LAS VEGAS — The current financial market fallout is a real-life cautionary tale about how the investing public cannot trust regulators to look out for their interests or to believe the claims that they hear about investment returns, several market followers told attendees at the Economic Summit held Thursday at the FreedomFest conference here.
“You definitely can’t depend on the government to protect you,” said Charles Gasparino, a CNBC on-air editor. Gasparino specifically singled out the U.S. Securities and Exchange Commission (SEC) as an ineffective regulatory agency that too frequently has served as a training ground for Wall Street.
Gasparino was unabashed in slamming the SEC as a “bad organization” during his presentation called, “When the SEC Fiddles, Wall Street Burns: Warnings from the Market’s #1 Market Reporter.”
No one should be overly impressed when money managers produce lofty performance records, since they could be fabricated numbers such as those used by Bernard Madoff, who recently was convicted for perpetrating one of the biggest investment fraud cases in history, said Bert Dohmen, president and founder of Dohmen Capital Research.
Market indices also are easily manipulated by the trading volume of extremely large stocks that can obscure the true trends of a given market, Dohmen said.
For example, the commodity markets are used to manipulate people’s sentiments, Dohmen said. The price of copper, for example, can be manipulated to suggest that hyper-inflation could be immediately ahead, he added.
One indicator about when the markets are heading downward is reduced credit availability, Dohmen said. When credit becomes increasingly tight, the economy slows and markets tend to suffer, he added.
To find a solution, the best minds in Washington need to address the situation, Dohmen said. However, he did not foresee such a constructive response unfolding anytime soon.
“I don’t think we have the smartest people there [in Washington] right now,” Dohmen said.
A telltale sign that a bear market is developing occurs when new lows become more commonplace than new highs in a given market’s ten-day moving average, said Dennis Slothower, a financial analyst and a former stock broker who now writes investment newsletters. As a result, watch out when a 10-day moving average shows that new lows are starting to dominate new highs, he added.
Another danger is that the dollar will continue to drop in value, relative to other currencies, due to the huge federal deficits that the U.S. government is running up, said Fred Foldvary, an economics lecturer at Santa Clara University. The likely result will be inflation, he added.
Rather than expect the Federal Reserve to set the appropriate monetary policy, the Fed should be abolished, Foldvary said.
Although the economy is decelerating, it could bottom out by year-end, Foldvary said.
“The debt party is about to be over,” said Frank Trotter, another speaker at the FreedomFest Economic Summit who also is the president of EverBank Direct. There will be “massive unintended consequences” of the federal government’s deficit spending, he added.
Investors looking for new opportunities should search beyond U.S. borders and consider gold, Norway, and Australia, Trotter said.