As Shanghai Stock Market Tanks, China Makes Mass Arrests: ‘You Could Disappear at any Time’

By Pam Martens and Russ Martens: September 3, 2015 

China Rehearses for September 3, 2015 World War II Parade

China Rehearses for September 3, 2015 World War II Parade

The Shanghai stock exchange, which has been creating global stock market convulsions while trimming 39 percent off its value since June, will be closed for the next two days. The Chinese holiday started on Thursday in Beijing with a big parade and show of military might to commemorate the 70th anniversary of V-Day and the defeat of Japan in World War II.

The massive military pageantry and display of weaponry was widely seen as a move by President Xi Jinping to reassert his authoritarian rule in the wake of a sputtering domestic economy, $5 trillion in value shaved off the stock market in a matter of months, and the need to devalue the country’s currency on August 11 in a bid to boost exports.

Tragically, what has received far less attention than melting China stocks is the mass arrests of dissidents, human rights activists, attorneys and religious leaders. More recently, the government has begun to “detain” journalists and finance executives in an apparent attempt to scapegoat them for the stock market’s selloff.

The mass arrests began in July, the same time the China stock market started to crater in earnest. Last evening, the Financial Times had this to say about the disappearance of Li Yifei, a prominent hedge fund chief at Man Group China.

“The whereabouts of Ms Li remained unclear on Wednesday. Her husband, Wang Chaoyong, told the Financial Times that her meetings with financial market authorities in Beijing had concluded, and ‘she will take a break for a while.’ ”

Bloomberg Business had previously reported that Li Yifei was being held by the police as part of a larger roundup of persons they wanted to interview regarding the stock market rout.

The reaction to these authoritarian sweeps has worsened the stock market situation in China. Volume on the Shanghai market, according to the Financial Times, has skidded from $200 billion on the heaviest days in June to just $66 billion this past Tuesday.

On Tuesday afternoon, a Wall Street Journal reporter was interviewed by phone from Beijing on the business channel, CNBC. He said “waves” of arrests were taking place. That interview followed an article in the Wall Street Journal on Monday, which appeared with no byline (perhaps for the safety of the Beijing-based reporter) that shed more light on the arrests:

“Chinese police on the weekend began rounding up the usual suspects, which in this case are journalists, brokers and analysts who have been reporting stock-market news. Naturally, the culprits soon confessed their noncrimes on national television. A reporter for the financial publication Caijing was shown on China Central Television on Monday admitting that he had written an article with ‘great negative impact on the market.’ His offense was reporting that authorities might scale back official share-buying, which is what they soon did. On Sunday China’s Ministry of Public Security announced the arrest of nearly 200 people for spreading rumors about stocks and other incidents.”

Also on Tuesday, David Saperstein, the U.S. Ambassador-at-large for religious freedom, publicly demanded that China release attorney Zhang Kai and religious leaders who had been swept up by the government the very day before Saperstein had been scheduled to meet with them. In an interview with the Associated Press, Saperstein called the state actions “outrageous,” particularly since he had been invited to China to observe religious freedom in the country.

Christianity is growing rapidly in some regions of China and strong religious leaders or movements are seen as a threat to communist party rule. Religious leaders had been protesting the state’s removal of crosses from the tops of churches.

On July 22, the New York Times reported that over 200 human rights lawyers and their associates had been detained. Using the same humiliating tactic as used recently against the financial journalist, The Times reports that some of the “lawyers have been paraded on television making humiliating confessions or portrayed as rabble-rousing thugs.” One of the lawyers who was later released, Zhang Lei, told The Times: “This feels like the biggest attack we’ve ever experienced. It looks like they’re acting by the law, but hardly any of the lawyers who disappeared have been allowed to see their own lawyers. Over 200 brought in for questioning and warnings — I’ve never seen anything like it before.”

U.S. Ambassador to the United Nations, Samantha Power, is also demanding the release of female prisoners in China, including Wang Yu, who was arrested with her husband in July.

