# What will be the scam this time?



## Pluto (Sep 12, 2013)

What will be the scam that will be uncovered after the next stock market bust? 

last time it was stuff such as phony mortgage backed securities, phony mortgage applications, price of potash and oil will go to the moon, and so on. Before that it was .coms ipo's with no product or service being sold as solid gold. 

What will the scam or illusion be this time? If I had to guess, it would be China fabricating its GDP numbers, and people complacently buying into the don't worry be happy scenario.


----------



## Eclectic12 (Oct 20, 2010)

... with oil dropping so much, I'm not sure a scam is needed to explain the drop.

Then too, I can recall a lot of articles decrying the ".com" share valuations and pointing out there was no product or sustainable business model so I would not lump them in with phony mortgages and such.


Cheers


----------



## james4beach (Nov 15, 2012)

Pluto said:


> last time it was stuff such as phony mortgage backed securities, phony mortgage applications, price of potash and oil will go to the moon, and so on. Before that it was .coms ipo's with no product or service being sold as solid gold.


Here are my thoughts on the story this time around. When they eventually write books and create movies, here is what I think they will describe

1) *Federal Reserve QE and ZIRP.* This is ground zero of the scam. What happens when you take a global economy in a Depression and suddenly pump enormous amounts of money into it using QE? You get the perception that everything is OK. This is the fantasy we've been living in since 2009 -- that things are back to normal. Basically the entire global market has become addicted to QE and totally dependent on it but we are still fundamentally in a Depression. That's why you don't have to scratch too deep to reveal signs of the ongoing depression, such as crashing commodity prices and collapsing emerging market economies. There's a new book on this now, called The Only Game In Town

2) *Central bank manipulation of assets and securities*. I think this is a very interesting fraud that will be revealed when the records from central banks eventually get released to the public. The obvious part of the manipulation is the QE program, which explicitly buys treasury bonds to depress yields. Another obvious one is the Bank of Japan, which actually buys stock index ETFs. They are a huge buyer of index ETFs. That alone is quite a scam. But there's even more to this going on. Central banks trade futures in things like stock indexes, interest rate derivatives and even possibly VIX derivatives. The evidence of this is the existence of the CME Central Bank Incentive Program. But we don't know which central banks are involved in this market manipulation. This will eventually be revealed, hopefully with a whistleblower from a central bank or CME. I bet this will go a long way to explain the disconnect between asset prices like the S&P 500 and the actual economy.

_Personally I also think #2 above is the cause of the weird instability we see, such as the intraday flash crash in ETF prices in August, and previously the flash crash of 2010. I think the asset price instability is a manifestation of the heavy manipulation of share prices by central banks._

3) *Yield chasing*. The central bank ZIRP policy made retirees very concerned about yield, and you see daily posts about this on the forum here. People chased anything and everything with yield: dividend stocks, junk bonds, split shares, preferred shares, etc. Junk bonds are a particularly interesting aspect of this since many retirees have gotten suckered into junk bonds. Just look at things like XTR. The junk bond catastrophe started over a year ago and there are huge losses mounting in this area.

4) *Chinese credit bubble*. The perception of great wealth growth in China that was really just a credit bubble, with a huge growth in unrestrained grey market lending. Fitch put out some clear warnings about this over a year ago. Personally I also think that much of the Chinese "wealth" we see in Canada for real estate etc is just borrowed money, which will inevitably deleverage and thus disappear in the blink of an eye.


----------



## james4beach (Nov 15, 2012)

By the way, central banks are to blame for all of these except the Chinese credit bubble.

It's taking a while for people to catch on to the harm caused to our societies by central banks, but eventually people will figure it out. Eventually, the central banks will be stripped of power and may not even exist.


----------



## peterk (May 16, 2010)

Damn James, you are making me more and more bearish by the second. Excellent write-up! What's your take on the role that gold will play as this central bank induced collapse begins to take place?


----------



## james4beach (Nov 15, 2012)

I don't have any strong thoughts on gold. I just hold some as another asset class. The performance of the gold asset class has been very good in the long term.

