Spoiler Alert: If you read this column, you will know exactly what comes next in Wall Street's ugly little drama.
Sometimes I don't know whether to excoriate the Wall Street/Washington axis for its constant efforts at obfuscation - or thank it for all the smoke and mirrors.
Yes, there is something deeply troubling about a culture so utterly dedicated to the manipulation of facts. But then again, these distortions introduce exactly the sort of information gaps that power the most lucrative trading opportunities.
For example, we have recently read that British Petroleum (BP) - mired armpit deep in a cesspool of oil of unknown size and depth, and fully aware that it will be sued continuously unto the next generation - is rewarding loyal investors with a billion-dollar dividend and spending something like $100 million on a public relations campaign to somehow obscure its culpability and rescue its reputation.
Exactly What Wall Street Wants
You and I might think that low-balling the folks whose livelihoods will be wiped out is a bad thing. BP had agents on the ground within hours of the wreck trying to bribe locals into signing away future rights in exchange for miniscule on-the-spot cash payouts. This was, of course, immediately disavowed by upper management when it was made public by some enterprising local TV reporters.
But Wall Street glibly labels this sordid behavior as "aggressive issue control," and is encouraging any rube that will listen to buy BP stock as "Diamond in the Drilling Mud," knowing full well that anyone who holds BP over any length of time will be stuck with a cleanup bill that will in all probability bankrupt the company.
How can an investor engage in "the knowledgeable assumption of risk" when Wall Street does its level best to obscure that risk at every turn? Well actually, there are ways to actually capitalize the "wisdom gap" Wall Street and its Washington pawns are doing their damnedest to create.
Pull Back the Curtain
You simply need to look behind the various obscuring curtains Wall Street throws up. For example, earlier this month, blue chip shares - particularly retailers - rose a good bit when President Obama mentioned that we ought to expect a rather encouraging employment report.
But when that actual report was released, it was revealed that some 95% of that purported job growth came from temporary government jobs.
What's more, when I pulled back Wall Street's stage curtain for you in May, we found that even those government jobs might be bogus, as several whistleblowers have come forward to tell us that they have been counted as three, four and even five of those supposed new jobs, and yet they are still currently unemployed.
(As a sidenote, my fellow editor Justice Litle also has something to say about Wall Street. Sign up to read his investment commentary.)
Diving Into the Wisdom Gap for Fun and Profit
This "wisdom gap" powered several of my recent recommendations into rapid triple-digit gains. All we had to do was short the assets Wall Street was pumping, and when the truth became so horridly apparent not even the best K Street shyster or Madison Avenue huckster could hide it - Ka-ching: cash in pocket!
It would actually make me feel guilty to take this money, if it weren't for the fact that I report much of this hogwash in this very public forum. In fact, I will assuage my guilt right here and now by offering readers two more ways to look behind Wall Street's stage sets.
Right now we are being told by the "Axis of Error" that U.S. shares are to die for, what with the supposedly improving economy and warming corporate profit picture. And yet, when I look to the markets that are primarily populated by The Biz' most sophisticated players, I get the exact opposite message.
Don't Listen to What Wall Street Says - Watch What It Does!
For example, central bank data dated May 23 reveals that the 18 primary dealers in U.S. securities that trade with the Federal Reserve - nauseatingly familiar names here, like Goldman Sachs (GS:NYSE) and JPMorgan Chase (JPM:NYSE) - have shifted from betting $23.2 billion against U.S. Treasury bonds to going long $37.1 billion in U.S. debt notes. At the same time, the same crew has reduced their exposure to corporate debt by some 17%.
In plain English: The wise guys want rubes to buy shares of companies whose debt they wouldn't touch with a 10-foot pole.
But here's where it really gets sickening - and potentially quite profitable. As most readers know, I am somewhat of a student of the options markets, both as a vehicle for investment and as a subtle piece of the indicative puzzle. And right now, the major players on this market are gladly paying massive premiums to purchase put positions to protect themselves from the downside Wall Street publicly insists isn't coming.
As I sit to write to you today, contracts that pay off if the markets fall at least 23% cost 75% more than bets that the market will return to a bull market footing. Bloomberg and OptiMetrics inform us that this is the widest such spread on their record books.
A Peek at Wall Street's Script
Again, in plain English: The wise guys - the slick fellows who know exactly what's going on and where the bodies are buried - are paying huge fees to purchase derivatives that only pay out if the exact market crash I have been warning of comes to pass.
I suppose you have two choice here: You can continue to nod and enjoy the stage show Wall Street is putting on for the gullible, or you can peek behind the curtain, and see exactly what is coming next in Wall Street's scripted farce.
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