According to a detailed interview that Wang Yu gave the Guardian prior to her detention and disappearance on July 9, people are being arrested, grabbed off the street, sent to mental hospitals or detention centers. She said: ‘You could disappear at any time.’

As a documentary made by the Guardian shows, one of Wang Yu’s cases involved the alleged rape of six underage girls by the headmaster of their school. Wang Yu took the case and organized a protest, handing out literature on child protection laws to pedestrians and people passing by in automobiles.

Parents of the young girls who had originally consented to their legal representation soon withdrew the consent, saying they were being monitored by the government and had been told not to speak to journalists or lawyers. Wang Yu said that cases like this are happening every minute and everywhere in China.

Yesterday, the Mail & Guardian reported that Wang Yu’s whereabouts remain a mystery.

On August 18, Reuters reported that Chinese government officials “had arrested about 15,000 people for crimes that ‘jeopardized Internet security,’ as the government moves to tighten controls on the Internet.”

Against this horrific backdrop, China’s authoritarian President Xi Jinping is slated to visit the United States late this month for a meeting with President Obama and state dinner at the White House. According to the Washington Post’s David Nakamura, a bipartisan group of 10 senators sent President Obama a letter in August calling on him to raise the issue of human rights abuses when Xi visits. The Post published the following excerpt from the letter:

“We expect that China’s recent actions in the East and South China Seas, economic and trade issues, climate change, as well as the recent cyber-attacks, will figure prominently in your discussions. While these issues deserve a full and robust exchange of views, so too do human rights. Under President Xi, there has been an extraordinary assault on rule of law and civil society in China.”

Given the delicacy with which President Obama is likely to broach this subject with Xi, a mass demonstration outside of the White House by human rights activists and lawyers in this country during the White House visit might send a more powerful message. Last year, U.S. consumers and businesses purchased $466.8 billion in goods from China. Should these human rights abuses continue, China should be made aware that consumers in the U.S. know how to check labels for country of origin.

How Tethered to China are the Wall Street Banks?

By Pam Martens and Russ Martens: September 2, 2015

Shanghai's Bull Statue on Its Bund Waterfront (left); Bull Statue in Lower Manhattan (right)

Shanghai’s Bull Statue on Its Bund Waterfront (left); Bull Statue in Lower Manhattan (right)

The Dow Jones Industrial Average plunged 469.6 points yesterday for a loss of 2.84 percent but Wall Street banks and trading firms took a far heavier bruising. Business media have been placing the blame for global stock market convulsions on China’s slowing economy, devaluation of its currency and seemingly unstoppable selloffs in its wildly inflated stock market. There would seem to be much more to this story than we know so far to explain the outsized fall in Wall Street bank stocks.

Yesterday, with the Dow losing 2.84 percent, the major names on Wall Street fared as follows: Citigroup, down 4.75 percent; Bank of America, down 4.65 percent; Wells Fargo, down 4.39 percent; JPMorgan Chase, down 4.13 percent; Morgan Stanley, down 3.86 percent; and Goldman Sachs, down 3.44 percent. The Blackstone Group, a private equity firm with significant involvement in China, lost 5.26 percent.

These outsized losses versus the Dow’s performance are becoming the norm among the Wall Street banks. In just three trading sessions on Thursday, August 20, Friday, August 21 and Monday, August 24, JPMorgan Chase lost 10.87 percent of its market cap or $27.18 billion. Despite JPMorgan CEO Jamie Dimon’s serial reminders of the bank’s “fortress balance sheet,” the market is unconvinced. One has to ask why.

One explanation making the rounds on Wall Street is that even if some of these Wall Street mega banks don’t have a lot of direct exposure to China, they do have a lot of direct exposure to loans they have made to countries and corporate customers who depend on China for earnings. China is the largest buyer of industrial commodities in the world and its economic slowdown and attendant collapse in commodity prices – from oils to metals to agricultural products – is making repayment of loans to banks look riskier.

