Economic Benefits of Intervention and QE3

How do you reap economic benefits for your country? By intervention of the political structures of other countries.

Many totalitarian regimes are backed by US aid or donations if they support US regional policies. Although the USA advocates democracy yet they always turn a blind eye to the governance of such rulers.

These regimes, many of which, have fallen by the wayside over the years – Shah of Iran, Marcos of Philippines, Noriega of Columbia and Mubarak of Egypt in modern times are good examples. 1973 is the year when oil prize quadrupled to USD34 per barrel, Shah fell in 1976. 2008 is the year of the once a century credit crisis, 2011 is the year when Mubarak fell. Marcos fell in 1986, one year after 1985 [the plaza accord] when USD reached its peak. Each fall happens after the US economy reaches a top, are their falls caused by the tide or by plan? History indicates that it could be both.

After each fall, US assets of these rulers are usually freezed. Although you can say new governments will be formed and will launch their search of state assets siphoned off by these rulers and then put forward such claims to the USA, the US government will send them back without hesitation, the reality is much more complex. How about when one government in the past is now split into two or more governments, do you need agreement between these new governments to launch concerted claims against such assets? Do not forget the US legal system involves considerable costs and also the US government does not volunteer such information. Along the way you need US accountants to forensic track and trace such funds’ whereabouts, draw up the claims list while US lawyers are required to represent the new regime[s] on such claims in courts.

When assets are freezed by US state department, the following parties will benefit:

• Banks or financial instutitions – gets something like interest free bonds or perpetual capital for 10, 20 or 30 years as the amounts banked by these rulers are huge even by bank standards. Depending on when such claims are launched and processed, the assets can only be unfreezed after a long and winding claim process, it’s not easy.
• Law firms – representing the new government(s) on such claims resulting in good honest fees;
• Accountancy firms – draw up the assets list, helps track and trace the funds’ whereabouts charging their clients huge fees along the way.

How much will the US benefit if China falls and split into many countries – HUGE, HUGE!!! China has 1000+ billions invested in US government treasuries and bonds of government sponsored agencies like FREDDIE and FANNIE. Imagine if China does fall, then the deficits or debts of the US government will go away for 10, 20 years at least, this can buy time for the US to recover.

If you are wondering whether QE3 is going to happen, look at what is happening now in Libya, QE2 is suppose to create inflation to avoid the USA falling into deflation [which increases the debt burden while inflation helps alleviate it], getting Libya into chaos has a QE3 effect, crude prices have shot up USD20 from about USD90 to what is now USD110+. Such policy drives up a lot of activities to explore and dig up crude oil, USA will hit the bottom faster, after the USD devalues so much, goods from the USA become much more competitive. Higher crude prices is the policy against China as it will hinder fast development in this emerging country and also generates a lot of social unrest within China.

2011 and US HOME PRICES

2011 maybe prosperous, but behind you must beware of both europe and us malaises.

read this article and you know where to search for the end of us troubles.

December 30, 2010

U.S. Home Prices Are Still Too High.

Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that mandated loans to marginal borrowers, and set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

Related stocks: Lennar Corporation (NYSE:LEN) , D.R. Horton, Inc. (NYSE:DHI) , PulteGroup, Inc. (NYSE:PHM) , Toll Brothers, Inc. (NYSE:TOL) , Bank of America Corporation (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Company (NYSE:WFC) , Morgan Stanley (NYSE:MS), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (NYSE:STI), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.

Trading strategies

other good articles:

Combining Trend-Following and Countertrend Indicators

http://www.investopedia.com/articles/trading/10/trend-following-countertrend.asp

Profit Without Predicting The Market 

http://www.investopedia.com/articles/trading/10/profit-without-predicting.asp

Stop Hunting With The Big Players

http://www.investopedia.com/articles/forex/06/StopHunting.asp

Trading referee to improve your performance

a good article from investopedia.


