Stocks set to pop on Europe debt deal ... U.S. stocks were set to rally at the open Thursday, after European Union leaders agreed to expand Europe's bailout fund and take major losses on Greek bonds – the latest step in an ongoing effort to curb the region's debt crisis. The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were about 2% higher. – CNNMoney
Dominant Social Theme: The stock market is impersonal and precise. It tells the REAL story about the economy.
Free-Market Analysis: We do believe that the stock market provides all the available price information on a given security. In fact, this is a power elite dominant social theme, that the stock market is "efficient" and gives one an accurate snapshot of where the economy is – and is headed.
But what is never mentioned is that the efficiency of the markets involves more than industrial influencers. The world (to us) seems either in a great depression or headed toward one. The term "Great Recession" may soon not be accurate, if it is not already out of date.
Given that the European mess continues, that most banks in Europe (and likely in the US) are under-water, that the US is technically in debt for some US$200 TRILLION if all socio-political promises are kept, that Europe is even worse off in terms of debt and insolvency, that China is dealing with vicious price inflation (along with India and Brazil), that Japan just hiked rates, etc., etc. ... given all these factors, how can markets be going UP?
The US stock markets set the tone for markets worldwide and US markets have been climbing steadily even as the world's economy seems ever closer to collapse. How can this be? Well, we would argue there are extracurricular factors that the world's stock markets recognize that the average investor may not.
The biggest factor in our view is that stocks are now regularly manipulated by the US "plunge protection team" initially set up under Ronald Reagan after the 1987 stock market crash. This "team" to the best of our knowledge has never been disbanded and there is no reason to believe that the US government and sundry market forces have ceased to support US markets, and maybe markets abroad as well.
Then there is the money system itself. The Federal Reserve still stands as the guarantor of last resort for the world, as evidenced by the US$16 trillion that the bank printed during the 2008 economic crisis, much of which was sent abroad as short-term loans.