The major Wall Street banks also have Prime Brokerage relationships with the major hedge funds, a fancy way of saying they provide margin and loans of securities for risky trading.  A growing number of hedge funds have been taking a pounding as trading becomes more erratic.

Adding to the worries is the fact that more than 300 companies based in China trade in U.S. markets as American Depository Receipts (ADRs). Approximately 100 companies in China trade on U.S. stock exchanges with another estimated 200 trading over-the-counter in the United States. In 2014, Thomson Reuters estimated that the market capitalization of Chinese companies listed on just the New York Stock Exchange and Nasdaq Stock Market totaled more than $1.4 trillion. That’s a serious amount of money and there are concerns that U.S. market makers could take losses attempting to make a two-sided market in the shares during days when prices are whipsawing.

Another concern is that there may be Wall Street bank exposure to China that is off the radar screen. In February, Rolling Stone’s Spencer Woodman reported that a number of big Wall Street names like JPMorgan, Citigroup, UBS, and Merrill Lynch (the investment bank and stock brokerage arm of Bank of America) were underwriting bonds for real estate firms in China that were involved in forced evictions and relocations of Chinese residents in order to build large development projects. Woodman references a 2012 Amnesty International report which found that some forced evictions “resulted in deaths, beatings, harassment and imprisonment of residents who have been forced from their homes across the country in both rural and urban areas.”

Woodman reports further:

“Amid this heated debate, several overseas bond-selling documents show that some of America’s largest banks, including JPMorgan Chase, have helped to raise money for Chinese real estate companies that have expended considerable resources on demolishing buildings and ‘relocating’ people for their recent projects in China. (It’s important to note that the revelations in these documents do not necessarily point to the level of the injustices in the Amnesty report.) Two bond-selling documents, both marked ‘Strictly Confidential’ but uploaded to the website of Singapore’s stock exchange, state that, in 2012 alone, a company with bond sales facilitated by banks like JPMorgan Chase and Citigroup called Kaisa Holdings devoted more than $1 billion RMB, or $160 million USD, to ‘demolition and resettlement’ costs relating to its real estate projects. Other overseas bond documents show that in recent years, Bank of America and JPMorgan Chase helped to sell bonds for a Shanghai-based real estate firm called Future Holdings, which spent $131 million RMB on demolition and resettlement costs in 2011. Dispelling any notion that Future Holdings and Kaisa Holdings might be engaging in some sort of happy form of human relocation, both documents use similar language to make clear that disputes with original inhabitants of land they buy might cause ‘protests or legal or other proceedings.’”

Also in February of this year, the Wall Street Journal reported on the multi-year, ongoing investigation of JPMorgan Chase by the SEC and U.S. Justice Department over its hiring of relatives of Chinese government officials in a program known internally as “Sons and Daughters.” One email printed in the article quotes Fang Fang, JPMorgan’s former chief executive of China investment banking, describing a conversation he had at a 2008 dinner with a Chinese commerce ministry official who was appealing to Fang Fang to help save his son from being laid off at the bank. The email reads:

“The father indicated to me repeatedly that he is willing to go extra miles to help JPM [JPMorgan stock symbol] in whatever way we think he can. And I do have a few cases where I think we can leverage the father’s connection.”

Market Rout: The Trend Ain’t Your Friend – No Matter What JPMorgan Says

Dow Transports (Blue) Versus Dow Jones Industrial Average (Red), November 25, 2014 Through August 31, 2015

Dow Transports (Blue) Versus Dow Jones Industrial Average (Red), November 25, 2014 Through August 31, 2015

By Pam Martens and Russ Martens: September 1, 2015 

JPMorgan Asset Management is running “sponsored content” at Barron’s, the financial publication, with today’s date and a remarkably rosy economic outlook given last week’s market rout and this morning’s Dow futures plunging to down 396 points at 9:02 a.m. – just 28 minutes before the market was set to open in New York.

