Reply #1: Market WrapUp: The World's Worst Kept Secret

[ozymandius]

BY ROB KIRBY

When bond maven Bill Gross openly writes about it – as he did in his January Investment Outlook - it’s perhaps inappropriate to use the word “secret”:

Pyramids Crumbling

“But today’s banking system as pointed out in recent Investment Outlooks, has morphed into something entirely different and inherently more risky. Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever. Financial derivatives of all descriptions are involved but credit default swaps (CDS) are perhaps the most egregious offenders.”

Perhaps it was a Freudian slip, Gross naming this piece Pyramids Crumbling, but he surely hits the mark – albeit from a narrow bond / credit centric point of view – that today’s financial system is an elaborate and grotesque ponzi scheme with its hallmark being the ‘crafty dodge.’

But it goes much deeper than this.

If one takes a moment to consider this from Investopedia, the Top 5 Reasons For A Stock Slide, you would see that all reasons for sharp price declines are precipitated by a “crystallizing event” with the bottom line being:

There is almost always a tangible reason behind the downward movement in a given share price after earnings are released, but it's up to the investor to play the role of detective and to try to determine what that reason is.

The Role of the Detective and Forensic Economics

When markets experience sharp or dramatic price movements – there is usually an identifiable cause or reason. Bill Gross illustrates how the bond / credit complex has denigrated into the morass of an alphabet soup of derivative defaults – all under the watchful eye of regulators and at the tacit direction of the Federal Reserve.

http://www.financialsense.com/Market/wrapup.htm