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The Realities Of America's Free Market Economy
Friday, January 15, 2010, by Stathis
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On many occassions, I have made mention of the fact that, despite popular belief, America's economy really does not operate with free market dynamics. I really focus on this premise in America's Healthcare Solution

In virtually every industry, you see a variety of activities that act to disrupt true free-market forces. Some industries are worse than others. 

In my opinion, the industries that have the worst free-market dynamics are healthcare, finance, and energy.

In  contrast, I view the consumer electronics market as the industry with the best free market dynamics. But as you will see, if this industry is the closest America can come to free market dynamics, we have some really big problems.

In the January newsletter, I discussed the long history of Intel's illegal anti-trust activities. I also made some investment implications regarding the early results of these legal battles. 

More recently, I discussed how the media has misintrepreted the use of earnings from industry giants as a gauge on the economy in the recent Mid-January Update to newsletter subscribers. Here is an excerpt of this report:

"I would like to remind you that Washington continues to issue words of caution about the 'recovery.' These messages should serve as an admission that there will be no real recovery.   

Claiming a recovery is in place when you continue to warn about chronic high unemployment and a slow “recovery” is a farce. There is no such thing as a slow recovery. You either hit certain economic data points or you don’t. And until you do, even these ridiculous criteria cannot qualify for a recovery.     

Washington is simply lying with the hope that consumers will become more confident so they will spend more, boosting economic data. But you cannot spend what you do not have. Real median incomes have not risen in a decade, while job quality has been in decline for two decades.
 
Here is what I think is going to happen. I think the market will largely ignore the earnings report from Alcoa, blaming it on internal issues.
 
Instead, the market will overweigh earnings of other companies which really have nothing to do with signaling an economic recovery.
 
Why do I say this? Because it’s obvious that Wall Street and Washington are looking for any reason they can find to continue this propaganda of a recovery.
 
As a matter of fact, just as I was writing this, I came across an article stating that Alcoa’s earnings don’t really matter as an indicator of the strength of a recovery. According to this useless article, what really matters are the earnings of Intel and JP Morgan!!  
 
 
This assertion is a complete joke. Without me to tell you otherwise, you might not have known better, because after all, we tend to believe that interviews with “important” Wall Street “experts” have a lot of value. This is why the media is so dangerous.
 
Do NOT pay attention to what anyone in the media says about the economy or investments. You need to start figuring out what is going on for yourself. You need to start thinking for yourself. I am here to guide you, but you should always question even what I am saying. I will never be right 100% or even 90% of the time because I am human.
 
While the media will be right sometimes, the problem is that unless you already know what is going on, you won’t be able to spot the good from the bad insights and news. That is why you are better off tuning the media out unless you want to be clouded with noise.
 
Look for data and numbers, NOT opinions and viewpoints. Once you start reading viewpoints presented by the media’s hand-picked “experts,” you WILL be affected in the same way as watching CNBC will affect you, despite the fact that many of you will insist you won’t be affected.
 
You will NOT be able to block it out. I know this because it sometimes affects me; someone who is very aware of how deceitful the media is. That is why I do not read any financial publications (other than random articles I run across when searching for topics), I do NOT watch CNBC, FBN, CNN, etc. (I do not have cable because I know I will succumb to the lure of trash TV)."
 
So what happened?
 
Well, of course Alcoa missed earnings.
 
And a few days later, Intel and JP Morgan blew away earnings.
 
But you need to ask yourself the following questions:
 
  1. Do either of these companies represent the leading edge of the economic cycle?  
The answer of course is no. They are not cyclical. Only purely cyclical companies such as Alcoa, Dow Chemical, etc. are thought to provide an early picture of a recovery.
 
  1. Are the earnings from Intel and JP Morgan reflective of the economy even on a more delayed basis? That is, did their earnings come from legitimate business transactions, and if so then how do these earnings relate to the strength of the economy?
Earnings from industry giants that engage in anti-trust activities and taxpayer-funded bailouts and the theft of two of the largest banks in the world at pennies on the dollar with no risk whatsoever, while using newly relaxed mark-to-market accounting trickery as a way to inflate earnings and hide losses only points to one thing about the U.S. economy; it is a Ponzi scheme designed to reward the big players at the expense of consumers and taxpayers.

In America's Healthcare Solution I detail numerous illegal activities by the healthcare industry. The end result is that these activities not only increase the costs of healthcare, they also endanger millions of lives. 

Today, it was reported that even Johnson & Johnson has been engaging in illegal payments and rebates to encourage use of its prescription drugs for many years. 

If you think this is an isolated incident, I advise you to dig deeper. 

I can guarantee you that there is not a single Fortune 100 company that does not engage in illegal pay outs and other activities that disrupt free market forces.  And this is a conservative estimate. 

The problem is that such activities stifle competition, which diminishes the push for innovation, while serving to buoy prices consumers pay. You can think of these activities as a corporate tax on consumer goods.

When these activities occur in heathcare, they can actually lead to unecessary deaths.

Now have a look at the New York Attorney General's case against Intel

 

 

 

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