I didn't mean to make it sound like markets are going to collapse. What I'm positive about is that central banks *fooled investors* into buying at higher prices than they otherwise would have ... that can lead to under-performance going forward, but doesn't necessarily mean we'll get a collapse or anything too dramatic.

The central banks just have way too much control of all financial markets right now. This is what I observed in 2009, and I didn't like it. How do I know I'm buying at fair prices, when central banks manipulate the market so much? How am I supposed to believe that natural market forces are at play, when the S&P 500 directly correlates with the size of the Fed balance sheet?


----------



## tygrus (Mar 13, 2012)

A lot of disbeleif is suspended for people to really like stocks. I keep them under 10% of my portfolio. Never more.

I mean here you have traders, central banks, currency, debt, QE and HFT and who knows what else working behind the scenes playing with your money - up and down, then down then up then who knows.

Would you accept that with any other source of income you have. Say I decided to do something that would lower your property values by 10% for a few years. Or I do something to prevent you from getting your full wage at work for a few years. If that happened people would be crying bloody murder. But when there are massive unforeseen corrections either natural or instigated, people are all ok with it.


----------



## TomB19 (Sep 24, 2015)

Pluto said:


> If I had to guess, it would be China fabricating its GDP numbers, and people complacently buying into the don't worry be happy scenario.


You do not have to go overseas to find significant corruption.

Every time the US government changes how they calculate something, it's another chapter of a fairy tale. Canada has had plenty of brushes with dishonesty, also.


----------



## dogcom (May 23, 2009)

Tomb19 you nailed it the US government or central bank is always moving the goal posts. Unemployment goalposts are always being moved because if the rate really was 5 percent or whatever then the economy would be booming.

Gold is kept under control so people don't lose confidence in the US dollar and bonds. Today gold miners are getting nailed which is a signal that manipulators intend to smash gold tomorrow. There is a Fed meeting next week so some sort of scam is being set up for this in the gold market. I am thinking a smash tomorrow followed by a rally into the Fed meeting next week and then a follow up smash after the meeting into month end. 

I am hearing that things are coming apart right now and look for individual names being mentioned as to when it will be really noticeable like an AIG.

Look for big false flags as we get closer to things coming apart.


----------



## Eder (Feb 16, 2011)

Thank god we had people with a brain like Bernanke that actually studied history and knew what to do to prevent a dirty thirties type of depression. It has been trendy by the herd to criticize his actions though.


----------



## james4beach (Nov 15, 2012)

Eder, he doesn't know what to do. Bernanke just has a theory on how to prevent a depression.

Economists and historians all acknowledge that what Bernanke tried is completely experimental. This level of market intervention has never been tried before in history, and we are now living Bernanke's grand experiment. Let's see how the experiment plays out.


----------



## Rusty O'Toole (Feb 1, 2012)

- China
-Japan
- Consumer credit and car loans
-Student loans
-Hugely overpriced fashionable tech stocks

All disasters waiting to happen and more economies teetering on the brink everywhere you look.


----------



## tygrus (Mar 13, 2012)

Only one scam and its the lead in to all the other symptoms. Simply put, inflation and debt is not supply and demand...period.


----------



## Romy (Jan 14, 2015)

The "scam" might be revealed to be something that's been going on in the open. That the Fed has been artificially propping things up with a low interest rate + pumping money into the economy, and that this has been a "fake" recovery, and that the markets can't survive without the Fed's help.


----------



## CPA Candidate (Dec 15, 2013)

All markets are now correlated to oil - this situation does not make sense when a lot of the world benefits, especially the US and Europe. Rationality has left the building and the market is trading on pure fear and sentiment.

For years there was a great deal of complacency where the market went up because it was going up. Now that there are some destabilizing events that shake investor confidence, they are massively overreacting. This is a classic cycle with investors that are silly and emotional.