One of the most talked about traits that traders need is discipline. Discipline is a quality that can be created by the individual internally, but can also be fostered by an external source. All traders will benefit from increased discipline, as being able to stick to a profitable strategy is what will allow them to be successful over the long term.

Also, being disciplined in following a particular method of trading will allow the trader to know when a method of trading is or isn't working. Every investor must follow their specific trading strategy rather than just speculating without a solid basis. If a trader lacks discipline and consistently flip-flops between methods, it is very hard to isolate which methods are successful and which aren't. This is where the "trading referee" comes in. The referee is an external entity that forces us to comply with our methods. This makes us more accountable to our own system, and does not require the hard internal work which may be needed in order to change our normal personality. (Do-it-yourself trading can be very rewarding - both psychologically and for your wallet. For more information, see Create Your Own Trading Strategy.)
What is a Trading Referee?It can be anyone in our life whom we trust and whom will hold us accountable for our actions. This person needs to be someone who will not accept excuses for us not following the determined approach. In other words, a referee cannot be someone who is a push over, will be biased or always agree with you, or someone who is not responsible enough to check on your trading. Essentially, the referee serves as system of checks and balances for our strategy.
The referee's aim is to make sure that you, the trader, are following your trading plan. Your trading plan should be a method of trading which is tested, consistent and proven to be profitable over the long run. Therefore, it is a referee's goal to make you follow that system, thus helping ensure your long-term profitability. It is a requirement that the person be able to see you trade (or have access to your trading records). Going through results should be done together; this again will require trust on the part of the trader.
A referee, whether it is a friend, a spouse, colleague or girlfriend/boyfriend, will make you answer for the decisions you are making. They will force to answer why you are taking certain actions, and how those actions relate to your trading plan. When you stop following your trading plan under your own will, this person is there to give you support and make sure that you do not deviate from the initial goal. After all, this is not about the trader proving he or she is right, it is about being profitable. (From picking the right type of stock to setting stop-losses, learn how to trade wisely. Read, Day Trading Strategies For Beginners.)
"Create" Your Trading RefereeIt is important that this individual understands capital markets and the basics of investing. As well, your trading referee will need to know about your methods for trading. Here are some steps to follow to make sure your referee will actually make you follow through with your trading plan. (A successful trading referee must be familiar with concepts such as risk. To learn more, refer to Matching Investing Risk Tolerance To Personality.)

• Approach or ask someone you think will be a suitable candidate. This should be someone you see regularly, preferably while you are trading, or who you can sit down with on a regular basis to go over your trades. You can also serve as the referee for your overseer - such a method ensures constant interaction and proper process evaluation.
  
  
• Make sure that person knows that it is imperative for him to question you on your trades and to ask why certain actions are being taken. This makes another person feel responsible, therefore it does help if this person has an interest in your success.
  
  
• Fill in the referee on your trading method and why it works. Simplify your methods for them so that they can see how the method works, the logic behind it and the sequence of events that must unfold for you to enter, set stops, take profit and then exit.
  
  
• Take a proactive approach and share your trading time with your referee. Having the person review your trades with you afterwards is more reactive and, while effective, does not prevent the deviations from the trading plan at the time they are occurring.
  
  
• Set up a rewards and punishment. Having someone look over your shoulder may be motivation enough to follow your own trading rules, but sometimes a little extra incentive may do the trick. Often, the incentive for following a plan is the money made; therefore, we need to be creative in finding ways to punish ourselves for not following the plan. One idea is that you need to give the money you make on winning trades, which were not based on your plan, to your referee. This works because you should have never been in the trade in the first place, and it takes away the incentive for making trades which are not included in your desired strategy. Be creative and come up with a structure for dealing with all contingencies.

Professional traders are forced to answer to other traders and superiors for the actions they take. This results in a much more disciplined environment. It is the responsibility of the firm (and the trader) to make sure that traders are following the methods outlined. When traders deviate, there are consequences. For individual traders, having a referee simply allows performance with the same discipline promoted in successful trading firms.
ConclusionTrading is a tough game, especially when we go at it completely alone. It can be of benefit to invite someone else into our trading experience who will force us to comply with our own methods. The benefits are numerous, not the least of which is the proper execution of a profitable trading plan we took the time to research and develop. (This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation. See 4 Steps To Building A Profitable Portfolio.)