There used to be a time when advertising in newspapers was called advertising and you knew money was changing hands. All Barron’s is saying about JPMorgan’s “sponsored content” is this: “Barron’s news organization was not involved in the creation of this content.”

Here’s the curious part of what JPMorgan Asset Management has to say about the U.S. economy:

“…we find little to indicate that a slowdown is imminent. In any event, historically there’s been a long lag between signals of a downturn and the onset of recession. In the past, it has taken about a year for an inverted yield curve, the classic symptom of diminished expectations, to translate into a business downturn. It has taken more than four years on average for a recession to follow on the Federal Reserve’s first rate hike of a cycle—and after nearly a decade we are still awaiting that first hike.

“No scenario is immune to shocks, of course, and the current environment contains several threats—the Greek tragedy, the prospect of a hard landing in China and the ultimate certainty of rising rates in the U.S. — that might give investors pause. Of the three, we take the prospect of a Chinese hard landing most seriously because of that economy’s global importance.”

Let’s start first with the notion that there is “very little” to suggest a “slowdown is imminent.” Off the top of our head, we can think of an alarming number of suggestions. Let’s start with the Dow Transports.

Markets trade not on what they see looking out the window today but on what they contemplate will be the situation six months down the road. This is why markets are known as predicting or discounting mechanisms: they are a pricing mechanism based on future prospects. Parts of the market see things differently than the broader market and over time they have shown themselves to be early predictors of a trend. One of those sectors is the Dow Transports, otherwise known as the Dow Jones Transportation Average.

The Dow Transports was the first-ever stock index, initiated in 1884 by Charles Dow and originally known as the Dow Jones Railroad Average. (It assumed its current name in 1970.)

Today, the Dow Transports include 20 companies involved in the transportation of goods. A sampling of companies with the largest weightings in the index include FedEx, United Parcel Service, Kansas City Southern, Union Pacific and Norfolk Southern. In simple terms, when the U.S. economy is healthy and growing, the Dow Transports index would be rising in value as its companies should be showing solid earnings as consumer demand picks up and they are shipping lots of goods. But as the chart above shows, the Dow Transports began to turn down in late November 2014 while the Dow Jones Industrial Average went in the opposite direction. Notice how they’ve both converged on the same plunging path now.

Next, what few Wall Street analysts want to talk about is that earnings on the Standard and Poor 500, the largest companies that trade publicly in the U.S., have turned negative in the second quarter. Yes, negative. While there seems to be some disagreement about just how much earnings declined in the second quarter, there is no quibbling over the fact that they were negative. On August 25, Bloomberg Business reported that “Profits reported by S&P 500 companies in the second quarter fell 2 percent from a year ago and are projected to slip 5.5 percent in the current period.” FactSet says the decline was 0.7 percent in the second quarter. Of equal alarm, revenue growth fell by 3.4 percent.

The U.S. stock market is now discounting an earnings recession over the next several quarters.

Also, JPMorgan should not be drawing comfort from the Fed; they should be stocking up on ulcer relief medicine over the Fed’s bullet-less monetary gun. JPMorgan’s “sponsored content” in Barron’s noted that “It has taken more than four years on average for a recession to follow on the Federal Reserve’s first rate hike of a cycle — and after nearly a decade we are still awaiting that first hike.”

Clearly, one can’t apply historic norms to a period that includes the greatest economic collapse since the Great Depression, as well as the greatest income and wealth inequality since the Great Depression. The Fed hasn’t been able to hike rates and reload its monetary gun because the bloated and systemically contagious balance sheets of the tyrannical Wall Street mega banks (which includes JPMorgan) are holding their own, fully-loaded gun to the Fed’s head.

