first majestic silver

Stock Market Delusions

October 24, 2002

"There is no remedy for a people who desire to be rich", said the wise man. Surely these words will be the epitaph for the lunatic American stock market. I'm on record for a 500 NASDAQ, and a 5000 DOW, so I have been watching the rally with a bemused sense of wonder.

Could it be Flint and AN over at TBYK are right and I REALLY am an idiot? Or could it be Doomer Doug is correct and everybody else is wrong? The second sounds more logical, to me at least. Still, I am simply fascinated by the willful suspension of any sense of economic reality in the stock market. We're beyond fumes and vapors; we are running on illusions and mirages. I try and ask myself if I'm missing something here. Perhaps, the media shills, market manipulators and dreamy eyed investors see something that I don't.

What I see is an economy in decay. I see manufacturing gutted and withered into nothingness. The very last American shirt factory closed the other day. There are simply vast areas of the economy in which we do nothing except import and then distribute things. I see four months of declines in the leading indicators. I see retail sales down steeply in September. For those of you who don't know, the retail year's profits are mostly made in June, September and December. June's summer sales were mediocre, August and September back to school was dismal and anyone want to take a wager on Christmas? The dock lockout didn't help much either.

I must admit that the recent rally which continued yesterday really has me baffled. I see absolutely no economic justification for it at all. Yet, it's roaring along quite nicely despite any attempts by economic reality to hog-tie and then sedate it. I've been reading Eric Hoffer's 1951 classic, "The True Believer" and feel in its pages about various fanatics lie the true origins of our stock market rally. What we have is a True Believer Stock Market suffering the final phases of delusion. The Hitler Youth manning the street barricades with Panzer Faust's during the Battle of Berlin comes to mind. The purity and simplicity of the stock market's delusion is awe inspiring in its power and force. Of course, the Hitler Youth and the Volks brigades were slaughtered to a man by the Russian troops. Of course, both Germany and Russia lost more men each, 350,000 dead, than the United States lost in World War Two, Korea and Vietnam combined. The collapse of a True Believer System is a nasty thing. Osama bin Laden is a true believer and we know all about him don't we?

The economic logic used to justify this stock market rally eludes me completely. The last big gain was 379 points/dollars based upon CityGroup, Johnson and Johnson and General Motors earnings. The current 215 billion rally resulted in General Motors gaining 8% to $37. Um, I don't know how to tell you this, but there is NO economic reason for GM to gain 8%. Period. One of the things I've noticed about the whore media is they dribble out damaging news after people could use it to make rational economic decisions. General Motors is a classic example of this. 379 billion dollars divided by three is around 125 billion dollars for General Motor's share. On the day General Motors generated this huge amount of money, based upon investor's assessment of its earnings, the reality was quite different than the illusion. The reality was GM took an $800 million charge against its FIAT loss. FIAT is Italian for either Failed Italian Attempt at Transportation or $%^@#$%% Italian Attempt at Transportation as a friend who owned one once told me. I'm sure GM will now agree. In addition, GM announced a loss of nearly $200 million on its European division. Help me out somebody. If GM lost 1 billion dollars, how does $125 billion in fiat, just noticed a pun there, failed incompetent attempt at a treasury perhaps?, wealth get created? Ah, the pundits told me "INVESTORS" decided GM made money on its North American operations or credit cards or whatever. OH they didn't lose as much as we thought they would goes the drill.

The reason I find this simply fascinating is what happened within 72 hours of General Motor's rally. First, Standard and Poor's, the rating agency downgraded GM's debt to somewhere in the league of oh say, Iraq or other bottom feeders. The reason they did this, to both GM and Ford, is because of huge pension fund liabilities facing each one. An October 18th blurb buried in the small print of the business page is called "Boeing, GM acknowledge billions in pension fund losses." It goes on to say that S&P is downgrading GM's long term debt and that GM admits it faces up to a 23 billion dollar pension fund shortfall by year's end. Hey, isn't year end like oh, sixty days away?

And isn't 23 billion dollars like 23 times the FIAT and European losses? So help me out here bulls and optimists. I'm having a real problem understanding how GM can say on Friday October 18th it faces a 23 billion dollar pension fund shortfall within 60 days, and the next stock trading session it gains 8%. Well, I'm sure I just missed something and am being my normal doomer, pessimistic and just plain nasty self here. I'm sure those investors who jacked GM's share price up 8% must know something about a 23 billion dollar pension shortfall that I don't know. In fact, could this rally, besides getting the elite through the election in two weeks, be about perhaps boosting stock prices so the $640 billion pension fund shortfall is cut some before year end? Nah, I'm just being paranoid again. We know that the elite never lies to us and all that stuff about gassing sailors and throwing CIA agents out of New York windows is just conspiracy ranting and raving.

One country I left out of my Latin American chaos list last essay is Columbia. May I humbly suggest you avoid Colombia in general, Medellin in particular and especially a neighborhood called Comuna 13. It seems a combat battalion, 1000 men, of the Federal Army, supported by tanks and helicopter gunships, "stormed" this neighborhood and "exchanged heavy fire" and "killed nine people, including a sixteen year old boy." Must not have video games down there. Coming to a neighborhood in a city near to you in the near future. The future is glorious; shut up and take your Paxil. And buy some stocks and an SUV too. Don't forget to zigzag when you go to Office Depot either.

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