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It's the Money Stupid

Stock-Markets / Financial Markets 2010 Oct 24, 2010 - 06:02 AM GMT

By: Joseph_Russo


Best Financial Markets Analysis ArticleDazed and Confused - Why did the stock market crash in 2002, and then again in 2008? Why has the value of real estate declined so much since 2007? What has happened to the economy? Why do stocks continue to soar in the aftermath? Why does Gold suddenly cost over $1300 an ounce? Why can't we get a loan? Have we hit bottom yet?

Back in Black

Wall Street seems to have hit bottom nearly a year ago. On the back of an 11th-hour bailout by Main Street, Wall Street is enjoying a rather bountiful and robust V-shaped recovery.

Meanwhile, Main Street struggles with frustration, anger, and envy. How could this be justified? After all, Main Street bailed out Wall Street. Without Main Street, Wall Street would have collapsed, right? Why is this?

That's the way, uh huh, uh huh, they like it, uh huh, uh huh Suddenly, Wall Street is back on its high horse once again looking down upon the peons of those residing on lowly Main. Why has Wall Street recovered, while Main Street continues to lag?

How has all of this happened?

Why are things the way they are?

Should one posses the tenacity to persist after taking the first few steps in quest to answer such a sophomoric question, they will soon reach the proverbial brick wall.

Along the arduous journey in attempt to reconcile civilizations historic and current state of economic and social condition, one will quickly abandoned the task, concluding it impossible, and teeming with global economic complexities alongside an overabundance of geopolitical, ideological, religious, and philosophical nuances.

Like many of you, we too have attempted to take this historic journey in search of some sort of an answer. We are sorry to report that we too have arrived at the similarly frustrating proverbial destination. Definitively answering the question is impossible. However, one need not walk away from such a query completely empty handed.

The most satisfactory observation we took away after persisting to drill down for possible answers was recognizing four fixed elements repeatedly surfacing the further down we continued to drill.

In our view, these four underlying elements appear to consistently serve as the lowest common denominators amidst the growing legion of intractable imbalances and ideological nuances surrounding the very basic but still largely unanswerable question, why are things the way they are.

Is that which we commonly refer to as "money" a big part of the answer?

Along our continuing journey, the four common denominators that consistently rise to the top of our drilldown list are:

  1. Central banks
  2. Large government bodies
  3. Money
  4. And concentrations of immense projectable power

In our view, these four elements repeatedly appear as the most probable origins of underlying causality in partial answer to the perplexing question of why things are the way they are.

The most common of the four, which affects people every day, is MONEY.

Backed by nothing beyond faith, confidence, and the fiat decree of ruling imposition, the monopoly manufacture of fiat currency (MONEY) is the spinal cord of power amidst a wide-ranging arsenal of alchemist-like schemes that are available to perfect the interventionist mandates of central banks.

Effective propaganda in concocting such tools on an ad-hoc basis enables a concentrated collective of structured powers to preserve their respective dominions.

Should the tool of MONEY, which in theory we all rely upon to exemplify all of humankind's virtues, be vulnerable to such egregious manipulations?

So you think Money is the Root of All Evil? Think some more…

The list of alchemists' tools contrived by central bankers is limited only to their academic wit and innovative imaginations. Sanctioned by ruling governments, they are bar far, the most powerful and crafty entities on the face of the earth. Together with governments and powerful special interests, their collective actions of concerted self-preservation have a profound effect on our lives, and those of future generations.

The very existence of such omnipotent central banks and power structures are in and of themselves third-rail topics requiring intense public debate and scrutiny.

Perhaps if we can ascertain why such concentrated and dominant monopolies need to exist in the first place, we can then begin to assemble a short list of plausible answers as to why things are the way they are.

Three strikes and you're out

No one can seem to stop talking about QE-2, or the second round of quantitative easing by the American central bank.

Easing, quantitative easing, tinkering with interest rates or drafting special legislation with earmarks, call it what you will, but it is all the same to us.

All of these actions are centralized command and control interventionist manipulations engineered to subvert and control the free market. Technical definitions aside, for the purpose of this nonprofessionals' presentation, we cite prospects for the highly touted forthcoming intervention as QE-3.

Back in May of this year, we constructed a dual paneled chart graphic to observe the effectiveness of such interventions relative to the volatility expressed in the price behavior of equity indices. That chart consisted of a monthly volatility index in the top panel, and the relative trajectory of the Dow Jones industrial average in the charts lower panel.

We presented the chart and our opinions as to its potential implications in an article entitled The Fix in the VIX. We began the article with the following:

"To measure the ongoing success or failure of massive QE "working groups" interventions, all one needs to keep an eye on is the VIX. Readings below 20 suggest, "The FIX is in", whereas readings above 20 diminish the mission control effort to reflate monopoly-saving bubbles."

A little more than a year after our money-masters-of-the-universe shrewdly averted an outright global insolvency, many investors remain utterly baffled as to how stocks can sustain a raging bull market amidst massive outflows in concert with such dismal long-term structural imbalances.

Those in the nonprofessional category may find some clarity in our placing a concurrent price chart of the "flexible" $USD into the updated price panel mix. This simple graphic should go a long way in helping to explain the otherwise perplexing bull market, or QE hyper- reflation conundrum.

Forthcoming, the chart in Part-II (extra innings) provides an update to our last, and includes an additional third panel illustrating the value of the US fiat currency unit, or "MONEY" as it were.

Until then, Trade Better/Invest Smarter

By Joseph Russo

Chief Publisher and Technical Analyst
Elliott Wave Technology
Email Author

Copyright © 2010 Elliott Wave Technology. All Rights Reserved.
Joseph Russo, presently the Publisher and Chief Market analyst for Elliott Wave Technology, has been studying Elliott Wave Theory, and the Technical Analysis of Financial Markets since 1991 and currently maintains active member status in the "Market Technicians Association." Joe continues to expand his body of knowledge through the MTA's accredited CMT program.

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