You Can't Fool Mother Nature For Long: Financial Markets (January 17, 2012)
Constant State and Central Bank intervention and manipulation is not the foundation of a free, transparent market--it is perception management in service of Elite control and looting.
You can fool Mother Nature for awhile, but not over the long-term. That's the theme of the week. Every day I will take a look at a segment of American life that is currently based on the supposition that we can dodge reality essentially forever.
Correspondent Chad D. recently summarized the profound lack of authenticity in the American experience:
Have you noticed that Americans often don't experience REAL things: REAL food, Real water, REAL relationships, REAL money, REAL freedom, REAL peace of mind, REAL living, REAL leaders, etc. I know you've gotten flack for your extensive use of "simulacrum," but it's so true. Most Americans have no idea what REAL is.
Thank you, Chad. Let's ask just how real our financial markets really are. We can start our inquiry with this thought experiment: where would the stock, bond and commodity markets be if all Central State and Central Bank intervention and manipulation were prohibited?
Where would the stock market be if the Plunge Protection Team (PPT) didn't manipulate the stock market via massive purchases of ES S&P 500 futures contracts? These massive purchases are always executed in sparsely traded pre-markets, maximizing the ramp-up effect, which then triggers momentum chasing buys from high-frequency trading machines.
Voila, ramp-and-camp Mondays, which studies have found account for the majority of the market's gains last year.
Remove ramp-and-camp Mondays triggered by massive PPT futures purchases, and where would the unmanipulated market be?
What if unemployment statistics were unmanipulated, i.e. the number of people in the workforce didn't magically decline by millions every year? What if the bogus "Birth-Death Model" was banned as mere fantasy job creation? Where would the unmanipulated market be then?
Where would bond market yields be if the Federal Reserve were unable to print money to buy hundreds of billions of dollars of mortgage and Treasury bonds?
We can also shed light on the difference between a real free market and a simulacrum of a "free market" by asking: does anyone seriously believe the stock market would be higher if all market intervention and manipulation by the Central State and Central Bank (and their proxies) ceased?
We can extend this by asking: what if public companies were banned from issuing "beat by a penny" pro forma earnings and other accounting tricks?
What if the "shadow banking system" was outlawed, and all assets and liabilities were transparent? Does anyone seriously believe the fragile financial system that depends on shadow banking for its dodges and profits would survive transparency and marked-to-market accounting?
Americans have no real experience of free, transparent financial markets or of rigorously transparent accounting by their Central State, the Federal Reserve, public corporations or the financial sector. They have been presented facsimiles of accurate statistics and accounting, and simulacra of transparent markets.
Average Americans are responding to this systemic destruction of truth and fact by exiting the stock market--and that is just the start. As I described in When Belief in the System Fades (March 12, 2008), the Elites benefitting from the Status Quo depend on the active participation and complicity of millions of citizens.
When those participants' faith in the Status Quo's fairness and transparency declines below a critical threshold, then they withdraw or limit their participation, and the system enters a self-reinforcing death spiral.
To go back to the key question: does anyone seriously believe the stock market would be this high if the Central State and Bank and their proxies weren't constantly intervening in the market and manipulating data?
Intervening in supposedly "free markets" for the purposes of perception management and political spin ("everything's great because the market is up!") is ultimately an attempt to fool Mother Nature. The Powers That Be have succeeded in manipulating markets since 2007, but reality (Mother Nature) eventually shreds the phony facade of perception management.
As the European attempts to fool Mother Nature (i.e. unmanipulated markets that are free to discover price and price risk) disintegrate, does anyone seriously think the PPT can prop up the U.S. stock market with its usual pre-market manipulations?
When Mother Nature reasserts reality, the frauds, scams and facades will shred like tissue in a hurricane. Maybe that process of reverting to reality is finally about to begin.
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