The Fed made more than 1300 loans under the Primary Dealer Credit Facility set up for broker-dealers, with the largest -- $47.9 billion -- going to London-based Barclays (BARC.L), the Fed's data showed. The facility marked the first time since the Great Depression that the Fed had lent to non-depository institutions.http://www.reuters.com/article/idUSTRE6B014S20101201Read more…
Where do we begin when trying to talk about this global soap opera? Lets start in Europe. Ireland is now on the official bailout list with Portugal, Spain, Italy, and Belgium being adding to the list of the next countries to need a bailout. Gold has surged to a new high versus the Euro currency. In other words panic is starting to set in and this problem is starting to hit the fan. The big question that everyone is asking is, will there be enough money available to bail out these countries? Perhaps the Federal Reserve can bail them out if they have not already. Today the Currencyshares Euro Trust(NYSE:FXE) is trading lower by $1.32 to $129.41. On November 4th, 2010 the popular FXE was trading at $142.28. When the Euro declines it means that the U.S. Dollar climbs and this is what deflates the global markets.
Yesterday the Chinese central bank (People's Bank of China) said that loose monetary policy must change. This means interest rates will go higher and easy credit will not be as readily available. This could certainly hurt the industrial commodity stocks. Leading stocks such as U.S. Steel Corp.(NYSE:X), and Cliffs Natural Resources Inc.(NYSE:CLF) could be negatively effected. However, it is still the movement in the U.S. Dollar Index that will likely drive the commodity stocks higher or lower.
North Korea and South Korea tensions seem to be increasing. China says that they want peace and will mediate the talks between the two countries. However, many experts believe that China supports the North Korean actions while the United States obviously supports the South Koreans. This story is far from over and will probably continue to unfold over the next few months.
Now on to the U.S. Dollar Index. When the U.S. Dollar Index declines the stock markets will rally and inflate higher. Even this morning as the U.S. Dollar Index pulls back intra-day the major stock market indexes bounce off the morning lows. The opposite occurs when the U.S. Dollar Index rallies or trades higher the major stock indexes simply deflate and trade lower. The U.S. Dollar Index holds all the cards to whether this stock market trades higher or lower. In my opinion all the rest of the news is minuscule when compared to the action in the U.S. Dollar Index. Just remember the stock market trades inverse to the U.S. Dollar.
Let us not forget the Federal Reserve Bank's quantitative easing operation. This is where the central bank will buy $600 billion in U.S. Treasuries in order to stimulate the economy. This is really just more support for the large major banks. These institutions that sell the U.S. Treasuries to the Federal Reserve Bank are expected to buy stocks and inflate the stock market back up. Just look at how the NASDAQ 100 stocks surge higher after a POMO operation.
Well, this is what makes the financial world go around at this time. While Asia, Europe, and QE-2 are all important it is the U.S. Dollar Index that is the most dominant market mover at this time. When the U.S. Dollar Index falls the major stock market indexes inflate and trade higher. The opposite is true when the U.S. Dollar Index rallies, the major stock market indexes will deflate and decline. Therefore, this environment remains a traders market.
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The markets are lower today as the Dollar gained again. Simply put, the Dollar gains when global fears bubble up. This is happening again today in Europe as the domino effect is in full mode. Greece, Ireland and now on the horizon, Spain, Portugal, Belgium and Italy. Where do the bailouts stop? Will Germany bail out everyone? The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $23.42, +0.07 (+0.30%). With the Dollar higher, obviously, the markets are lower. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $118.54, -0.62 (-0.52%).
The Federal Reserve continues to do its best to keep the markets from collapsing. So far they have done a fantastic job. Yesterday was a prime example of how POMO can work to prop the markets up. Late in the day, the markets roared back, ending near the flat line. POMO is basically quantitative easing in a micro sense. Almost every day for the next six months, the Federal Reserve will be buying treasuries from banks. The banks then flood the market with the money. Generally, this will weaken the Dollar or this money will directly be put to work in the stock market pushing it higher. What is the long term effect? Most of the wise investment community shudders at the long term results of this type of policy. On its basic level, it is another bubble in the making that will break at some point.
My projections:
In the short term, the Dollar is getting a little extended. I have the UUP resistance level at $23.50. This was hit today. Should the Dollar pull back, the markets may float higher in the next couple week, especially into Christmas and New Years. While a float higher is possible, I see it as choppy and wild with continued fear with an underlying upside bias as the Federal Reserve continues their propping.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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Let's start this Letter with a quiz question: which human activity, part of one of 8 GTI global themes,1. Makes modern civilisation possible,2. Is carried out full time by 1/3 of the planet, and3. without it, the other two-thirds face extinction?No, it's not the internet, video games or television.We're writing about farming, part of GTI's "Supply Inelasticity" theme. Agriculture -a much maligned activity these days amongst the urban elites- puts meat, two veg and a healthy drink on the table for the nuclear family. It enabled mankind to move onto more interesting things like the Renaissance, the Industrial Revolution, the internet, playing the stock market and going on the Atkins Diet.But here's where it gets scary. The world is now eating more food than farmers grow, and global grain stocks are at their lowest level in 30 years. As global population pushes up to 9bn from 6-7bn, global food production needs to increase by nearly 50% by 2030 -that's only 20 years away- and by 70% by 2050 to feed the new mouths, equivalent to one new United Kingdom every year.
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The chart (below) depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 1.5% decline in the third quarter of 2010 over the third quarter of 2009. In September, the 10-City and 20-City Composites recorded annual returns of +1.6% and +0.6%, respectively.
