Looking back a year I wonder, were the economy, the financial sector, the stock and bond markets and the US dollar more unstable then, or are they more unstable now?
A year ago, stocks were much higher than they are today. Since then, they have collapsed and then rebounded a bit. Let's look at RIMM, Research In Motion, the maker of the ubiquitous Blackberry cell phone. A year ago its price was $148 and today it is $72. I mention this one because I can remember many "buy" recommendations for RIMM around this time last year. Those didn't turn out so well.
A year ago, the dollar had recently bottomed (at 72) and was heading up. Today the dollar has recently topped (at 89) and is heading down. The dollar portion of the "flight to safety" may be winding down. Where to safety next?
A year ago the economy was in recession, but the people believed the government that told them it was not. Today the economy may be in a depression, but the people believe the government that tells them it is only a recession.
A year ago the financial sector looked much different than it does today. There was more competition. Merrill Lynch, Morgan Stanley, Wachovia Securities and Lehman Brothers were all independent competition to the big boys. A year ago Goldman Sachs (with competition) was trading at $203. Today (with little competition) it is trading at $128.
Incredibly, gold is almost exactly the same as it was a year ago, but other non-monetary and less-monetary commodities are down an average of 30% from a year ago. This should say that fear of inflation is down from a year ago, but fear of systemic collapse is not. So I wonder, was "everything" more unstable a year ago, or is it now?
Many of the threats I was vaguely aware of a year ago seem to be much more in play right now. A year ago I thought the Chinese might "dump the dollar" right after the Olympics. They didn't, but now they are talking about it.
A year ago I thought that trouble in the Middle East might affect the price of oil and gold. Today some of those problems seem much more close at hand than they were a year ago.
A year ago most of the "doomers" were marginalized by the media. Today they are much more mainstream (see Roubini, Celente, Taleb, Schiff). This is because from September to November we got a real taste of the doom.
But is it over? Has the worst passed, as Jim Cramer tells us?
If I am right in my post Covert Market Operations, then the market is much more manipulated today than it was a year ago. So with this in mind, lets compare signals from the market.
On inflation: A year ago the market signal was for inflation. Today, the (lying) market signal is for deflation.
On the financial sector: A year ago the market signal was a slow and orderly decline in the profitability of the financials. Today, the (lying) market signal is for a renewed confidence in the (now much more concentrated) financial sector.
On the economy: A year ago the market signal was for an economy heading toward a recession. Today, the (lying) market signal is for a recovery by the end of the year.
On the stock markets: A year ago the market signal was for a declining equities market. Today, the (lying) signal is for rally and recovery.
On the dollar: A year ago the dollar was recovering slightly, but still near an all time low. Today, the (lying) signal is nothing less than "the strong dollar policy".
Basically, the signals we can take from the markets today seem very confused, unless you accept that the markets are manipulated and the signals are lies. In that case, once the manipulators run out of steam, we can expect a sharp downturn in the value of the dollar, a collapse in the stock market, a collapse in the economy, a collapse in the financial sector, and some serious inflation dead ahead. And I'm not talking about the economically healthy inflation. I'm talking about the inflation caused by a seizure of the producing sector followed by a flood of currency schemes from the government, the monetizing of debt of all kinds.
Bottom line: I think "everything" is much less stable today than it was a year ago, even if some prices have corrected. The actions of government have created a new kind of instability. One that is based on hope and change, when what we really need is reality and stability in the rules of the game so that confidence can return.