Market drops retracing fizzled ghetto economics rally

Market forces May 28,
Coffee fad enters a downward spiral:
This year Colombia's coffee output is expected to decline 4.3% to the lowest level since the small harvest of 2001. Prices rose sharply after farms were battered by heavy rainfall. Higher prices raise the costs of the product and reduce the profit margins and sales of the coffee roasters. This is driving up prices just as the coffee fad that Starbucks started is fading.

Ghetto economics is a failure:
Ghetto economics is Congressman Rangel’s idea that anyone in the ghetto who wants a house should be able to own one even if they can’t afford it. It is what caused the financial meltdown. It is the idea that credit cards should not have to be paid off if you can’t afford them because the credit card company must have deceived and tempted you unfairly. It is Obama’s idea that socialists should be able to spend whatever they want and hard working people and other countries should pay for socialism by buying US Treasuries. Well ghetto economics is why the people in ghettos live in poverty. Once one subscribes to ghetto economics interest rates start going up and soon all the ghetto free cash goes to paying off interest.
Stocks fell Wednesday, giving back the gains from the previous session, after a sharp rise in Treasury yields and the benchmark 10-year bond jumped to a 6-month high. The Dow Jones industrial fell 2%. The S&P 500 lost 1.9% and the NASDAQ composite slid 1.1%. There is a growing concern that GM will not be able to avoid bankruptcy and all the government stimulus funds will just stimulate fraud and political corruption. The word on the street is that the only correlation found in the elimination of car dealerships is that if the owner is Republican it is likely to be eliminated. The sell off gained momentum in the afternoon. The difference in yields between Treasury two-year and 10-year notes widened to a record as surging sales of Obama socialist debt overwhelmed the Federal Reserve’s efforts to keep borrowing costs low. Higher interest rates make debt a relentless burden as the historic cost of Obama socialist programs and wealth redistribution increases the national deficit. Obama has taken the credit card debt game of American Ghetto economics and made it the cornerstone of his national socialist financial solution. The FED will likely have to print money even faster to keep Treasury rates from rising too fast. But printing money also raises rates by causing inflation and that then requires the printing of more money to offset the decrease in value of the currency. That leads only to hyperinflation. The truth is that rates will rise unless the Treasury exclusively uses printed cash because the auction method requires bids, and the bidders want higher rates of return due to the erosion of the US dollar. Socialism is nothing more than politically correct ghetto economics.

Hedge funds are loaded with worthless assets:
Part of the reason the stock market is dropping is because the unregulated hedge funds can say their assets have appreciated based on some model they use when in fact the market for their illiquid assets has disappeared. In that way the Hedge fund can claim paper profits and take their high management fees as the hedge fund becomes a worthless shell. The reason they get away with it is that like Bernie Madoff's investors… hedge fund investors are usually wealthy and ashamed to talk about being so gullible to be taken to the cleaners by hedge funds. And hedge funds can just lock you in if too many people want out. Pequot Capital Management plans to liquidate their hedge funds because they claim a federal investigation has “cast a cloud over the firm.” Pequot, started in 1986 and Pequot’s assets peaked at about $15 billion in 2001, making it the world’s largest hedge-fund managed at the time. It was only $3.47 billion in paper value as of May 15, down from $4.3 billion in November. Pequot Partners claim they returned an average of 16.8% paper profits since its inception 22 years ago, and they always took less than 40% in management fees. Yet the funds, now only have about $2 billion in disposable assets, and they say they will return a “significant amount” of cash to investors by June. The rest will be paid out over the next several months, pending a year-end audit and liquidation of harder-to-sell toxic assets. Perhaps trillions of dollars in hedge fund losses still remain hidden as paper profits. This unregulated hedge fund fraud situation could rival the toxic mortgage scam. Forced liquidation forces the recognition of lost value of the leverages collateral and it tends to drive the stock market lower because that is a loss of investment cash reserves on the sidelines.

Obama program to rid banks of bad loans has failed:
The Legacy Loans Program, crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to investors. This effort was viewed as central to tackling the financial crisis. But prospective buyers and sellers have expressed reticence to the FDIC about participating for fear the program's rules will change with Obama’s leftist hostility to Wall Street. All the rich people who funded the Obama campaign are suddenly the enemy.


Market Outlook

We now will wait for more signs that the coming pull back is close to a bottom. Our analysis does not change every other day as you typically see on the NBC/GE/Pravda network. A new wrinkle may be the rise of interest rates which will delay economic recovery and could lead to national democrat socialist bankruptcy.


Last night Asian markets were up. China’s markets were closed, India up 1.3%, and Japan up 0.1 %.

European markets are down in the range of -1% to -1.4% mid way through their day.

US futures indicate the markets will start off flat again today. Obama administration’s failure to sell debt plan could bring the stimulus package to a halt or worse yet it could drain the cash from the productive private enterprise economy.