But more importantly, the banking tyrants have created the situation where the Fed will find itself entering the next downturn with $4.5 trillion on its own bloated balance sheet because it had to vacuum up Wall Street’s excesses during the collapse. Exactly how much more Quantitative Easing can be expected from the Fed with that size of a balance sheet?

When JPMorgan cautions that there might possibly be the threat of “a hard landing in China,” what it should also be thinking is that a hard landing in China would lead to a full blown currency war in Asia as all the exporting countries scramble to devalue their currencies to compete more aggressively on exports to maintain market share. That, in turn, could lead to the U.S. importing deflation while a stronger U.S. dollar would further curb exports from the U.S., leading to further slumps in the domestic manufacturing sector.

Adding to the increasing likelihood of that scenario, the Institute for Supply Management reported this morning that manufacturing in the U.S. in August fell to a reading of 51.1 from 52.7 in July. That decline is completely consistent with the selloff in the Dow Transports and the contraction in earnings in the S&P 500. What it is not consistent with is the bizarre revision to the second quarter GDP report, showing growth of 3.7 percent.

Michael Hudson’s New Book: Wall Street Parasites Have Devoured Their Hosts — Your Retirement Plan and the U.S. Economy

By Pam Martens: August 31, 2015 

Author and Economist, Michael Hudson

Michael Hudson

The riveting writer, Michael Hudson, has read our collective minds and the simmering anger in our hearts. Millions of American have long suspected that their inability to get financially ahead is an intentional construct of Wall Street’s central planners. Now Hudson, in an elegant but lethal indictment of the system, confirms that your ongoing struggle to make ends meet is not a reflection of your lack of talent or drive but the only possible outcome of having a blood-sucking financial leech affixed to your body, your retirement plan, and your economic future.

In his new book, “Killing the Host,” Hudson hones an exquisitely gripping journey from Wall Street’s original role as capital allocator to its present-day parasitism that has replaced U.S. capitalism as an entrenched, politically-enforced economic model across America.

This book is a must-read for anyone hoping to escape the most corrupt era in American history with a shirt still on his parasite-riddled back.

Hudson writes from his most powerful perch in chapters describing how these financial parasites have tricked our society into accepting them as a normal, productive part of our economy. (Since we write about these thousands of diabolical tricks four days a week at Wall Street On Parade, poignant examples came springing to mind with every turn of the page in “Killing the Host.” From the well-placed articles in the Wall Street Journal to a front group’s pleas for more Wall Street handouts in a New York Times OpEd, to the dirty backroom manner in which corporate speech was placed on a par with human speech in the Supreme Court’s Citizens United decision, to Wall Street’s private justice system and the Koch brothers’ multi-million dollar machinations to instill Ayn Rand’s brand of “greed is good” in university economic departments across America — America has become a finely tuned kleptocracy with a sprawling, sophisticated public relations base.)

How else to explain, other than kleptocracy, the fact that Wall Street’s richest mega banks collect the life insurance proceeds and tax benefits on the untimely deaths of their workers – all codified into law by the U.S. Congress – making death a profit center on Wall Street. Or, as Frontline revealed, that two-thirds of your 401(k) plan over a working lifetime is likely to be lost to financial fees.

Hudson writes: “A parasite’s toolkit includes behavior-modifying enzymes to make the host protect and nurture it. Financial intruders into a host economy use Junk Economics to rationalize rentier parasitism as if it makes a productive contribution, as if the tumor they create is part of the host’s own body, not an overgrowth living off the economy. A harmony of interests is depicted between finance and industry, Wall Street and Main Street, and even between creditors and debtors, monopolists and their customers.”

What has evolved, says Hudson, is that Wall Street banks have “become the economy’s central planners, and their plan is for industry and labor to serve finance, not the other way around.”

To gloss over the collapse of this depraved economic model in 2008, Hudson says these Wall Street central planners simply depict “any adverse ‘disturbance’ as being self-correcting, not a structural defect leading economies to fall further out of balance. Any given development crisis is said to be a natural product of market forces, so that there is no need to regulate and tax the rentiers.”

