10 reasons to shun stocks till banks crash

Commentary: Stocks a sucker bet in a rigged game; meltdown ahead

Paul B. Farrell
Market Watch

SAN LUIS OBISPO, Calif — Do not buy stocks. Not for retirement. Not in the coming decade. Don’t. Huge risks.

Wall Street is a loser. Stocks are Wall Street’s ultimate sucker bet. And it’ll sucker you again. You’ll lose, worse than in the last decade. Wake up before Wall Street banks trigger the next meltdown, igniting mass bankruptcy.

Here are 10 more reasons not to bet at Wall Street’s casino … wait till after they implode:

1. American stocks are a high-risk sucker bet

That’s the view of Peter Morici, the former chief economist at the International Trade Commission: that U.S. stocks are a sucker bet. Is Main Street waking up to Wall Street’s con? Maybe. “With corporate profits breaking records, Wall Street anxiously anticipates the return of the individual investors to the stock market. It may be a long wait, because the little guy may have concluded investing in stocks is a sucker bet.”

America’s divided into two stock markets: one for Wall Street’s rich insiders, another for Main Street’s suckers: “Investors, as opposed to traders, buy stocks in companies whose profits they expect to rise. The conventional wisdom says stock prices will follow profits up, but over the last two business cycles, that simply has not happened.”

From 1998 to 2010, profits rose 203%. But the S&P 500 was up just 7%. And still, naive investors buy into Wall Street’s sucker bet.

Who’s pocketing the huge profits? Rich insiders. “Because most of the increased value created by higher profits,” says Morici, “has been captured by hedge funds, electronic traders, private equity funds, and aggressive M&A shops, free standing and at major investment banks, which have multiplied over the last two decades.”

Warning: With the resurrection of the GOP and Reaganomics, Wall Street will skim more from Main Street, get even richer. And yes, you’ll lose more.

2. New ‘big short’ dead ahead: Derivatives con game will crash again

In a Bloomberg story, “Big Short” author Michael Lewis asks: “Why are the same Wall Street banks that lobbied so hard to dilute the passages in the Dodd-Frank financial overhaul bill banning proprietary trading now jettisoning their proprietary-trading groups, without so much as a whimper?”

The answer’s simple: Wall Street’s sneaky and will do anything to keep the derivatives casino running hot. Insiders “have no intention of ceasing their prop trading,” according to Lewis. “They are merely disguising the activity, by giving it some other name.”

3. Hedge funds shorting China: Warning — U.S. faces collateral damage

Get it? China may well crash first. Fortune’s Bill Powell interviewed hedge-fund kingpin Jim Chanos of Kynikos Associates, who’s “betting that China’s economy is about to implode in a spectacular real estate bust.” China is “an economy on steroids.” In a Charlie Rose interview, Chanos said “China’s on an economic treadmill to hell.” If so, then all of Wall Street’s highly promoted emerging markets are also sucker bets.

Another hedge-fund player warned: Chanos “is shorting the entire country,” including a company “Goldman Sachs recommended as a buy … the listing for the Hong Kong Stock Exchange … China’s Merchants Bank, one of Beijing’s largest.”

Back in the 1980s, Japan “grew largely on the back of capital investment” and then turned into “a capital-destruction machine, and that’s what China is now. You have an economy that’s 60% fixed-asset investment, and not even in the developing world is that sustainable.”

Chanos won’t pinpoint the timing or the trigger: “He just believes it’s coming,” and he is betting on it. Reminds us of Henry Paulson shorting Goldman Sachs’ crooked deals before the 2008 crash.

4. New insider-trading indictments killing Main Street confidence

Investor distrust of Wall Street’s casino will skyrocket in 2011. Before the elections in November, an AP-CNBC poll found 61% of investors had already lost confidence in the market, thanks to extreme volatility; 55% believe the market’s rigged to favor insiders.

It’ll get much worse as the FBI/DOJ investigations of insider trading add indictments and perp walks. As more facts surface, this could get bigger than Enron and the SEC mutual-fund fraud suits combined: more proof of Wall Street’s rigged game.

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