This site has some great insight - if you do anything read these memos

https://www.oaktreecapital.com/insights/howard-marks-memos

_Especially during downdrafts, many investors impute intelligence to the market and look to it to tell them what’s going on and what to do about it. This is one of the biggest mistakes you can make. As Ben Graham pointed out, the day-to-day market isn’t a fundamental analyst; it’s a barometer of investor sentiment. You just can’t take it too seriously. Market participants have limited insight into what’s really happening in terms of fundamentals, and any intelligence that could be behind their buys and sells is obscured by their emotional swings. It would be wrong to interpret the recent worldwide drop as meaning the market “knows” tough times lay ahead. 



_


----------



## tygrus (Mar 13, 2012)

If you go back to 2009 and chart the average trend line of the stock market before that period, that would have resulted in DJA of about 12,000 and change. Seeing as we have been as high as 18,000, we are way off the trendline since QE. Companies could have improved their bottom line over that time and now picked up the trend right here, however most gutted themselves, fired employees and used money to buy back shares. Chickens have come home to roost now. The market will try to find its real value.


----------



## lonewolf (Jun 12, 2012)

Isis
Fanny & Fredy Frankinstein
Goldman
Politicians
The Fed
Central banks
pensions over paid government workers
minority groups
2 languages French & English
Fiat money
Banks
Social programs
Market intervention
education bubble


----------



## Barwelle (Feb 23, 2011)

Backing up the thread a bit... you guys were talking about Bernanke. Freakonomics interviewed him a little while ago, you might like to listen to it.

About 45 mins long... find it on iTunes (Freakonomics: Ben Bernanke Gives Himself a Grade) or listen through your browser here: http://freakonomics.com/2015/12/03/...elf-a-grade-a-new-freakonomics-radio-podcast/

You can also read a transcript at that link.


----------



## fatcat (Nov 11, 2009)

Eder said:


> Thank god we had people with a brain like Bernanke that actually studied history and knew what to do to prevent a dirty thirties type of depression. It has been trendy by the herd to criticize his actions though.


+1 ... this is the crux of the problem

pluto and james can ***** all day about bernanke and manipulation ... to call it an experiment is a mislabel

this is no experiment, it's a hail mary pass ... we know damn well what would have happened had the fed not done something, we'd be sitting in a worldwide depression

we are trying the only thing we can (the only thing that the best economic minds can come up with)

you guys and zero hedge can ***** and moan all day but you don't have a clue what else to do ... you don't have an alternative

quack quack quack


----------



## fatcat (Nov 11, 2009)

wow, just looked at my stocks, breathtaking,
no flight to the defensive stocks, bonds down
every single thing down
panic and flight into cash

you guys that are telling me about manipulation
take this and multiply it by ten and that's what we get without fed stimulus

maybe we'll still tank into the fiery pits of hell
but at least bernanke gave us all the chance to get out

you gotta give him credit for that :hopelessness::cower:


----------



## james4beach (Nov 15, 2012)

fatcat said:


> but at least bernanke gave us all the chance to get out
> *you gotta give him credit for that* :hopelessness::cower:


But did anyone use that opportunity to get out? From what I read in this forum for the last 6 years, everyone interpreted the stimulus-induced rally as confirmation that "stock markets always go up" and therefore you should buy more.

Bernanke caused a lot of harm. The market was teaching speculators and leveraged investors a lesson in '08-'09, and Bernanke cut the lesson short and said "let's party some more!"


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> *But did anyone use that opportunity to get out?*
> 
> From what I read in this forum for the last 6 years, everyone interpreted the stimulus-induced rally as confirmation that "stock markets always go up" and therefore you should buy more ...


Then you weren't paying attention to the range of posts.

I've said before I trimmed in 2008. I've done the same now ... hopefully the sell for an 80 to 120% gain then re-buy for after a 50 to 80% drop cycle works the same way.


I have too much time left before retirement to bet the farm by selling out 100%.


I have no idea of what the numbers are but I recall enough posts to know I'm not alone.