Similarly, when citizens rise up en masse to demand a realignment of their economy, as happened with the Occupy Wall Street movement, first the public relations masterminds dismiss them as an unhinged gathering of smelly hippies, followed by their violent eviction in the middle of the night, with military precision, by the Praetorian Guard of the kleptocracy. In Manhattan, the Praetorian Guard (NYPD) has a high-tech surveillance center mutually staffed by cops and Wall Street personnel – and mainstream media find nothing unusual about this.

Hudson correctly calls 2008 a “dress rehearsal,” writing that “Wall Street convinced Congress that the economy could not survive without bailing out bankers and bondholders, whose solvency was deemed a precondition for the ‘real’ economy to function. The banks were saved, not the economy.” Hudson adds that the “debt tumor” was left in place. (This is the nightmare we are presently watching unfold.)

The result of the systemic disabling of regulations on Wall Street has resulted in the following, says Hudson: “…the wealthiest One Percent have captured nearly all the growth in income since the 2008 crash. Holding the rest of society in debt to themselves, they have used their wealth and creditor claims to gain control of the election process and governments by supporting lawmakers who un-tax them, and judges or court systems that refrain from prosecuting them. Obliterating the logic that led society to regulate and tax rentiers in the first place, think tanks and business schools favor economists who portray rentier takings as a contribution to the economy rather than as a subtrahend from it.” (But, of course, those business schools are financially incentivized to think that way.)

The outgrowth of these tricks to make parasites appear to be a natural appendage to a well-functioning economy results in a “veritable Stockholm Syndrome.” Hudson explains:

“Popular morality blames victims for going into debt – not only individuals, but also national governments. The trick in this ideological war is to convince debtors to imagine that general prosperity depends on paying bankers and making bondholders rich – a veritable Stockholm Syndrome in which debtors identify with their financial captors.”

Hudson has much to say on the perversity of corporations buying back their own stock. In one chapter, Hudson writes:

“In nature, parasites tend to kill hosts that are dying, using their substance as food for the intruder’s own progeny. The economic analogy takes hold when financial managers use depreciation allowances for stock buybacks or to pay out as dividends instead of replenishing and updating their plant and equipment. Tangible capital investment, research and development and employment are cut back to provide purely financial returns.”

On the timely debate over wealth and income inequality, Hudson writes that “Asset-price inflation is the primary dynamic explaining today’s polarization of wealth and income. Yet most newscasts applaud daily rises in the stock averages as if the wealth of the One Percent, who own the great bulk of stocks and other financial assets, is a proxy for how well the economy is doing. What actually occurs is that financing corporate buyouts on credit factors interest payments and fees into the prices that companies must charge for their products.”

Where this leads, says Hudson, is that “Paying these financial charges leaves less available to invest or hire more labor. Likewise for the overall economy, the effect of a debt-leveraged real estate bubble and asset-price inflation is that interest payments and fees to bankers and bondholders leave less available to spend on goods and services. The financial overhead rises, squeezing the ‘real’ economy and slowing new investment and hiring.”

Hudson is clearly on to something. The U.S. seems to be crashing like clockwork every 8 years with the crashes gaining in intensity. The 2000 crash wiped $4 trillion out of investment accounts while, 8 years later, the 2008 crash brought down the whole financial system, the U.S. and global economy, and it’s still producing a dead weight on economic growth. Next year will mark the eighth year since the 2008 crash and if last week’s market convulsions were any indication, we’re in for some very rough sledding.

