Have you ever wondered how the market averages magically stop just above or just below a support or resistance level ? Who really moves the markets and who is really in control ? No, this is not one of those conspiracy theories, this is just plain ole common sense. For example, who caused the market meltdown during 2000-2002 ? It wasn't the big mutual funds and pension funds, they lost their shirts too. Who was it? Is this the guy that Warren Buffett calls Mr. Market? I don't think so.
No one will know for sure who these incredibily powerful manipulators are, but one thing for sure is that most investors do not understand the manipulators vocabulary. For example, in the late 1990's the manipulators were calling gold a worthless commodity and central banks around the globe were dumping gold like it was a bucket of trash. In 1999, the manipulators were saying that brick and mortar business were a thing of the past, and why would anyone leave their homes to shop when they could do it all on line. Well, believe it or not the manipulators are back again.
Today, its the oil and housing markets. True, demand will continue to rise longer term, but in the short run we have a manipulated bubble in oil prices. Yes, I did say manipulated. The second manipulated market is housing. Why? Because we have essentially allowed China to control our long term interest rates. If we make one false move toward disciplining the Chinese for whatever; unfair trade, piracy, human rights, or attacking Taiwan, pop goes the bubble.
Millions of Americans have hocked their financial futures by obtaining lines of credit on the appreciated values of their homes. Low interest rates have caused a huge spike in the value of real estate, and consumers have borrowed against the inflated bubble of their homes. To add insult to injury, consumers have borrowed this cash on lines of credit or have taken out adjustible rate mortagages whose interest rates have almost doubled from a year ago.
The Mortgage Bankers Assn. reported that adjustable rate mortgages rose last week to a record high of 36.6% of all mortgages nationwide, exceeding earlier peaks in 1995 and 2000. Why is there a big demand for adjustables, or lines of credit ? Because its viewed as short term and a good deal. Wrong ! Believe it or not the same mentality exists with stocks. The number of Hedge Funds now outnumber the number of mutual funds, and they are not long term investors.
In 2002, even former Morgan Stanley Dean Witter guru Barton Biggs cautioned against the hedge fund mania taking place. So where is Barton today, you guessed it, In June of 2003 Biggs left Morgan Stanley to create the hedge fund Traxis Partners.
Today, we are waiting for the manipulators next move. Are they going to sell off oil and drive the stock market higher ? Or, are they going to ride their oil stocks a little longer, suck the small investor in some more, then pull the rug out ? My guess is, yes, they probably will. In any event, we're waiting.