Cheers


----------



## Pluto (Sep 12, 2013)

fatcat said:


> +1 ... this is the crux of the problem
> 
> pluto and james can ***** all day about bernanke and manipulation ... to call it an experiment is a mislabel
> 
> ...


There you go again fatcat. You are a great fiction writer. lol. I have never bitched about manipulation nor Bernanke. And never called it an experiment. 

As I posted earlier in another thread, I bought spxs at the open. that's an alternative; make money on the way down. But I don't expect you to accept any alternative as you need to lose so you can complain. You wouldn't be happy making money.


----------



## CPA Candidate (Dec 15, 2013)

Everyone is trying to find rational reasons for irrational behavior and completely discount herd behavior and psychology. Interest rates, oil, China, this, that and the other thing are just desperate attempts to pin a reason on the unexplainable.


----------



## Pluto (Sep 12, 2013)

fatcat said:


> wow, just looked at my stocks, breathtaking,
> no flight to the defensive stocks, bonds down
> every single thing down
> panic and flight into cash
> ...


See. You set yourself up for a loss
What stopped you from taking what you say Bernanke offered?


----------



## cainvest (May 1, 2013)

CPA Candidate said:


> Everyone is trying to find rational reasons for irrational behavior and completely discount herd behavior and psychology. Interest rates, oil, China, this, that and the other thing are just desperate attempts to pin a reason on the unexplainable.


Looks like the herd is in stampede mode today, all trying to get out the same gate at once.
The market could get very interesting real soon if this continues.


----------



## Pluto (Sep 12, 2013)

CPA Candidate said:


> Everyone is trying to find rational reasons for irrational behavior and completely discount herd behavior and psychology. Interest rates, oil, China, this, that and the other thing are just desperate attempts to pin a reason on the unexplainable.


Yep. No clearly defined reason. So I just go with the flow. 
Too, the economy and markets are cyclical. There are reasons for that. 
People who are in denial of such cycles always get caught heavily invested at tops, and little or no cash at bottoms. And even if they had cash at bottoms, they are too afraid to scoop the bargains.


----------



## Pluto (Sep 12, 2013)

cainvest said:


> Looks like the herd is in stampede mode today, all trying to get out the same gate at once.
> The market could get very interesting real soon if this continues.


yes, heavy selling. But I'm not in a rush to do anything like go long.


----------



## fatcat (Nov 11, 2009)

Pluto said:


> See. You set yourself up for a loss
> What stopped you from taking what you say Bernanke offered?


that's easy, i can't afford to sit in cash ... and there was (and is) no alternative to equities which is why they will come back

nothing else is earning and good companies that make products and services that people need are going to do ok ... investing isn't based on numbers, it's based (or should be based) on things and experiences

i have some cash, i am positioned ok, my cash flow is good, i am debt free ... i am just watching it all at the moment

i don't see the conspiracies ... stopping reading zero hedge was the smartest thing i ever did


----------



## Pluto (Sep 12, 2013)

fatcat said:


> that's easy, i can't afford to sit in cash ... and there was (and is) no alternative to equities which is why they will come back
> 
> nothing else is earning and good companies that make products and services that people need are going to do ok ... investing isn't based on numbers, it's based (or should be based) on things and experiences
> 
> ...


 What's zero hedge? never read it.


----------



## fatcat (Nov 11, 2009)

Pluto said:


> What's zero hedge? never read it.


good, don't start ... it'll save you a lot of money


----------



## CPA Candidate (Dec 15, 2013)

Everything that was bad for the market yesterday is good today. Can you feel the logic? 

_On Wall Street today, news of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the market down, until the realization that lower interest rates might stimulate the sluggish economy pushed the market up, before it ultimately went down on fears that an overheated economy would lead to a reimposition of higher interest rates._

(this is from a cartoon, but so beautifully illustrates market thinking)


----------



## Pluto (Sep 12, 2013)

CPA Candidate said:


> Everything that was bad for the market yesterday is good today. Can you feel the logic?
> 
> _On Wall Street today, news of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the market down, until the realization that lower interest rates might stimulate the sluggish economy pushed the market up, before it ultimately went down on fears that an overheated economy would lead to a reimposition of higher interest rates._
> 
> (this is from a cartoon, but so beautifully illustrates market thinking)


Yes. You are absolutely right on. They are not really reasons, they are things traders focus on to rationalize what they are doing on a particular day. Such rationalizations have no long term import. 

