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A Rigged Financial Market Has a Lifespan


Washington, DC -- (ReleaseWire) -- 11/25/2013 --A financial market, even a rigged one, has a lifespan. When that rigging fails, the system collapses and the fundamentals return. That will be a good day because financial markets should only run by fundamentals, not by rigging the system. Yet right now, few American investors have a memory as they push the Dow and S&P 500 to new highs.

It is clear that the U.S. financial market seems entirely inspired by the Federal Reserve and that we truly don’t have an investment market any more, but a rigged casino. And like in all casinos, the house eventually always win. The “house”, in this case, is the Federal Reserve. It is playing a very dangerous game by over stimulating stock market sentiment and investments just as it did before the 1929 stock market crash. Market sentiment is a precarious instrument, when it reaches excessive levels like the current one, you don’t have to be Galileo to know that the pendulum will eventually move sharply in the opposite direction. This is inevitable. The fact that the Federal Reserve would deliberately push investors into the stock market after the manufactured rally we’ve had means to that they are ignorant of the events that preceded the 1929 stock market crash or they are supremely in confident in their omnipotence.

Either way they would do well to read a research report that was written by Former Federal Reserve Chairman Alan Greenspan in 1966 entitled Gold and Economic Freedom. This highlights the grave errors by the Federal Reserve in 1929, which our government has not been paying attention to today. Greenspan wrote, “When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom.” He goes on to say, “The Federal Reserve officials attempted to sop up the excessive reserves and succeeded in breaking the boom, but it was too late. By 1929 the speculative imbalances had become so overwhelming that the attempt precipitated in a sharp retrenching. As a result, the American economy collapsed. “ He’s talking about the great collapse of 1929. The pre 1929 bank reserve excess credit criticized by Mr. Greenspan pales in comparison to what we have today in 2013. Herein lies the paradox, when Chairman Bernanke was installed in his post, the administration and the media said “it’s the best thing, he is the foremost expert on The Great Depression.” Sadly, he spent so much time and effort studying The Great Depression that maybe he developed Stockholm Syndrome and has a fondness for that particular debacle in monetary policy and wants to revisit it to prove that it was not as bad as previously depicted. What else could possess him to engage in the printing of over $1.7 Trillion in “phantom valued monies”, call it quantitative easing and allow his successor to be someone who is arguably more dovish than he.

If Yellen follows through with her purported plans, how is it possible to avoid the type of catastrophe that was delivered unto us in 1929? Maybe we need another academic, economist wonk to right the ship, since it has worked so well for the last few administrations. There's a bubble, bubble toil and trouble with this ongoing witch’s brew of speculation and illiquidity. This current bubble has it all, from illiquidity issues we had in 2008 that were not fixed, as well as the replay of the 2000 tech bubble. This is way more than what was going on in 1929. The situation now can end up worse than what we had back then.

There are signs that people are missing. One of which is the scary tech craze we are in the last two years. We’ve seen a number of high profile tech companies that are barely profitable or have never turned a profit. Of the tech companies that have gone public in 2013, 73% have never turned a profit, compared to just 27% of tech companies that went public in 1999 that didn’t turn a profit. That gave us a three-year bear market that many people have not recovered from. It’s obvious that we are brewing big trouble today in 2013. So even to look at the small number of tech companies that showed a profit, the reality is that those numbers are heavily “massaged” through various accounting tricks.

To look at real earnings instead of those manipulated by taxes and assets, the corporate profit picture is not nearly as rosy as the U.S. financial markets imply. Headed into fourth quarter results, earnings are not looking pretty. So far, companies and analysts have lowered earnings expectations because 87% of companies have issued negative per share guidance. This percentage decline is well below the 1 year, 5 year and 10 year averages, which is not good. Despite these sad fundamentals, the S&P 500 Index actually increased 4.5%. This has marked the seventh time in the past nine quarters that earnings estimates dropped and the S&P 500 rose in value. That’s not right. Talk about a rigged market. All in all, this points to a major market top forming or more accurately insanely overvalued.

It’s almost sadly comical to watch the U.S. stock market indices soar into the stratosphere, negating one fundamental and technical warning after another and reaching levels that defy rational thinking, yet here we are. The bottom line is that the Federal Reserve’s endless printing of the dollar has continued to shove stocks higher and higher with no end in sight. It’s astounding to watch as there seem to be no consequences whatsoever to this madness. Having managed money for over 25 years, there is a strong sense of history, so I shake my head in bewilderment and sadness. There are so many otherwise intelligent individuals who see absolutely nothing wrong with the Fed’s money creation scheme in which so many American investors can be herded into a stock market with no rational basis other than momentum going up. People think they are missing something in the Dow and S&P but there are no fundamentals supporting it. There will be a correction because rigging does not hold up markets forever.

About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She can be reached at