By Nicholas Santiago on October 26th, 2010 3:43pm Eastern Time
Next week is going to be one of the most highly anticipated Federal Reserve Bank meetings that investors have waited for since the 2008 credit crisis. As we all know by now the stock market began to climb the wall of worry in late August 2010 when Federal Reserve Bank Chairman Ben Bernanke announced quantitative easing part two(QE-2). This is another way of saying that the Federal Reserve will create more money and flood the system with it. Therefore, the stock market always jumps the gun and rallied on that anticipated news and has been trading sharply higher ever since. At this time many investors and money managers are expecting the Federal Reserve Bank to print between $1 – 3 trillion. However, nearly everyday a Federal Reserve Bank President comes on television and says something different. Therefore, the stock market seems handcuffed to the statements and actions from the Federal Reserve Bank and it's operators.
Does it really matter what the central does? Since the 2007-2008 credit crisis the central bank of the United States has done everything in it's power to keep the market trading higher. They have bought mortgage backed securities, U.S. Treasuries, and printed so much money that gold has traded to new all time highs and has become the trade of choice by most investors. These guys have diluted the U.S. Dollar Index beyond belief by their actions. Just look at where the U.S. Dollar Index traded in 2001 and 2002. Believe it or not the U.S. Dollar Index was trading around $120.00 at that time. Today the U.S. Dollar Index is trading around $77.00. That is about a 35.0 percent decline in the U.S. Dollar Index for those of you that are wondering. Is artificial inflation the only trick in the book?
Please understand the United States can withstand a weak dollar for a while. In 2008, the U.S. Dollar Index did trade as low as $70.69. However, that was not a very good time for the global markets as it was the start of the credit crisis that took place. This time around the powerful Federal Reserve Bank is trying to fight off deflation. Personally, I'm not sure if this is how you do it. By lowering the strength of the currency this is a sure way to create another commodity or asset bubble. Just look at the bubble that former Federal Reserve Bank Chairman Alan Greenspan caused between 2000 and 2007. The world went from a tech wreck to the largest credit bubble since the Great Depression.
Right now the stock market has had it's rally from the so called QE-2 announcement from Ben Bernanke. It is now time to put up or shut up for the Fed. Go big or go home. The credibility of the Federal Reserve Bank is dwindling by the minute. This is starting to look a lot like the early 1970's when investors just lost faith in the central bank. Popular television shows such as the Dylan Ratigan Show, and Judge Napolitano's Freedom Watch are getting mainstream support in bashing the Fed. The tea party is another movement that seems to be against the central bank of the United States. The suspense is building for next week's FOMC meeting. We shall see very soon how this stock market reacts.
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