The rally in junk stock is subsiding.

We have had a rally in every kind of ACORN con artist styled activity. All the “Nigerian” bank transfer cons have spread and they are using East European names as well.

In the USA the most popular is the “Your Warrantee is expiring,” scam. People who take warrantees are known to be vulnerable because bright people demand products that work not products that have warranties for their expected failure.

People in the USA with mortgage and other debt problems are being targeted by community con leaders. First they are told there is no charge unless the government can help. Then they are told, “Yes, the con artist can help, just send $1000 to start the action.” Then they never see their money again.

Wall Street has its own scam going on now. Little known junk stocks are being bought up in old fashioned short seller sucker rallies to lure in people who “know the stocks are worthless.” They draw in wave after wave of short sellers who do not realize that there a big con artists out there willing and able to buy up all the small company’s stock and then make it almost impossible for the short sellers to buy back the stock except at much higher prices. The high prices then attract even more short sellers the longer the scam goes on. Soon the con artists will be able to unload their holdings at high multiples. Then when the prices fall back they will start the scam again. This seems to be the prime way the shorts are being milked at this moment and the only thing this rally has going on that is profitable.


Market forces April 28

The deflationary forces are currently at their greatest rate of worsening but the steepness of decline is no longer getting steeper. The deflation rate is expected to peak at -2.8% in November 2009 from the current April annual deflation rate of -0.9% according to the Financial Forecast Center. They expect inflation to rear its ugly head by early 2010.

This recent equities market closely resembles 1970 to 1974 and bares little resemblance to 1929. There was also a short severe contraction that occurred in 1978 that does not show up in plots that use monthly averages. The 1978 contraction caught many people who became over exuberant and were buying heavily on margin. The market continued to rise 1976-1980 under the Jimmy Carter administration but inflation and unemployment (stagflation) caused Carter to lose to Ronald Regan in 1980. Ronald Regan had an economic contraction that ended stagflation and he cut the Carter taxes and then stimulated the longest continuous period of growth in American history. It ended what was then expected to be the Japanese overtaking of the USA.

Barack Obama looks like he will be another Jimmy Carter expanding the arrogant usurpation of American liberties by big government. The Carter government was predicting the world would run out of oil in 20 years and the world population would triple. The Obama administration is predicting uncontrollable global warming and China overtaking the USA.

Market Outlook

The equities market is highly oversold and junk stocks have become the big movers as investment con artists try to lure in unwary short sellers. The recent advance has had no breadth and no consistent leadership. The stimulation package seems to be stimulating big government spending, big government hiring, and community activist con artists out there claiming they are helping people with high debt difficulties.

Unfortunately big government:
Likes to usurp power and dictate to people and business
Likes to regulate individual lives
Becomes arrogant bully and wants unions and binding arbitration for itself for power
Is extremely difficult to stop once it takes root.
Defines love of healthy values as hate and politically incorrect
Big government is an invasive species that destroys all healthy growth, ethics, and societal values.

Asian shares were down last night with Shanghai (China) down -1.9%, India down -3.3%, Japan down -2.7% and Hong Kong down -1.9%.

European markets are currently down in the range of -2.2% to -2.7%, mid way through their day today.

US futures indicate the American markets will start the day down again. The Dow Jones Industrial Average futures were down 113 points, or 1.4%, while the S&P 500 futures were down 15 points and the Nasdaq 100 futures were down 19 points.

Selling is more likely to accelerate today as buyers decide to go to the sidelines.

We expect the markets to decline significantly into July and will eventually present select opportunities to astute investors seeking value. We expect the decline will be over by early August.