Chapter 8 of “Killing the Host” begins with this quotation from John Maynard Keynes: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” Hudson expands further:

“Instead of warning against turning the stock market into a predatory financial system that is de-industrializing the economy, [business schools] have jumped on the bandwagon of debt leveraging and stock buybacks. Financial wealth is the aim, not industrial wealth creation or overall prosperity. The result is that while raiders and activist shareholders have debt- leveraged companies from the outside, their internal management has followed the post-modern business school philosophy viewing ‘wealth creation’ narrowly in terms of a company’s share price. The result is financial engineering that links the remuneration of managers to how much they can increase the stock price, and by rewarding them with stock options. This gives managers an incentive to buy up company shares and even to borrow to finance such buybacks instead of to invest in expanding production and markets.”

The net result of this, says Hudson, is an effective “debt-financed takeover from within.”

Hudson writes about the revealing September 2014 Harvard Business Review article by William Lazonick, who noted:

“Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings.”

“This management strategy created financial wealth by elevating the stock price,” writes Hudson,  “not by producing more goods. Earnings per share rose not because companies actually earned more, but because there were fewer shares outstanding among which to spread the earnings. Many of the companies downsized and outsourced their employment and production. The immediate beneficiaries were corporate officers exercising their stock options.”

Hudson quotes another prolific writer on the subject of our bankster-controlled society, Paul Craig Roberts, who has noted the following about corporations buying back their own stock: “The debt incurred will have to be serviced by future earnings. This is not a picture of capitalism that is driving the economy by investment.”

Hudson says that what is happening today in corporate America is very different from the corporate raiders of the 1980s who used leveraged buyouts to gobble up companies. Today, says Hudson, “corporate executives raid their own company’s revenue stream. They are backed by self-proclaimed shareholder activists. The result is financial short-termism by managers who take the money and run. The management philosophy is extractive, not productive in the sense of adding to society’s means of production or living standards.”

Make no mistake about it: this is a dangerous book to the status quo. It is truth-telling at its finest in America’s darkest age of entrenched lies. Michael Hudson has clanged the alarm bells over more continuity government from the likes of Hillary Clinton and her fellow Wall Street Democrats. He’s also scuttled the chances that Donald Trump will be able to reengineer America from “Give me your tired, your poor, your huddled masses yearning to breathe free” to the evil fortress that kicks out infants by directing hatred and blame for America’s woes to impoverished immigrants running from their own leeches.

Hudson’s masterful book comes at the perfect juncture of stock market convulsions and an early election season when Americans are turning out by the tens of thousands to hear what the candidates for the Oval Office plan to do to return the wealth and the soul of America to the people.

“Killing the Host” is available as an e-book at CounterPunch and in print at

Defining a Market Bubble: 5 U.S. Stocks Worth $1.88 Trillion and One of Them Can’t Figure Out How to Make Money

By Pam Martens and Russ Martens: August 27, 2015 

Capital Dynamics Founder and CEO, Tan Teng Boo

Capital Dynamics Founder and CEO, Tan Teng Boo

That big so-called rally at the market close yesterday was not a rally but a short squeeze. That’s when the hedge funds that have put on short positions size up the amount of stock for sale at the close of trading and, if the amount is light, they decide to close out their short positions by buying stock to cover. On Tuesday, there was approximately $3.5 billion in orders to sell at the close, resulting in the late day selloff. Yesterday, there was only about $500 million to sell, making it risky to hold short positions, thus the short squeeze driving the Dow up 619 points at the close.

Expect to see a lot more of these spikes, up or down, in the last two hours of trading.

Assessing just how large the bubble has grown in U.S. markets as a result of the Fed’s zero-bound interest rate strategy since December 2008, Tan Teng Boo, founder and CEO of Capital Dynamics appeared on a Bloomberg Television segment this morning and summed up our new market bubble in a few words. Boo said just five U.S. stocks — Apple, Google, Microsoft, Facebook, and Amazon  — are worth more than the Frankfurt, Germany stock market, which represents the fourth largest economy in the world.

We did the math after the past week’s selloff and yesterday’s big spike higher. At yesterday’s close, the market caps for the levitating five are as follows: Apple $625.532 billion; Google, $440.767 billion; Microsoft, $341.594 billion; Facebook, $245.795 billion and Amazon, $234.215 billion. The total market cap for the five — $1.889 trillion.