Young chaps must read

http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf

this is a very good ebook for young chaps.

Why Investors Stick With Failing Stocks

this is one good article about sticking with failing stocks.

For many investors, nothing is stronger than the stubbornness that emerges when making a new decision means admitting that an earlier one was a mistake. Such an admission comes at a high psychological cost in terms of self-image. As a result, many people avoid disappointment and regret by clinging to the wrong decision. 

Of course, this only makes things worse financially, but the investor gets to delude himself that the disaster is not really so bad or will come right over time. Such behavior is referred to as "negative perseverance" or "regret avoidance", and is also likened to "effort justification". Whatever the name, this behavior needs to be avoided. The concept of cognitive dissonance will be familiar to those who have studied marketing. Buyers often rationalize that they bought the right product after all, even when, deep down, they know it was a mistake. For instance, a buyer may seriously regret buying a manual car, but kid himself that it was great idea because of the lower gas bill.
The field of investment is particularly prone to this kind of mind game. (To learn more, check out our Behavioral Finance Tutorial.)
Why Do People Behave This Way?
Basically, the investor unwittingly has a greater fear of admitting to himself and perhaps to others, that he made a mistake, than of the consequences of keeping a bad investment. This very dysfunctional form of behavior, caused largely by pride or stubbornness, leads either to total passivity or to selling too late.
Individuals strive for harmony and consistency, hence the notion "if I just leave it alone, it’ll be ok". The problem is that when investments go wrong, particularly horribly wrong, radical and above all rapid action is generally essential. Taking losses or a major portfolio restructuring often causes the mental conflict of cognitive dissonance. This is a singularly unpleasant state of mind and can be resolved very unsatisfactorily, by collecting arguments to justify the original mistake that has now manifested itself in the form of big losses. (For more, see Words From The Wise On Active Management.)
With respect to investment, this means, for instance, clinging to an all-equity portfolio which is in the process of plummeting, rather than selling out in order to minimize losses and putting the money into something else that is likely to go up right now. Or at least, something that is likely to rise a lot sooner than the bear market turning bullish.
The Nature of Cognitive Dissonance
On the buyer side, what makes the process particularly problematic in the investment field, is that there is a lot one can regret. You can fret and sweat over losses caused by taking excessive risk, or lost opportunities caused by not buying a great asset in time. You can also torture yourself about selling too late or not buying enough, or listening to your advisor or friends, or indeed not listening to them. In short, you can be sorry about so many things in so many ways.
On the selling side, people who do not treat their customers well still generally want to believe that they are honest. But at the same time, they want to make the sale. So they solve the contradiction with self delusion along the lines of "I have no choice, I will lose my job if I don’t make the sales quota" or "if he agrees to it, it's his decision and his problem". Or "it’s a perfectly standard portfolio", even when it is totally unsuitable for the investor in question and/or the timing is inappropriate.
In extreme cases, the Bernie Madoffs of this world get accused of suppressing their emotions and ethics altogether. Indeed, this is how many intrinsically honest people cope with dishonest environments. (Learn more in How To Avoid Falling Prey To The Next Madoff Scam.)
Preventing Cognitive Dissonance
A sensible, diversified portfolio is a great way to prevent this problem. If you do not have too much or too little of anything, the odds are you will feel all right about your investments. Of course, if you take big gamble and it pays off, you will feel wonderful, but if it goes sour on you, there will be a lot of misery and rationalizing, which is just not worth it for most people. Balance, prudence and a good mix is the only sensible approach for the average investor. And as always, shop around and inform yourself fully before you buy. Do not rely more on other people than you have to. (For more on this topic, see Diversification: Protecting Portfolios From Mass Destruction.)
Be sure that you understand what you are doing and why. No self-delusion up front will help prevent the "need" for it later on. Never try to fool yourself or anyone else. We all make mistakes and the only thing to do is get them right. The worst thing you can do is pursue a lost cause, to continue flogging the proverbial dead horse. It is important to take a step back and consider the whole process objectively.
On the selling side, the same basic principles apply. Resist the temptation to sell things that should not be sold. It may be a good idea to offer a fee-only service, which yields no commission at all. Your customers will be grateful and there will be no nasty comebacks and complaints. Everyone will sleep better, the world will be a better place and over time, this will surely pay off financially as well. (For more, see Paying Your Investment Advisor – Fees Or Commissions?)