The logic of markets has to do with the value of a business, and if sellers are asking too much, I don't buy. Sooner or later, when sellers are asking too much for a business the market breaks down, and prices become more reasonable. Like Enbridge, for example. When the overvalued S&P peaked last may, ENB was 65. Today, not even a year later, ENB is less than 45. That's more like it. See Buffett has it right. One's retirement fund should be like a freezer in which one fills with hamburgers *when they are on sale*, not when sellers are asking too much. 

The long term trend on the S&P, as defined by a straight line connecting the 1974 low, and the 2009 low projects to about 1200 right now. Those are the two major lows that connect over that time frame. And the line rises at a 7.3% compound annual rate. The S&P is way ahead of itself, and the logical know it. Short term traders who use the flip flop logic you point out don't care cause they are not in it for the long term: they just trade the swings regardless of true value. the people who should care about value are the those saving for retirement. Long term holders. However, apparently they don't care either. Hmmmm. 

Anyway, I believe the @1200 the S&P would be undervalued, at 1500 it is about fair value assuming that growth rate holds.


----------



## Eder (Feb 16, 2011)

I think the S&P is slightly undervalued...contrary to popular belief the economies that matter in this world are growing.


----------



## dogcom (May 23, 2009)

fatcat said:


> good, don't start ... it'll save you a lot of money


You made me laugh my azz off fatcat, that was a good one, even if I still look at zero hedge.


----------



## james4beach (Nov 15, 2012)

For those of you who may be curious, here's the back story:

Zerohedge is a web site that became famous due to correctly calling the upcoming financial crisis in 2007-2008. It frequently has material contributed, and leaked by, people who work at investment banks. Rumours are that the main guy behind Zerohedge is a pro-Russian, former Bulgarian trader who was fired from Wall Street. He got angry, and started posting everything he knows. It turns out he knows a lot and there's lots of extremely interesting material.

(In the early days there were, anyway. It's gone downhill)

The founder's pro-Russian bias shows up a lot on that site, and it's kind of kooky. I find the articles generally too Russian friendly and weirdly anti-American. I ignore all the political content, because it all sounds like B.S. to me. It also seems weirdly pro-Trump. I bet gibor would like the site.

Articles are posted by "Tyler Durden", the name of the lead character from Fight Club. You know, as in take down the system, fight against the man, etc. It's believed that "Tyler" is not one person but actually a pool of several authors. This is why the content ranges from the insanely paranoid to the technically accurate. You never know what you're getting on ZH, and it depends on which of the "Tylers" is writing.

There are also many articles with unsubstantiated, wild speculation, a whole lot of meaningless charts, and links to Youtube videos of Russian military footage. The quality of the content has gone down substantially since the 2008 days. Back then, it was gold.

For instance scanning the front page right now, there are only a couple that talk about anything substantial an interesting.
- This one is about the OIL ETN's unusual 20% premium to NAV
- This one illustrates that Chinese sovereign bond credit default swaps are elevated, and CDS indicates growing risk

Among 15 articles on the front page, I only found those 2 with any meaningful content. And you need a lot of financial expertise to decipher those anyway. So yeah, the web site is mostly a waste of time unless you are good at filtering out the junk and delving into the couple useful articles a week.

So it worth reading? Well ... knowing that the ETN trades at a 20% premium to NAV is pretty useful info, if you happen to be holding that OIL ETN. You probably should ditch it before that premium vaporizes. It's also an illustration of the danger of ETNs, so that's useful knowledge.


----------



## Rusty O'Toole (Feb 1, 2012)

I have been reading Zerohedge regularly since 2009. The stock market has marched steadily higher and they have been predicting a bear market every step of the way. They cost me a lot of money by convincing me to stay out of the stock market all that time.

