Stock Markets and Investment Advisors and Firms are Masters at Stealing Your Money

Stock markets are masters at fooling the masses.   There is a reason that many individuals who enter the financial industry have one goal and one goal only….make as much money as they can no matter what the collateral damage is.  Some would call this sociopathic behavior, and to be blunt; it is.  It is a game for many.  Remember this is not about making hundreds of thousands of dollars, but for many, it is about making millions upon millions of dollars.


There is nothing wrong with making money in a healthy capitalist system.  For that matter, making lots and lots of money is good, especially if you are providing societal value by creating great companies that hire people who in turn consume, buy homes and add growth to society, etc.  This is healthy capitalism, but the financial industry has added a nasty component to capitalism, one which many call crony capitalism. 

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This form of capitalism doesn’t add value to the world but instead steals it for the benefit of a few. Unfortunately, those few are driven by narcissistic actions and do not see that the destruction they create for their benefit will inevitably backfire and take a bite out of them.  They just do not have the capacity to tie their current actions to future benefits or collapses.  Sadly, their actions are not only creating concerns for the future but instead leading us to an inevitable collapse. 

Central banks and governments are fueling them perfectly.  Does that mean they are in bed with this destructive financial industry or are they just incompetent and irresponsible with their actions?  We do not know and may never know, but we know that what they are doing is supporting an industry that nearly collapsed the world in 2008.  Just stop and think about that for a minute…the financial industry nearly collapsed the world’s fiscal and monetary system by irresponsible actions including reckless lending; packaging worthless mortgages and selling them to the naïve public; creation of massive derivatives for short term profits; and in-house trading, again with the only goal of higher profits and personal gain.  And they do this with hard working people’s money.

So, why not give them more money; not restrict them in any significant way; let them create more derivatives than they ever have; continue to lend in different but still reckless ways; and let the investing world borrow at record levels.  The safety net they are required to hold (capital reserves) is not much better than it was during the collapse. So what has the world done to protect savers to ensure their hard earning capital is protected…

Forget Bailouts as Governments are Broke…Lets Instead Have Bail-ins, Stealing The Money of Depositors

Back in 2007-2009 and beyond, many banks worldwide failed.  Many others would have failed if it was not for bailouts by their respective governments.  Well, governments now know that the problem is way too big for them ever to be able to bailout if we go through a similar period in the future.  So forget bailouts…but what option did they pursue instead of bailouts?  So in their wisdom, they have decided that bail-ins are the way to go.  First it is critical to understand bail-ins.  As we said, bailouts are where the government comes riding in on their white horse and saves the banks by providing tax monies (or, in reality, government debt) to bail out financial institutions.  We would not want to see our beloved banks and investment firms disappear, as we have to make sure that they many of those that play in that space are not only worth millions but instead 10’s and for some 100’s of millions of dollars.  We did that by having taxpayers bail them out.

So, maybe the government and Central Banks recognized their wrong doing and are now trying to do what is right.  So let’s look at bail-ins…simply, it is where a failing bank or investment firm can confiscate cash balances of their customers to recapitalize the banks they have their money in.  Of course, the confiscated monies will provide the depositor with common share ownership in the financial institutions, but I guess that doesn’t mean a lot since they are a failing institution.  Nice, so instead of stealing it from all taxpayers which were a cowardly action, not they are showing strength and saying that we must keep crony banks and financial firms alive, so let them confiscate depositors assets.  What a world we live in.

So has this happened?  Here is a scenario that took place last year in Italy:

At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bondholders suffered losses in the “rescue.” 

This bail-in is real and taking place in the developed world.  Canada has put such a law in place, and the US is close via the Dodd-Frank agreement. No doubt it will be in place before the next financial system crisis.  What about government guarantees?  The US has the FDIC and Canada the CDIC.

Is There Not Coverage in Canada and the US via CDIC and FDIC respectively to address failures?

In the US, there is FDIC insurance.  It covers deposits up to $250,000, but the FDIC fund had only $67.6 billion in it as of June 30, 2015, insuring about $6.35 trillion in deposits. That means they have put aside about 1% of outstanding deposits they are to cover in case of failure. The FDIC has a credit line with the Treasury, but even that only goes to $500 billion; and who would pay that massive loan back? This would only cover 9% of outstanding deposits, but they would have to use borrowed money to pay back a bank failure…the the whole thing is one big Ponzi scheme.   The FDIC fund, too, must stand in line behind the bottomless black hole of derivatives liabilities.