All five of these stocks have one thing in common: they all trade on the Nasdaq stock market. That’s the market that gave you the 2000 bust that erased $4 trillion from investors’ pockets in dot-com and tech blowups as well as the stock market that oversaw a massive price rigging cartel for more than a decade.

On July 17, 1996, the U.S. Justice Department charged most of the largest firms on Wall Street (iconic brands like Merrill Lynch, JPMorgan and predecessor firms to Citigroup) with price fixing on Nasdaq. The firms were deemed so untrustworthy going forward that as part of its settlement the Justice Department required that some Wall Street traders’ phone calls be tape recorded when making Nasdaq trades. The Justice Department also gave itself the right to randomly show up and listen in on the traders’ calls.

Today, some of the same firms that were charged with price rigging on Nasdaq have been charged with similar cartel activity in rigging the Libor interest rate benchmark and/or foreign currency trading. But that has not prevented these firms from operating their own Dark Pools, effectively unregulated stock markets, where the highfliers mentioned above are traded in darkness.

Wall Street On Parade previously conducted a study of trading in Apple stock in Dark Pools for the weeks of May 26 through June 23, 2014. (Until last year, data on Dark Pool trading had not been available to the public.) We reported as follows on that study in June of this year:

“During that period, Dark Pools traded over 103.6 million shares of Apple stock. The heaviest week was the week of June 9, 2014 when 39.9 million shares traded in dark pools. Goldman Sachs was responsible for trading 2,444,350 shares of Apple that week in its Dark Pool, Sigma-X, and has been in the top tier of dark pools trading Apple stock in all subsequent weeks of our review period. (On July 1 of last year, the self-regulator, FINRA, administered a minor wrist slap to Goldman for what was clearly very serious pricing irregularities in its dark pool.)

“Goldman Sachs has also been an enabler to Apple taking on debt to finance its stock buybacks. Goldman Sachs was the co-lead manager with Deutsche Bank in April of 2013 when Apple launched a $17 billion corporate debt offering in order to buy back its shares and increase its dividend.  Apple’s $17 billion debt deal was the largest in corporate history at that point. Goldman was also Apple’s advisor in 1996 when the company was warding off bankruptcy and Goldman managed its $661 million convertible debt offering.

“Could taking on debt and buying back shares become an addiction? One year after the April 2013 $17 billion debt deal by Apple, Goldman Sachs and Deutsche Bank co-led another $12 billion debt offering for Apple in April of 2014. So far this year, Apple has issued $6.5 billion in debt in February and another $8 billion on May 6. Goldman Sachs & Co., Bank of America Merrill Lynch and J.P. Morgan were involved in Apple’s May offering, which was specifically earmarked for share buybacks and dividends.”

Another of the highfliers, Amazon, whose market cap is larger than AT&T, is still trying to figure out how to generate profits. Here’s a few headlines describing its struggles:

December 18, 2013: International Business Times: “Amazon: Nearly 20 Years In Business And It Still Doesn’t Make Money, But Investors Don’t Seem To Care”;

October 23, 2014: New York Times: “Amazon’s Investments Are Piling Up, as Big Losses”;

October 24, 2014: Bloomberg Business: “…the company yesterday posted its biggest quarterly net loss since at least 2003…”

As for Facebook, all you need to know is that its Price-to-Earnings Ratio (PE Ratio) is an astronomical 88.97 at yesterday’s close.

One of the Bloomberg Television anchors who was interviewing Tan Teng Boo, Angie Lau, noted that those five stocks had led the big rally yesterday and said “those still seem like safe haven plays.”

Calling Apple and Amazon and Facebook “safe haven plays” is like comparing Donald Trump to the Dalai Lama. Let’s hope American investors are smarter today than they were going into the bust in 2000 and the 2008 crash.