by Brian Bloch (Contact Author | Biography)

Causes of FLASH CRASH - May 2010

For those of you who wanted to understand how hedge funds or ibanks manipulate markets, read article below:

"Quote stuffing" a focus in flash crash probe

WASHINGTON/NEW YORK (Reuters) – U.S. regulators probing the May flash crash are focusing on a trading practice known as "quote stuffing", in which large numbers of rapid-fire orders to buy or sell stocks are placed and canceled almost immediately.
CFTC commissioner Scott O'Malia told Reuters on Thursday that the futures regulator was reviewing data from Nanex LLC, a trade database developer that issued a study suggesting that computer algorithms used quote stuffing to gain an edge during the May 6 crash.
The U.S. Securities and Exchange Commission, which is investigating the crash jointly with the Commodity Futures Trading Commission, is looking at quote stuffing and something called "sub-penny pricing", a person familiar with the flash crash probe said.
The Nanex study uses market graphics and playful names to illustrate quote stuffing, arguing that high-frequency trading firms do this to flood the marketplace with bogus orders to distract rival trading firms.
Investors could make trades under the false impression that those orders were legitimate, only to see liquidity disappear and the market move against them when the orders are canceled -- all in the blink of an eye.
"If traders are flooding the market with orders with the intention of slowing other traders down, then we should consider addressing this under new disruptive trading practices authority," O'Malia said.
O'Malia serves as head of the CFTC's technology advisory committee, which in July raised concerns about what effect quote stuffing has on investors and prices.
"I don't see how quote stuffing as a trading practice benefits futures markets," O'Malia said.
The SEC and the CFTC have yet to explain what caused the crash that drove the Dow Jones industrial average down some 700 points in minutes, before sharply rebounding. The SEC still is requesting "a huge amount of general data" from exchanges and other trading venues, a second person familiar with the investigation said.
Quote stuffing happens regularly, causing the prices of stocks that appear to have a deep order book of interest to move very quickly, a third source familiar with the investigation said.
Nanex has supplied the SEC with its computer programing application, which in combination with other data, can allow authorities to identify who is behind the disruptive trades, Nanex founder Eric Hunsader said on Thursday.
"This whole business of sending in 5,000 quotes in one second to one stock is usually confined to half a dozen stocks at any given moment. If it happened in 50 stocks in the same second, it would overwhelm the system," Hunsader said.
The SEC is also looking at "sub-penny pricing" in the wide-ranging investigation, the first source said.
In sub-penny pricing, non-exchange venues including anonymous dark pools quote and execute orders priced in increments as small as one-tenth of a cent. Exchanges are not allowed to do this, but have considered asking regulators for permission.
A sub-penny order sitting in a dark pool, where prices are not publicly displayed, can trade before orders in displayed markets, possibly giving a false impression of the degree of buying or selling demand.
An SEC spokesman declined to comment.
Regulators plan to issue a follow-up report on the flash crash this month.

NEW SILK ROAD

an interesting article from bloomberg

There's a New Silk Road, and It Doesn't Lead to the U.S.

