Seminar given at the University of Houston to the Houston Investors Association, on Saturday, Nov. 14, 2009, and to HAL-PC, on Friday, Jan. 15, 2010.

 "The Credit Crisis and Its Effect on the Stock Market"

US economic leaders (i.e., Federal Reserve Chairman Bernanke, Lawrence Summers, Director of President Obama’s National Economic Council, Treasury Secretary Geithner and Christina Romer, Chair of the Council of Economic Advisers) believe the EMT best describes how markets function, accordingly, they think the stock market is a large casino where asset bubbles cannot arise, but if minor bubbles do occur they can be easily contained. Economists’, and the politicians they advise, faith in all-knowing markets leads Congress to repeal the Glass-Steagall Act in 1999 which protected us from the banking excesses of the Great Depression. Likewise, The Commodity Futures Modernization Act of 2000 is enacted, forbidding the US government from regulating swap derivatives, and in addition, state and local laws regulating gambling bucket-shops, instituted to correct the excesses of the credit crisis panic of 1907, are revoked.  

The Technology Bubble in 2000, as well as many bubbles throughout history (i.e., John Law’s Mississippi Scheme, the South Sea Bubble and Holland’s Tulip Mania), and now the Real Estate Bubble, where home prices nationally have declined approximately 30% since June of 2006, with an additional 15% drop in prices expected, along with the US government’s use of anywhere from $3-to-$24 trillion taxpayer dollars and Federal debt guarantees to stabilize the financial markets are valid examples that major asset bubbles do occur, that markets are not self-equilibrating and that market prices cannot always be trusted for accurate resource allocation. Furthermore, I scientifically prove that the stock market can be beaten by 146% over 81 years at two-thirds the risk, please click below to read my paper “An empirical test of efficient markets: A heuristic predictive model.”

The EMT is irrefutably erroneous, making the US government’s use of multiple stimulus packages, keeping too-big-to-fail zombie banks alive, setting a zero-to-0.25 percent rock-bottom federal funds interest rate, not re-regulating the financial markets and using more-and-more government debt to mask the credit crisis improper and even dangerous. Tragically, the US is mimicking the policies the Japanese used when attempting to solve their real estate bubble, resulting in Japan’s 20-year secular bear market, i.e., as of 10/2/09, the Nikkei Index is at 9,732, down 75% from its high of 38,916 on 12/29/89, consequently, I expect a US secular bear market extending until 2027.