual using his credit cards to start his business. Typically, this level of entrepreneur knows two-thirds of such efforts fail. So why do they do it, and who deserves to benefit? I say the benefit must go first to the risk takers and his employees, and what is left over should go to the Government for key safety net, not control, functions. If the small businesses fail, no earning or wealth are created and no taxes get paid, and the Government falls apart, wrecking our currency in the process where they have engaged their own self-serving Ponzi schemes.
Many of us were brought together by the crisis of confidence attending the criminal manipulation of stock prices by a form of vicious counterfeiting we have come to call “Naked Short Selling”. Counterfeiting, both illegal and legal, now threatens our very existence. I get hints of our economy fighting back, such as a small bottom in Real Estate prices where I live, which are now down over 33% in 18 months, but I fear this is but a pause. The first hard support of real estate prices is the replacement cost of the properties. We are nowhere near there yet. This augurs for this form of cycle to be much longer that four years.
A final comment on the indices. They are currently set based on values tied to estimates of 12 times earnings per share. This isn’t even close to a historical bottom, which in 1934 was 6 times. Anyone thinking a Dow of 8000 is the hard floor are simply not professional. Data talks. If anyone can tell me why I should expect earnings in this kind of hard contraction should support such a valuation, they know something I don’t. There is talk of the current Administration creating a 4% long term mortgage for qualified borrowers. While that is good news, I think it is folly to think that alone will create firm support for real estate prices. Nothing but good jobs coming back on a big scale (20 Million or more) will do that. So how would you achieve that goal?