The State of the Economy and the Stock Market.

We have examined the data on the cause of the financial meltdown that put the economy in a tail spin (How the FED manipulates the economy). The data from the St Louis FED proves two things: 1. the economic meltdown was set off with the Sep 15 2008 change to the 'mark to market' accounting system that declared the banks insolvent and 2. the recession that followed began in Q3 of 2008. Do not believe the propaganda that the recession began in Q4 of 2007!

We have asked the question whether the Stock Market increase was a Bear Market rally and would end soon (Reading the tea leaves: July 20, 2009). The conclusion was that another upleg would follow. It did.

We have examined the building of the new and colossal bubble in the dollar (The case for economic doom) and gave some examples of how the FED is using money it creates to grab increasing chunks of the US economy (The Socialist Takeover of Finance).

We have examined data on railroad shipping to see if the US economy is picking up (Aug 13, 2009: how is the economy doing? and (Carl Denninger looks at retail and food service. ). The conclusion: the improvement is scent.

Finally, we have examined the relationship between gold, the dollar and oil (Dollar on the brink). The conclusion was that gold and oil are moving up because of the loss of value of the dollar and that further moves (dollar down and gold up) seem to be building. I suspect that the federal govt can manipulate dollar and gold prices, but I will refrain from disclosing my ideas untill I have further proof. The FED AND the big (nationalized) banks such as BOFA and CITI and 2-3 more may be involved.

In this post, I will examine the state of the economy and the forces that underpin the rise in the Stock Market. The first question we need to examine is whether the economy is recovering as the Government Media is telling us.

One of the so-called "green shoots" is the Housing Market. This, however, is a mixed bag. Yes, sales of private homes are increasing, but Commercial Real Estate is in trouble. Several hotel chains are bankrupt, and commercial real estate is in trouble, because the continued recession. The Lumber Index (which reflects the state of the construction industry) has been up and down and is now down. The Baltic Dry Index (which reflects the state of the world economy) is also down after an earlier increase. We see that initial jobless claims are continuing in the high range (Those green shoots claims. ) and that businesses are not expanding (g 13, 2009: how is the economy doing? ).

So, what about the Stock Market? Is that not supposed to be an early indicator of an improving economy? This has been asked by a blogger on Seeking Alpha:

http://seekingalpha.com/article/157655-is-it-a-stock-market-rally-or-a-dollar-devaluation?source=email

Here is his data of the S&P 500 and the dollar bullish ETF (Exchange Traded Fund)

Did I not say earlier that a cheaper dollar would drive up both the stock prices and gold prices? By devaluing the dollar, the Socialists achieve two aims: 1. by cheapening the dollar, American assets are in fact transferred to those outside America (because their currency will not be cheapened, so they can buy more of our assets) and 2. the "profit" that we gain when we sell our shares will be taxed heavily. These are long-sought goals of America's Socialists.

Do these policies achieve the stated aim of the Socialists in control of our Country? This was examined by yet another blogger on Seeking Alpha:

http://seekingalpha.com/article/157702-a-closer-look-at-the-lei-s-6-rise?source=email

The first graph (M2) shows the tremendous expansion of M2. The second graph shows the circulation of the money. If the increase of the money was effective in stimulating the economy, M2 and the money velocity should be parallel, but they are not. The economy continues to flouder even though the money supply has been greatly inflated, so the ratio declines because the GDP is not increasing much.

Inflation is already under way. And this is shown by the ratio of oil to natural gas price ratio:

How does this show the start of inflation? Most of the oil that is sold is sold outside of the US

and is quoted in dollars. Natural gas that is sold in the US is produced mostly here and it responds to supply and demand and demand is low. Also, domestically produced items are priced according to the deflation caused by the "mark to market" and the difficulty of raising cash.

The conclusion is that the Socialists crashed our economy, are using Monopoly money to in fact nationalize the financial sytem, transferring our assets to foreigners and intend to tax away what we may get out of the Stock Market.