Market Mayhem

Investors should be treading very carefully these days in the capital markets. This is not a time for Aunt Mary and Uncle Bob and unemployed day traders. Former FED Chair Alan Greenspan said today that the market may be juiced some 50% due to FED stimulus. While the effectiveness of the stimulus can be argued, the FED cannot operate quantitative easing forever, and at some point, the stimulus will need to be retracted.

Forecasting the extraction of FED injected stimulus is one task, but navigating a market without integrity and rule of law signals a retreat to the sideline. Regrettably, in my estimation, we sadly have reached this point. MF Global is fresh on our minds, and last I saw, Jon Corzine was two fisted with his favorite cocktail cranking around the Hamptons. Meanwhile, his investors remain fighting to retrieve small portions of the investments placed with his frim feared lost.

The events surrounding the MF debacle should have been a major warning sign. In the aftermath, Ann Barnhardt shut down her brokerage firm Barnhardt Capital Management due to lack of confidence in the governance of the cattle futures market. Barnhardt warned of future issues to come, and this week we were greeted with the bizarre goings on at PFG Best. Score one for Ann.

Rick Santelli of CNBC further explains:



It seems clear we have issues at the CFTC and/or NFA, and all capital markets, for that matter. The FED seems to be in bed with the Obama administration, rather than operating with impartial market driven guidance. We have news the LIBOR rate has been manipulated, with Barclays among the first of potentially many banks to be signaled out.  JP Morgan, with problems turning up everywhere these days, reportedly played a role. LIBORgate will become a major financial mess, potentially blowing up every HP12C on the planet as the lawsuits get going. As it turns out, approximately 1 million mortgages were based off this rate, and that could be a huge problem.

We ran a blog post a few months back discussing market mayhem, eloquently described First Principles Capital Managements Doug Dachille, which we will present again below.



These market manipulations are quite complex difficult to get your arms around. However, when you couple the imminent implosion of the European Union with market manipulation and The FED gaming the system it becomes exponentially difficult to properly measure risk. In addition, the rewards of potential gains versus the risk exposure within tainted and manipulated markets seem not worth the effort. Although seemingly safe in large big caps positions, investors should keep a very tight leash on any investments.

Do you know who is running the casino? Are their friends being rewarded at your expense? Corruption is everywhere! There is market mayhem, being controlled by those who are not ashamed to be helping you lose your money. Trust and rule of law are absent. It is most unfortunate it has come to this, but in my view it clearly has.

Caveat Emptor!