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    Do You Believe In (Black) Magic?


    December 4th, 2009

    Comments (4)
    Read by 42 people

    I’ve made several comments on SHTF Plan recently saying that I was “guessing” that the dollar would rebound, the market would crash again, etc.

    In the video below, MSNBC’s Dylan Ratigan is suggesting something that falls right in line with my guess. (Video interview follows commentary)

    When the market (and everything else) crashed, Goldman Sachs (and other institutions) had at that point a bunch of money (e.g., from taxpayers) that they used to buy “stuff” (like stock, commodities?, etc.).

    I THINK that their buying of all that stuff, along with purchases of other institutions, is AT LEAST a part of the reason why the market has been driven up over the last nine months…as Zero Hedge has frequently alluded to – high frequency trading between like six computers on Wall Street…as evidenced by the frequent low volume days.

    This whole thing has been “helped” by the falling dollar…as I THINK it “forces” more and more “regular investors” (i.e., real people) to buy in because of the fears that they are missing the boat.

    As more and more real people buy in, GS et al is able to sell the various equities at prices higher than what they paid, thus the seemingly ridiculous profits GS has made recently (of which the taxpayers get NOTHING as a return on their “investment”).  Think about it – why would GS be selling this stuff off if they thought the market was just going to keep going up????

    Well, IF that is what has been happening, what could follow it up that would REALLY be a kick in the groin to “regular investors” AND help GS et al even more?

    It’s simple – a dollar rebound…which would make the money that GS has made over the last nine months worth even more…while really hosing the regular investors who get stuck with the equities that collapse as a “result” of the dollar strengthening.

    That is what I am looking for right now…and the above reasoning is in part why.

    Additionally, such an outcome would give GS et al an angle/argument to make that they did not do anything wrong.  They were just buying and selling “stuff,” and got out before prices crashed again…which just so happened to screw “regular investors.”  Oh well!

    I think gold will take a hit too…BUT it will do well relatively speaking.

    Anyway, that is my GUESS at what’s coming down the pipe.

    Watch Dylan Ratigan Explain the Goldman Sachs Magic Trick on MSNBC:

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    4 Comments...

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    1. I totally agree with your assessment of the magic asset bubble that was blown by the free money Goldman and others received. Though I can’t really ‘prove’ it, and it seems neither can anyone else, these magicians took billions of dollars in bailouts ($70 bil by Goldman alone!) and slammed it all into the markets. Now that they have made a killing, they know full well asset prices are overvalued. No rational and sane person can tell me that the P/E of the S&P 500 is legitimately valued at 100 – 140 times earnings. That’s just plane insane and pure bubble mentality for those who think it is fact.

      Now, in recent weeks, we are seeing BIG-TIME-BILLIONS moving in to short-term US Treasuries and gold. The funny thing is that those US T-Bills are paying, in some cases, LESS THAN ZERO PERCENT INTEREST!! One could suspect that the smart money is shifting OUT of the markets and into these safe haven assets…why else would someone be willing to take a negative interest rate on their cash? If they made 100% – 200% in upmoves in the markets for the last 6 months and want to ensure they don’t lose all of it, it’s worth it to take a 1% loss on holding it in a safe place (i.e. US short term T-Bills).

      But how is this happening? Wouldn’t stock markets be collapsing if money was being taken out of equities and shifted into Treasuries and gold.

      Why yes, they would…. UNLESS you found a way to shift your money out of stocks using a little market magic.

      While most 401k investors don’t realize it, the Dow Jones and other indexes only track CERTAIN stocks, NOT all stocks.

      Bert Dohmen makes mention of this in his December Wellington Letter, where he says:

      “Whereas the small cap stocks, especially the worst stocks on a fundamentals basis, outperformed the big cap stocks by a factor of 10:1 in the first 6 months of the rally, lately they have been underperforming. This means that the large cap stocks, which have the greatest impact on the cap-weighted indices, are now being pushed upward to present the illusion of strength. This is reminiscent of the early October 2007 rally to the bull market high in the middle of that month.”

      It’s a brilliant magic trick indeed. While the markets give the illusion of continued strength and upward momentum, the reality is that A LOT of money is shifting out of equities and into dollar-based and precious metals based assets.

      And, when the SHTF for markets does hit, and the panic starts, I suspect that the US Dollar will once again become the short-term safe haven asset of choice. This is going to drive the price of EVERY asset class down, including gold. However, gold, for reasons cited in prior articles and commentaries, would be the only asset with a chance of not getting absolutely hammered as buyers will come in around that $1000 resistance level. Of course, if the dollar move up is violent enough, even gold could break under $1000 again and take a hit like it did in November 2008.

      One thing to keep in mind, is that if the markets collapse, you can be assured that Goldman will not only be sitting in safe assets, they will be making a killing on short positions on the way down, likely doubling those profits they pulled in from the previous two quarters.

      Whatever the case may be, companies like Goldman Sachs have the connections, the money and the lack of scruples to do exactly what they have done and what is being discussed here. They are not doing God’s work as CEO Lloyd Blankenfein has suggested.

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    2. And that is why the banksters at Goldman Sachs have been arming themselves….. 

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    3. Absolutely brilliant hypothesis, Mac (and Bert Dohmen). So it’s pump and dump all over again? If that’s truly the case I can’t believe people are going to fall for it all over again. Ok, yes I can.

      This piece of information seems to make the most sense of everything I’ve read regarding the ridiculous run-up in stocks since the middle of March. It seems perfectly natural that the big boys, knowing full well that a collapse was coming, would try to capitalize one last time, and with Congress’ blessing to boot! Perhaps it’s Goldman’s way of saying thanks for all the bailout money. They take it and double and triple their profits! Then they not only pay the Treasury back but they better capitalize themselves for what’s coming! Brilliant!

      Combined with the green shoots and recovery cheerleading that the media has been lambasting us for 6 months now, it really seems to be that a big mess is about to unfold.

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    4. Can you imagine the consequences of things panning out this way AND the average Joe catching on…

      If you think people were pissed at “the banks” before, you ain’t seen nothing yet.

      …assuming of course this plays out as described above.

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