What’s Up? – Not the stock market; Financials fall –  financials flooding markets with  more shares to raise capital; First in,hopefully, a series of guest editorialist: This one by Scott Herwehe “ Is this a financial crisis or is this a crisis of an unsustainable economic model?” The American Worker.

American Worker by Jeff Kubina.American Worker, by Michael Florin Dente, 1990. Photo flickr.com

Is This a Financial Crisis or Is This a

Crisis of an Unsustainable Economic Model?

By Scott Herwehe

(highlighting mine)

 From approximately 1820 to 1970  worker productivity increased in America and wages increased for most American workers as well. These increased wages were won through a vibrant labor movement that battled and fought for higher wages and better work conditions.

From 1945 to 1970 the average American enjoyed greater wealth than any other time in American history meaning the distribution of wealth was more equitable than any other time period. In fact, the bottom half of American workers made more significant gains than the top half.

Realizing the gains of the labor movement of the 1930′s the owners of production began looking at ways to increase profit and productivity. Two major ways that this was accomplished was outsourcing ( this was accomplished through polices that were undemocratic such as trade polices and the breakdown of Bretton Woods and also see Operation Bootstrap) and increased reliance on the secondary labor force which is workers such as immigrants who have fewer rights than an American citizen.

A massive propaganda campaign was made against unions and we have seen a steady decline in union membership as well as policies beginning with Reagan that have decreased union power and workers rights.( Remember we are the only country in the industrial world where striking workers can be permanently replaced).  

So  around 1970 avg. American workers wages began to level off and productivity continued to increase. Americans were working more hours and more people from a family were joining the workforce. More mothers and children of the family were joining the workforce. So Americans were working harder but real wages were stagnating.  The continued rise of productivity and stagnant wages created huge profits for the owners of capital. With more wealth led to a financialization of our economy where we started producing and making less stuff and instead designed ways to make money off of money.

The only problem was that the gains of the financialization of the economy only went to a small minority of people. Accroding to the World Bank it went to the top 5 %.  A massive redistribution of wealth began to emerge where more and more wealth became concentrated toward the top few.  This created a problem for the owners of production though.  Obviously if wages stagnate or decrease than the workers consumption slows. There needed to be new ways to maintain low wages and continue our consumer based economy.

The answer was credit. We became a nation of borrowers and new and ingenious ways to make money were designed.  This obviously is an oversimplified explanation. There are other policies and factors at play but what is stated is important to know. Can we continue this economic model of working more and more for less and less? Can we continue to borrow more than we can afford?  Can we continue using up massive amounts of resources to keep consuming and buying things that we don’t want or need? We use almost 30% of the worlds resources and have 5 % of the worlds population.

Our economic model is unsustainable. We do need change. Real change. Obama seems content on maintaining the institutions and players that got us into this mess. To be fare to Obama he really didn’t promise us a lot. During his campaign if you ignored the rehtoric and looked at his actual stances on policies than you know he is a centerest democrat which thirty or fourty years ago might even mean Republican. ( Nixon even pushed for nationalize health care.) He is a stark contrast to Bush and a rush back to the center feels very good after an administration that was so far to the far right.

Change and progress in American history has only come when people come together, organize, and fight for it. Power is never freely given to others. We can’t hope for change. We can’t be Obama’s army waiting for orders. We must give the orders after all he works for us.  We have to hold him and our elected officials to the fire. Throughout our nations history American workers have overcome far greater challenges in much worse circumstances. As a country we need to look back on the lessons of the past and create an economic model that works for all Americans and not just a few.

Scott is “addicted” to Investors411 blog and often post’s comments. He searching for anew teaching job in California. 



Index Percentage % Volume
Dow -2.18 down
NASDQ -3.01 down
S&P500 -2.69 flat
Russell2000 -4.72 -

Technicals & Fundamentals

Major market had a major meltdown yesterday. Volume again did not rise and therefore did NOT confirm the move lower. Third down day in a row. Often cumulative lower volume can become a factor over time.

 877 on the  benchmark S&P 500  is the support level to watch. The SPX closed at @ 884.

XLF - The ETF that tracks financials (mostly shadow banks ) fell big time -5.08 in average volume. Obviously, the shadow’s are still leading the markets.

If Shadow Banks go up – so will stocks. If Shadows go down so will stocks – The mantra of the markets for the past two months continues.

Reading The Tea Leaves – Why Markets Are Falling

Obviously, technically, bulls have come too far too fast. There another significant reason that involves our broken economic model (see Scott’s editorial above) and our over reliance on credit.

Many Shadow Banks need to raise cash because they are insolvent. So while the markets are high they are selling “secondaries” or issuing more stock to make $ and pay down debt. The other institutions need to raise the cash because the shadow banks are NOT lending. So they too are selling new shares.

All of this new stocks sucks up the limited amount of investors willing to buy. It’s a supply and demand problem. Now that markets have gone up 30 to 35% there’s a stampede of companies creating new shares. This is going to force stocks lower.

So far volume is NOT confirming the move lower and no major technical support levels have been broken. So too early to call a reversal in even the short term trend. This could all end today.

WTIC charts “Light Crude Oil”.(see chart). Oil prices again crested over $60. Prices fell -1.24% yesterday and are further deteriorating in pre US market trading.

Most likely senerio for week -  Consolidation or profit taking. Let Shadow banks be your guide.

From Yesterday – There is at least a short term dip coming. Investors411 has already (Friday) dumped positions in financials and techs.   Yesterday we temporarily sold EWZ (Brazil)

NB change to CAUTIOUSLY BEARISH if S&P 500 closes below 877

Long Term Outlook = NEUTRAL

See Changes in STRATEGY, POSITIONS, & OVERVIEW sections of blog


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