We're Propping Up Failure

Written By Nick Hodge

Posted January 28, 2011

I don’t normally stray too far from energy when it comes to market commentary.

But every once in a while, I see something going on that’s of such importance to all investors, it can’t be ignored.

And what I see right now is a very dangerous market.

You probably sense it as well.

It’s not too hard to see what I mean…

Just look at the headlines from Yahoo! Finance one day earlier this week:

Yahoo! Finance Headlines

Doesn’t add up

On that particular day, the Inspector General said the financial overhaul didn’t end future bailouts, blue chip earnings disappointed, a second wave of housing busts hammered more cities, unemployment rose in 20 states, and Merrill had to settle fraud charges with the SEC.

Yet the Consumer Confidence Index climbed to an eight-month high…

And the Dow continues a two-year, carefree march to 12,000.

2-year Dow

If you think that’s unstable, wait… It gets better…

Holiday spending numbers are out, and the sheeple at the malls broke records. Retail sales from November 5 through December 24 hit $584.3 billion.

That’s the biggest increase in five years, even higher than the record set in 2007 before the recession.

But unemployment is still hovering around 10%, if you believe the government; much higher if you listen to other sources.

And in 2010, an all-time record was set for both the number of home foreclosures (2.87 million) and the number of home repossessions. Repossessions hit 1 million in a year for the first time ever — and would’ve gone higher had the banks not temporarily stayed them in the last two months of the year.

Oh, and Americans also posted the highest number of bankruptcies last year (1.53 million) since the bankruptcy law was overhauled a few years ago.

“Honey, we’re broke and losing the house. But we’ve just got to have that Wii and new TV.”

Yet the market marches higher… It just doesn’t add up.

And a few more things don’t add up…

An all-time record was set for the number of Americans on food stamps (43 million). Yes, 15% of this nation’s citizens are using government assistance to buy food.

And the U.S. Census Bureau showed 47.8 million Americans are now living in poverty — the highest number in the 51 years of record keeping.

So why, when the Dow normally goes up 10% per year (on average), has it gone up 80% in the past two years?


Because we’re propping up failure…

If the worst is behind us — as the Fed and the current Administration would have you think — why then are there 937 “problem banks”, according to data from the Office of the Comptroller of the Currency?

Why did 157 banks fail in 2010, the most of any single year during the past decade?

Why have housing prices fallen 26% since 2006 — more than the 25.9% decline during the Great Depression?

Why has my home estimate from Zillow fallen every single month for the past 16 months?

It’s because, as straightforward commentators like Marc Faber and Gerald Celente have been pointing out, we’re propping up failure.

Just listen to this response from Celente when asked about Obama’s remark at the recent State of the Union that he “hated” bailing out banks:

There’s absolutely no evidence that if any of these financial firms failed, the world would’ve collapsed. What would’ve happened is that capitalism would’ve worked the way it was supposed to.

What has to happen is that the system has to clean itself. It has to cleanse itself. We can’t keep propping up failure. And that’s what they do. The only people that become emboldened by their failures and keep getting promoted higher and higher are politicians. In real life you can’t get away with this stuff.

I’d add that bankers also profit…

The Wall Street Journal reported pay on Wall Street “broke a record high for a second consecutive year” in 2010. They paid out $144 billion in compensation and benefits.

I don’t mean to be a Debbie Downer here. I only want to warn you that the market isn’t in the great shape Wall Street and the White House want to portray.

And that portrayal is only good for their pockets and reelection campaigns.

The cleansing of the system Celente was talking about is coming. And I don’t want you to be exposed to blue chips, market indices or basket mutual funds, and ETFs…

They will all get slammed when it happens.

There’s no easy way out of this mess.

My best advice is to stay wary and educate yourself about the real state of the market as much as possible.

Watch some videos from Faber and Celente. They’re both calling for a 10% to 30% correction in coming months.

And by all means, register for our new, free service, Wealth Wire — a once-a-day recap of real financial headlines, not the scripted stuff flowing from teleprompters and cable TV.

Call it like you see it,

Nick Hodge

Editor, Energy and Capital

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