Stocks WORLDWIDE are hopelessly overvalued, representing a Zimbabweization of many of them.  These are the fingerprints of a Crack-up Boom.  Cash chasing returns regardless of price or value.  Cash fleeing the sidelines as they REPRICE to reflect the debasement of the currencies in which they are denominated.  I don’t care what the earnings are -- they are at the high end of historical P/E ratios and dividends are miniscule in relation to the risk.  People say Shanghai is a bubble.  Who cares?  It is a punter’s market and not a very good reflection of the Chinese economy, but you can say that about almost every market in the world.

http://www.marketoracle.co.uk/images/2010/Mar/outlook-2010_image023.jpgWhen Hope Turns to Fear" TITLE="2010, When Hope Turns to Fear" />Mutual fund cash levels are nearly at record lows, as most new investments that have gone into the bond markets send them to nosebleed levels, as well in terms of interest earning and price.  Money leaving cash equivalents, aka money market funds, are heading mostly into bonds and, to a small degree, foreign stocks.  Shanghai is about to move 30% when the triangle it is in breaks up or down.  Let’s take a look at Shanghai courtesy of www.stocktiming.com :

Doesn’t look to bullish to me, and it is FAR OFF its highs from 2007.  In fact, a test of the lows seems certain if the breakout of the triangle is lower.  But the rising and falling of China’s stock market offers little to glean for economists, as this recent quote from Jon Authers of the www.ft.com  correctly outlines:

“The Shanghai stock exchange is an inefficient market driven by retail investors, where the government maintains controlling stakes in the largest players. The critical points are that investments in Shanghai stocks are not bought with borrowed money, generally, and do not account for a large chunk of the economy. It can continue its boom and bust cycle without causing great collateral damage elsewhere.”                        -John Authers

John’s comment on the Chinese property bubble is relevant also as people try to extrapolate developed-world banking practices to the emerging world and it is not so; the speculators in China put up almost 50% down, not zero as in the developed world.   John goes on to say:

“As for property prices, nobody denies that there are bubbles in the big cities. But again, the argument is that these need not have big ripple effects on the broader economy. Much of the market is fuelled with cash, while mortgages have not been resold on capital markets. A fall in property prices could not, therefore, have the disastrous economic effects that the fall in US property prices had after 2006.

China's banks will take it hard, many believe. That is a problem for the banks' shareholders, including the government. But it need not necessarily be a problem for the broader economy.”             –John Authers

There may be empty cities and buildings in China, but they are half paid for and plenty of future inhabitants from the countryside just aching for a more modern and well-paid future.

The Financial Reform Bill is just an expansion of TOO-BIG-TO-FAIL and quasi government-sponsored enterprises (we’ve gone from two to over twenty in the last year: AIG, GMAC, GM, too big to fail banks, etc.).  Let’s look at a quote from Economics Professor Alan Meltzer of Carnegie Mellon University:

“Regulators talk a lot about systemic risk. They do not—and probably cannot—give a tight operational definition of what this means. So setting up an agency to prevent systemic risk, as Mr. Dodd has just proposed, is just another way to pick the public's purse. Systemic risk will forever remain in the eye of the beholder. Instead of shifting losses onto those that caused them, systemic risk regulation will continue to transfer cost to the taxpayers. The regulators protect the bankers. They continue to lose sight of their responsibility to protect the public.”                    –Alan Meltzer

Socialize the risks and privatize the profits for banksters, elites, crony capitalists and government, there is nothing new here.  It is a description of all government actions since the crisis began and it is how BANANA republics go bankrupt and their currencies die, and it will be the demise of the US and Europe.

In closing, we are afloat on a sea of liquidity printed by central banks; the liquidity is not capital, it is credit and ever- DEFLATING IOU’s, which the public thinks is money.  It is not money; it is credit and credit is not money.  NO ONE KNOWS the value of currencies because no one really knows how much has been printed out of thin air or created with a keystroke in the last few years by public serpents and their bankster colleagues.

Everything is mispriced because there is no money as a standard of value other then gold and silver.  Anything (stocks, bonds, homes, real estate, cars, anything) measured in those terms are in freefall, also known as DEFLATION.  When measured in FIAT currencies, they are possibly UNDERPRICED, as the respective currencies are deflating in value at a pace that is hard to quantify.  As a cross current to that, the bonds businesses and other businesses are also collapsing on the top-line revenue growth, thus causing downward pressure fundamentally, while currency debasement provides buoyancy as they reprice to reflect the lower purchasing power of the currency in which they are denominated.  A devilish conundrum.

The inflationary depression continues to unfold.  Governments cannot create economic recoveries and job and income growth; they can only destroy them, and in the developed world welfare states they are doing so in spades.  Relentless destruction of incentives to invest and hire are being implemented regularly.  The current political leaders throughout the developed world are putting the final nails into the coffins they used to call economies.  Then we will be buried, as the next leg down in the developed world will make the last one look like a picnic.

Never in history have the opportunities been greater as markets zoom all over the place to price in these unfolding new realities.  Volatility is opportunity, embrace it.  Buy and hold is dead, absolute return investments with the potential to thrive in up and down markets and restoring the functions of money to your IOU’s, er… cash to preserve purchasing power is recommended diversification of your portfolio. 

The healthcare bill is not reform, it is a takeover and tax bill.  It is how Washington works:  Take a problem, call for reform and build more government with political solutions rather than practical ones.  The only thing it accomplishes is what government wants, which is more control over our economy, the money and you.  This is how government grows.  The energy department was created by Jimmy Carter to end our dependence on foreign oil, now it is a $30 billion behemoth, with 16,000 employees and our dependence is greater than ever. 

This is how Cloward Piven works, create a crisis and build government until it collapses creating the EXCUSE to seize more power to solve the NEXT emergency.   That is what awaits us with the healthcare bill, lots of money spent and problems BIGGER than ever.  Did I forget to mention it will be enforced at the point of a GUN:  THE T@XMAN.  This is how you know you live in an emerging dictatorship as all socialist governments become:   The government DEFIES the will of the people… they KNOW better than the ignorant man on the street who cannot take care of himself, so the government needs to. 

In order for economic and income growth to resume in the developed world, there must be aggressive structural reforms such as:  Removal of regulatory and institutional complexity, reduced taxes, government spending restraint, and restoration of incentives to produce.

 Instead, the opposite is being implemented:   Layers of new complexity and reams of new laws and regulations, mountains of new taxes, exploding government spending and destruction of the incentives to produce at all levels of the developed-world economies.  Radical big government Marxists are in control and implementing the policies of insolvency creating new impediments to growth.

So, the next leg down in the developed world can be expected to unfold soon.  You need a microscope to see any improvements in growth or incomes in developed-world economies after trillions of Dollars, Yen, Euros and Pounds of stimulus have been spent to no avail.  When they try to withdraw you can expect the next ECONOMIC FREEFALL… and that will be when HOPE turns to FEAR.  It will happen this year…..