But what about the conservative and responsible Canadian system?  It cannot be as out of whack as the aggressive Americans.  Well, as of the end of 2015, the Bank of Canada stated that there are about $1.630 trillion deposits on balance at financial institutions.  The CDIC insurance balance shows they have $1.25 billion put aside with an additional $1.80 billion in retained earnings that they may be able to dip into if required.  That means that CDIC has 8/100’s of 1% monies put aside in case of a bank collapse.  If you include retained earnings, it is 0.19 of 1%.  The CDIC has no assets to cover any major bank collapse.  That is the reason for bail-ins.

Are the US and Canadian Banks preparing for ugly times ahead?

Canadian banks have been issuing bank reset preferred shares like crazy as of late.  The yields are good, but no one is talking about the significant risk attached to them.  This will be discussed in an up and coming Fortrus 4-Minute newsletter.  The same thing is going on in the US, as they have been issuing contingent convertible bonds like crazy since 2007.  These papers can be converted to bank capital if needed during a crisis.  Watch for our analysis of this risk and how the banks are deceptively putting the potential future blow-ups to investors and depositors.

Secular Bear Cycles….master at stealing hard working individuals and families assets

It is critical that investors understand how secular bear markets play out.  They fool investors so that in the end, smart monies and financial institutions have transferred wealth from the masses to the few. Here is a chart that reflects the current secular bear market cycle versus the last two:

DJIA 1929 1966 2000 SecularBearMarkets Analyzed

The last major cycle was in 1929 to 1949.  By the way, this cycle is called by some very reputable world research firms, the Grand Super Cycle, whereas the great depression was just a Super Cycle.  Anyways, the cycle in the 30’s and 40’s saw four major crashes, ranging from falls of 39% to 86%.  Those were extremely volatile times as there were three major rallies in between those crashes.

The bear market of 1966 to 1982 so only 3 crashes with two rallies in between.  Still, the result of that crash from beginning to end was an erosion of the stock market by 73%.  The earlier secular bear market only was down 68% in total, as I loosely use the term ‘only’. 

Today’s secular bear market has gone through two major crashes to date.  We believe there will be two more, but we should see at least one more.  The reason we anticipate two more is the fact that we expect Central Banks to go all in which will create one final major rally before the final crash occurs.  These are painful cycles, and investors must have objective signals in when to be in and out of stocks.

What is an investor to do and how can one decide if they should be in cash or equities?

Also, investors should have tools like inverse ETF’s or put options at their disposal to make money as markets go into their down phases.  At worst, investors should be hiding in quality cash investments or top-grade bonds during down phases of stocks.

So is the current bounce in stocks a bear market suckers rally, or a move to new highs?

Here is an update on where things are at in this strong bounce following a very ugly January and part of February:

SP500 toFeb17.16 RallyTargetsv2

The market is currently trading at the last major level of resistance.  The area we are trading at is a 61% Fibonacci retracement level, as well as the 100 day moving average at 1999 and the top of breakdown levels in September 2015.  This is major resistance.  There is a possibility that the market may test the underside of the critical long-term 200-day moving average at 2022.  We will not take any action until the 200-day moving average is breached as the market is only 1% away from its level.

Markets have a mind of their own.  Traders will do what they can to keep their party alive as they are making huge amounts of money in this cycle. They may push the markets to one final high as we have stated many times.  The fundamentals, cycles, and the macro situation do not dictate this, but the markets are not always logical short term.  They can be manipulated.

Here is a view of our concerns short term as bear market traps has stolen wealth from many investors in the past. Here is an interesting look at how this occurred in 1987 and 1929 by Hussman funds:

 Collapse 1987

Post the fake rally, the market ended up crashing 36% in a very short period.  A similar pattern occurred in 1929, and here were the results:

Collapse 1929

Again a market crash of 36%.  Of course, this was only one aspect of a much bigger stock market crash and economic collapse.     

And here is what the market is doing today:

Collapse 2016

Looks like a similar eerie pattern.  This does not mean we will face the same fate as 1987 and 1929, but history is something that should not be ignored and is an excellent teacher.

This is why we are not too quick to jump on the bullish bandwagon on rallies as we are currently seeing.  We want to see volume and key resistance levels broken through first.  Losing a few percent on the upside pales nothing into losing a significant amount of the downside in high-risk environments.

Successful investing requires knowledge and smart decisions.  Do not fall prey to the media, investment experts with huge conflicts of interest or emotional sway.

Matt Sammut

www.fortrusfinancial.com