Trade routes bring Brazilian buses to Egypt and Chinese trains to the Mideast

By Simon Kennedy, Matthew Bristow and Shamim Adam

As the U.S. emerges from the recession, American investors often wonder where the growth is going to come from. Perhaps they should talk to Ruben Bisi, international operations director for Marcopolo, Brazil's biggest bus maker. It's having a banner year, with revenue up 47 percent so far. You won't see Marcopolo buses in the U.S., though. They're cruising the highways and city streets of Argentina, Colombia, Mexico, Egypt, India, China, and South Africa. Brazilians often have a better relationship with these customers than big multinationals do, says Bisi. "We are from an underdeveloped country as well," he explains. Almost 40 percent of Marcopolo's sales of $1.1 billion come from outside Brazil: It sold 460 buses to South Africa for the World Cup.
Marcopolo is a traveler on what Stephen King, chief economist of HSBC (HBC), has dubbed "the new Silk Road"—a 21st-century version of the trade routes that crisscrossed Asia almost 2,000 years ago, linking merchants in China to their counterparts in India, Arabia, and the Roman Empire. The new Silk Road spans the globe, connecting companies and consumers in Latin America, the Mideast, Asia, and Africa, and generating some $2.8 trillion in trade, according to the World Trade Organization.
King says emerging markets will grow about three times faster than rich nations this year and next. "There are now massive trade connections within the emerging markets," he says. "It means in one sense the emerging world is protected from the worst ravages of the developed world." The WTO estimates intra-emerging-market trade rose, on average, by 18 percent per year from 2000 to 2008, faster than commerce grew between emerging and advanced nations.
The developed world will increasingly compete with these fast-rising countries for resources like oil and iron ore. The established multinationals will also encounter new pressure from emerging-market rivals, many of them state-supported. Yet for Western and Japanese companies that are the best in their industries, the opportunities are great. One example: Caterpillar (CAT), the world's largest maker of construction equipment, raised its full-year earnings forecast last month on higher demand in developing countries for mining, energy, and rail equipment.
While the U.S. and other developed countries hope to find their place on the Silk Road, the central player is China. Chinese exports to the emerging world accounted for about 9.5 percent of its gross domestic product in 2008, compared with 2 percent in 1985, King figures. Last month the Saudi Railways Organization awarded a contract to China South Locomotive & Rolling Stock to supply 10 locomotives. The Mecca-Medina rail contract went to Beijing-based China Railway Group (CRWOF). Shenzhen-based Huawei Technologies, China's top maker of phone equipment, is investing $500 million in its research center in Bangalore. China Mobile, the world's biggest phone carrier, may soon invest in Africa.
India and Brazil are stepping up their efforts, too. India's Tata Group was one of the largest investors in sub-Saharan Africa in the six years through 2009, according to the Organization for Economic Cooperation & Development. Many Silk Road companies are becoming aggressive acquirers. "We saw the same phenomenon with American and European companies 50 to 100 years ago as they went global," says Shane Oliver, head of investment strategy at AMP Capital Investors, which manages about $95 billion in Sydney. Brazilian mining company Vale (VALE) has invested in three copper projects in Zambia and the Democratic Republic of the Congo. In April the company agreed to pay $2.5 billion for iron ore deposits in Guinea.
Such trade used to be conducted in dollars and euros, even when the deals did not involve U.S. or European companies. Today companies in emerging markets are more willing to take reals, rupees, and, above all, yuan as the Silk Road economies prosper. "If emerging-market fundamentals continue to be superior," says Kieran Curtis, who helps oversee $2 billion at Aviva Investors in London, "there is the potential for serious currency appreciation against old-guard currencies."
With trade comes competition. About a third of the order book of Brazilian plane maker Empresa Brasileira de Aeronáutica (ERJ), or Embraer, comes from emerging-market customers, up from 1 percent in 2005. Yet Embraer doesn't have the field to itself. The Brazilians are bracing for a fight from Russia's Sukhoi and Commercial Aircraft Corporation of China, which are both developing airliners. Traffic on the Silk Road is getting pretty heavy.
The bottom line: Trading ties among developing nations are intensifying fast and may eclipse emerging-market ties with the West.

