King Report: Sympathy for Traditional Managers

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Our sympathies go out to traditional managers of public funds because they are being forced to abandon prudence and reason in order to generate short-term performance in a rigged casino.

Deceit and duplicity are encouraged if not demanded. Earnings are crafted; balance sheets cannot be trusted; government economic data is illegitimate.

Case in point: Last week Blessed Warren Buffett pens a NY Times op-ed that excoriates US solons for turning the US into a debt-laden banana republic. Within 24 hours, the White House says the deficit this year will be about one-quarter of a trillion dollars less than expected. Friday after the close, Reuters reports that the White House says the deficit will be $2 trillion more than expected, or $9T, over the next ten years.

Think about this for a minute; it epitomizes sanctioned deceit and duplicity in the markets. This chicanery cannot occur by accident. Solons obviously believe the investing public is hopelessly gullible.

Asian bourses tanked early on Friday but during European trading stocks surged. Later the reason appeared when Ben Bernanke, speaking from Jackson Hole, asserted that global economies are emerging from recession. BTW, how accurate has Ben’s forecasting record been over the past few years?

Nevertheless, twas expiration and traders, as well as investors, are rip-roaring bullish. Anyone that has been around for a few years knows that when funny money is flowing and traders are manipulating markets, investors become incontinent and start rationalizing instead of being rational.

At this point, critical analysis, especially of crafted economic data, disappears. This means we are right back to 2007 and early 2008. Bizarrely, many indicators like insider selling, cash holdings, sentiment, future expectations and even business surveys are back to 2007 levels.

But consumer confidence and disaffection is also falling back to 2007 levels. We clearly recall how the usual talking heads, shills and Bush apologists lambasted consumers for not being as jiggy as Wall Street. The peons did not realize how great the economy, as defined by soaring stocks & commodities, was.

There was a great disconnect between the real economy and Wall Street in 2007, due to funny money, crafted economic data and earnings, deceit, lax regulation and a decade or more of inculcated bullishness.

Rasmussen: Nationally, 29% of adults believe economic conditions in the U.S. are getting better while 46% say they are getting worse….

The Rasmussen Investor Index, which measures the economic confidence of investors on a daily basis, dropped a point on Sunday to 85.6. While the index is down three points over the past week, it is up 17 points over the past month. Investor confidence is now up 23 points from the beginning of the year. Among investors, 34% say economic conditions are improving and 41% say they are getting worse.

So the US official policy of manufacturing assets bubbles to paper over intractable economic and financial problems, including unserviceable debt continues.  The only difference is the debt is much more onerous and much more capital has been destroyed.  This means the system is even more levered.