the consumer confidence sentiment readings and the share prices of stocks which have historically depended on consumer confidence. He calls the recent divergence "the dope gap" as in only a dope doesn't think something strange is going on here. There are many reasons that this could be happening, but none of them are likely to be very sustainable over the long run. The most obvious of the reasons is what Panzer quoted someone else as saying: "...the percentage of incomes provided by government transfer payments has remained elevated. What this implies is that for a large segment of the economy, the government is subsidizing consumption levels." Well Duh! Government is subsidizing everything in the economy and they are using debt to do it with. We have a fake, debt fueled GDP which will last as long as our government can borrow money cheaply. When bond holders eventually demand higher interest rates, and they will at some point, the game will collapse.
Having said that, I'm not sure that so called Robin Hood "transfer payments" can really account for the gap in share prices vs consumer sentiment. Transfer payments are a form of welfare. They do not go into the stock market. They go into filling the expanding gap between salaries and the cost of living. Think "cash for clunkers", house purchase incentives and other monumentally stupid government driven programs.
The more likely cause for Panzer's "dope gap" is that banks and other big money houses (insurance companies, etc.) have excess liquidity (elite-speak for fake money in the form of credit) that they are gambling in the markets with because US treasuries don't pay any interest that would make them attractive investments. Keep in mind: banks have issued certificates of deposits and insurance companies have sold annuitites and pension funds have payout plans which promise returns that are significantly higher than what anyone can get from government bonds. These Ponzi Promises require main street to participate in the stock markets so that there are suckers to fleece. But when the middle class gets whacked there is less disposible cash for it to go into the markets with. Also, who is going to invest in a falling market? Money houses need, nay, require the markets to stay bouyed (somehow, anyhow) in order to attract new suckers so that they can be fleeced in order to meet all these outstanding commitments. When the suckers run out, the money houses will be forced to admit that they are nothing but frauds and never have been anything but Ponzi schemes (just like Social Security).
Another potential reason would be that the Federal Reserve might be secretly colluding with big US banks to prop up the stock markets. In fact, the mechanism for doing this, if it is occurring, is probably the provision of excess liquidity to the banks in the first place. In other words, Bernanke could be saying to the banks, "Here is a bunch of very low cost credit - almost free. Take out a loan from the fed and recapitalize your bank, improve your reserves, make your bank less likely to collapse." And then with a nod and a wink, "...and while you are at it, throw a couple of bucks into the stock market since everyone believes that higher stock markets drive more confidence leading to more spending".
Panzer's second chart points out a gap between the credit market and the price of the equities as referenced by the S+P 500. The norm is that a good chunk of bank-lent credit ends up being used for speculation in the
stock markets but with bank lending down right now the S+P 500 is still mysteriously holding up. With such unprecedented, unbridled government involvement in the economy and in the markets one can only guess that the government is responsible for this gap as well.
Lots of people believe that the government is capable of controlling the economy forever. These same people actually believe the government creates real, sustainable, economically viable jobs as well. They have nearly given their lives over to government control. Truth be told, the government is trying to convince everyone that these attributes about it are true and that it possibly can maintain a viable economy, stable employment, and all the other spew that is listed in the Federal Reserve's so called "mandate".
The charade will continue, just as it did for the Greeks, the Spaniards, the Italians, and the rest of the Euroscammers until the price of credit associated with US government borrowing goes up to the point where just rolling over the existing debt is impossible, forget about taking on new debt.
It's a debt Ponzi, folks. It will end some day like all Ponzis always have to end.
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