The DOW Fall - Picture and Timing

many readers have called and asked for a better picture than the one offered by yahoo.

here it is with the dow weekly, click on it for a better view. also included is the 2823 chart

the trouble is that when readers read such forecasts, they assume it is going to play out immediately. the reason is they did not read the fine print - not the fine print, it is the normal print. it said this is going to play out in 4-6 years with many twist and turns.

every time an uptrend is broken, the chart will usually retraces up to the exit point of the broken uptrend, looking at the uptrend of 2009, dow broke the uptrend at about 11,000, so expect it to approach or even slightly north of that target.

also the us mid term elections might bring the dow index to lofty heights than where it should go.

The biggest lie about U.S. companies

this is an interesting article from marketwatch.

The biggest lie about U.S. companies

Commentary: Healthy balance sheets? They owe $7.2 trillion, the most ever

By Brett Arends

BOSTON -- You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

You could hear this great news pretty much anywhere -- maybe from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."

Or you heard it from Dallas Federal Reserve President Richard Fisher, who recently said companies were "hoarding cash" but were afraid to start investing. Or on CNBC, where experts have been debating what these corporations are going to do with all their surplus loot. Will they raise dividends? Buy back shares? Launch a new wave of mergers and acquisitions?

It all sounds wonderful for investors and the U.S. economy. There's just one problem: It's a crock.

Investors hear July echoes

This July resembled the previous July in several key respects. What does this suggest for the markets for the rest of 2010?

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

You'd think someone might have noticed something amiss. After all, we were simultaneously being told that companies (a) had more money than they know what to do with; (b) had even more money coming in due to a surge in profits; yet (c) they have been out in the bond market borrowing as fast as they can.

Does that sound a little odd to you?

A look at the facts shows that companies only have "record amounts of cash" in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don't look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?

According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.

The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.

Remember that these are the debts for the nonfinancials -- the part of the economy that's supposed to be in better shape. The banks? Everybody knows half of them are the walking dead.

Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.

The Fed data "underline the poor state of the U.S. private sector's balance sheets," reports financial analyst Andrew Smithers, who's also the author of "Wall Street Revalued: Imperfect Markets and Inept Central Bankers," and chairman of Smithers & Co. in London.

"While this is generally recognized for households," he said, "it is often denied with regard to corporations. These denials are without merit and depend on looking at cash assets and ignoring liabilities. Cash assets have risen recently, in response to the fall in inventories, but nonfinancials' corporate debt, whether measured gross or after netting off bank deposits and other interest-bearing assets, is at peak levels."

By Smithers' analysis, net leverage is nearly 50% of corporate net worth, a modern record.

There is one caveat to this, he noted: It focuses on assets and liabilities of companies within the United States. Some U.S. companies are holding net cash overseas. That may brighten the picture a little, but the overall effect is not enormous, and mostly just affects the biggest companies.

That U.S. companies are in worse financial shape than we're being told is clearly bad news for those thinking of investing in U.S. stocks or bonds, as leverage makes investments riskier. Clearly it's bad news for jobs and the economy.

But why is this line being spun about healthy balance sheets? For the same reason we're told other lies, myths and half-truths: Too many people have a vested interest in spinning, and too few have an interest in the actual picture.

Journalists, for example, seek safety in numbers; there's a herd mentality. Once a line starts to get repeated, others just assume it's correct and join in.

Wall Street? It's a hustle. This healthy balance-sheet myth helps sell stocks and bonds. How many bonuses do you think get paid for telling customers the stark facts, and how many get paid for making the sale?

You can also blame our partisan age too. Right now, people on the right have a vested interest in claiming businesses are in healthy shape. That makes the saintly private sector look good, and demonizes President Barack Obama and Big Government for scaring away investment. Vote Republican! Meanwhile, people on the left have an interest in making businesses sound really healthy too: If greedy companies are hoarding cash instead of hiring people, they can cry "Shame on them! Vote Democratic!"

As ever, the truth is someone else's problem and no one's responsibility.

When it comes to the economy, let's just hope the public is too hopped up on painkillers and antidepressants to notice. If they knew what was really going on, there'd be trouble.