Now the tide has turned. We are actually in a bear market so they get to be right for a change.

They seem to break certain news stories ahead of other sources sometimes months earlier. Especially negative stories the main stream media prefers to ignore until they can't be ignored any longer.


----------



## Rusty O'Toole (Feb 1, 2012)

The bail in provision in the 2013 budget still bothers me. It give Canada's banks the right to take customers' deposits if they are insolvent. In other words if their liabilities exceed their assets they no longer have to shut their doors and pay off the depositors. They can help themselves to their depositors money and say they are solvent.

We had some discussion at the time and the consensus seemed to be anyone who thought this would ever happen must be nuts, and besides the deposits would be paid back by the CDIC insurance.

Not so fast. CDIC only pays back losses. If the bank takes your money and gives you in return bank stock and loan certificates as they did in Cyprus then you have not lost anything. Your money has merely turned from the form of cash to the form of stocks and bonds.

The fact that no one in his right mind would buy stocks and bonds of a bankrupt bank, and that such certificates would have little or no value does not enter into it.

Put this together with the negligible interest rates and high fees, and I don't know why anyone would keep their money in a bank.


----------



## Rusty O'Toole (Feb 1, 2012)

Re the oil ETN story. A follow up said the reason for the anomalous price was that the ETF was rigged by Barclay's. Full story here.
http://www.zerohedge.com/news/2016-01-22/barclays-rigged-its-oil-etn-limiting-new-creation-units


----------



## Spudd (Oct 11, 2011)

Rusty O'Toole said:


> Put this together with the negligible interest rates and high fees, and I don't know why anyone would keep their money in a bank.


Where else are you going to keep it? Under your mattress?


----------



## Rusty O'Toole (Feb 1, 2012)

Safer there than a bank. Interest rate practically the same and no fees to pay. If you put your savings into gold or silver ten years ago and hid it under the bed you would be better off than if you kept it in the bank. And we haven't had any bank emergencies yet.

I keep just enough in the bank to handle day to day bill payments. The rest is in an investment account.


----------



## fatcat (Nov 11, 2009)

rusty, as long as the politicians keep their money in the bank, i think we will be okay
when they start to pull it out, we need to make other plans :smilet-digitalpoint

you would have to go back a long way to have made gold an adequate cash alternative 
and with gold you are faced with equally daunting storage problems


----------



## Eclectic12 (Oct 20, 2010)

Rusty O'Toole said:


> ... If you put your savings into gold or silver ten years ago and hid it under the bed you would be better off than if you kept it in the bank.


Assuming thieves or your kids didn't find it and spend it ... :biggrin:


Cheers


----------



## Rusty O'Toole (Feb 1, 2012)

fatcat said:


> rusty, as long as the politicians keep their money in the bank, i think we will be okay
> when they start to pull it out, we need to make other plans :smilet-digitalpoint
> 
> you would have to go back a long way to have made gold an adequate cash alternative
> and with gold you are faced with equally daunting storage problems


The politicians will be told in advance when to take their money out. We won't. If there is a bail in it will be announced over a weekend when the banks are closed and all accounts will be frozen. At least that is the way they did them in Greece and Cyprus.

I bought gold at $1100 an ounce a few years ago, sold it last summer when gold was about $1100. But actually got $1400 an ounce because the Canadian dollar depreciated so much in those few years. So I actually made a 27% profit. Now I'm sorry I sold as gold seems to be forming a bottom. Long term I would still rather have my money in silver and gold than in the bank. But, there are a lot better investments.


----------



## james4beach (Nov 15, 2012)

Gold in CAD really is painting a good technical picture. I'm pretty excited this is forming a base. And coming on the heels of a bearish phase, that's a particularly good set up to be long. The trade also makes sense on fundamentals as gold protects you as a currency weakens

http://stockcharts.com/h-sc/ui?s=MNT.TO&p=D&yr=3&mn=0&dy=0&id=p69316026058


----------

