First, as my trader friends point out, there no longer really is a stock market. Liquidity is so bad that prices do not really reflect new information. Rather prices reflect volatility due to buying and selling by fewer and fewer participants as either people neither have the money or desire to trade. The stock indexes have moved more in the last 50 days than they have for the last 50 years.

Secondly, stock prices are being driven more and more by currency movements. Why is this? As governments take on more and more risk, as they price more and more assets for the market, and as they transfer debt from private to public, the common denominator, or release valve, becomes the currency.

When a government that can create its own money becomes insolvent, it is manifest in a a much lower currency. Ironically it is manifest in a higher currency in the first stages as debt is destroyed. But as government take on more and more assets financed by printed dollars it becomes weaker. We are seeing that struggle play out each day. When the dollar goes up due to deflationary pressures, stocks go down. When the government replaces debt with its own by printing currency and takes the risk as it did with the Citigroup (C) bailout (a huge amount for one company), the amount of dollars printed to finance the bailout causes the dollar to drop and stocks to go up.

Why do stocks go up when the dollar goes down? Imagine one person owning all the shares of a company who is willing to sell the stock for $50 a share. If the dollar drops 50% over-night and you go to that person to give them $50 for a share of stock they will say 'no, no, today I need twice as many dollars for a share of stock because the dollar is worth half as much…' so the stock price rises to $100.

So you say let's just devalue the dollar fully and watch stocks go soaring. Well be careful what you wish for as I have explained the consequences of that: total debasement of a currency will lead ultimately to a deflationary collapse. Study your history. A total debasement of currency creates no wealth and the stockholder is no better off, it just looks that way for awhile. But if all confidence is lost, the fiat currency system fails altogether.

The point is nothing really matters anymore besides currency, so watch them closely. Governments are systematically destroying stock markets and changing how they work. They are being replaced with socialism and determined pricing.

Risk is very high.