Tuesday, September 27, 2011

A Look at the Stock Market Rally

The current stock market rally is based solely on two factors.

The first is the "time-honored" tradition of end-of-quarter markups on stocks. It happens nearly each and every quarter going back for decades. Yet people are often taken unawares by the actions of fund managers.

Ostensibly, the reason for the rally is the trial balloon being floated about a 2 trillion euro EFSF (European Financial Stability Facility).

It's amazing how supposedly sophisticated investors believe that waving a magic wand, ala Harry Potter, can solve the western world's economic ills. It can't!

There are several obvious holes in this trial balloon.....

First of all, where would the money come from? Insolvent southern European nations? Or, most likely, from simple money printing. Gee, that has worked so well in the United States.

Secondly, countries like Germany and Finland are very unlikely to ever approve of such a plan for two reasons.

One reason is that it involves the use of leverage which is an anathema to the culture of northern Europe. The second reason is, as obvious by its use if leverage, that it is an idea put forward by the United States.

Why doesn't Tim Geithner poke his nose out of Europe's business? Isnlt it bad enough that the leveraged, casino mentality has overtaken US financial markets. Europe has enough troubles without adding more leveraged debt to it.

Investors right now should take this rally as a gift and fade it. That is, sell into it.


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