By Nicholas Santiago on November 6th, 2010 11:51am Eastern Time
The U.S. government reported a better than expected non-farm payroll report. The economy gained 151,000 jobs according to the headline number. Economists has expected a gain of just 60,000 jobs. This headline number looks like a blockbuster on the surface. However, an argument can be made that the math behind these numbers is a bit fuzzy, to put it lightly. Birth/Death added 61,000 jobs alone. What else would one expect from a government report?
This week the Federal Reserve announced a $600 billion dollar quantitative easing (money printing) plan. This move by the Federal Reserve has rallied the stock markets higher by 13.0 percent since it was announced in late August. Take note of the move higher in the SPDR Dow Jones Industrial Average ETF (NYSE:DIA). When you consider that the Federal Reserve is doing QE-2 plus their permanent open market operations (POMO) this comes to about $120 billion of added stimulus in the economy each month. If things were so great in the economy one would think that the Federal Reserve would take off the training wheels and see if the economy could function on pure supply and demand, however, that is not the case at this time. Oh, I forgot they did that in May and we saw what happened as the stock market crashed on May 6th, 2010. Therefore, these bankers just continue to pump up the liquidity as commodities and markets inflate to the moon.
Gold, silver, copper, cotton, oil, gasoline, and most every other commodity made new highs this past week. For example, note the chart performance of the iShares Silver Trust (ETF) (NYSE:SLV). These new highs are presently being viewed as a positive. Now we must realize that food and energy are excluded from the economic reports that are used by the Federal Reserve. However, cotton is not a food or energy product and it has increased by over 80.0 percent since mid-July. Are these guys joking or what? This is massive inflation that a third grader can understand. Yet the guys with Ph D's, and the MB A's just don't understand this. Oil is now trading over $86.00 a barrel now. What price will crude break the U.S. consumer again? Take note of the United States Oil Fund LP (ETF) (NYSE:USO). It certainly happened in 2008 and it will happen again. These are the same people that said there was not a sub-prime crisis or a housing bubble. Yet they get even more power after a stock market collapse. We have our corrupt politicians to thank for that.
Meanwhile, the large banks are able to borrow money at zero percent from the Federal Reserve. Therefore, the banks can buy U.S. Treasuries and make a 4.00 percent return. They can continue to operate a credit card business where the average interest rate is 16.75 percent. They can also use the U.S. Dollar carry trade to invest the free money that borrow from the Federal Reserve to buy bonds abroad that pay higher interest. And you thought the TARP program was over. The banks get to do all of this to make money while they barely pay any interest to anyone with a savings account or a CD. This is the slap in the face to the American people. That's what we get for bailing out these institutions instead of letting them fail like a capitalist society would have .
If we have learned one lesson from the past three years it is that the government and Federal Reserve are doing more of the same that got us in this mess in the first place. Bailouts and cheap money from the central banks should lead to the next 'mother of all bubbles' once the next one develops and pops. If you don't believe me just look at the price of gold. Note the SPDR Gold Trust (ETF) (NYSE:GLD) . Gold is the only commodity that is really in demand unlike everything else that is being propped up by a weak U.S. Dollar Index. Gold is the one true currency from the beginning of time and it will be until the end of time. However, gold gets taxed as a collectible which is the highest rate around 36 percent. Are you kidding me? Unfortunately, I'm not sure when supply and demand will drive anything in this market as long as it is being artificially propped up.
Nicholas Santiago
Chief Market Strategist
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Posted by tomasthetank on November 6, 2010 at 4:19pm
From the daily charts on all three i believe we could be see the FTSE , DOW and S&P hit 6015, 11700 and 1250 before a correction.These level coincide form a resistance level that backdates to 2006 and has been a level of resistance prior to the previous highs in 2007 and support before 2008.
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HOW COULD EURUSD rise 3.5% during the same 2 weeks when Irish/Greek/Spanish 10 year spreads rose 20-25% relative to Germany? Anticipation of Feds QE2 has been the main catalyst. But the euro can no longer sustain those highs solely on the back of the Fed asset purchases, while shrugging the ensuing widening in corporate spreads. Irelands ambitious new budget (yet to be approved in parliament) aims at cutting the deficit to 9.25%-9.5% of GDP in 2011 from the current 11.9%.EUR PAYBACK PART 2: USD stabilizes after US jobs growth outpaced expectations in October along with +110K in upward revisions for September and August. Non-farm payrolls, rose 151K in Oct from a revised -41K (prev -95K) in September and a revised -1K (prev -57K) in August. Unemployment remained at 9.6% for the 3rd consecutive month. HOW COULD EURUSD rise 3.5% during the same 2 weeks when Irish/Greek/Spanish 10 year spreads rose 20-25% relative to Germany? Anticipation of Feds QE2 has been the main catalyst. But the euro can no longer sustain those highs solely on the back of the Fed asset purchases, while shrugging the ensuing widening in corporate spreads. Irelands ambitious new budget (yet to be approved in parliament) aims at cutting the deficit to 9.25%-9.5% of GDP in 2011 from the current 11.9%. EURO SHORTS WILL NEED need to see a weekly close below $1.40 for hopes of prolonged declines, but only a close (later next week) below the 200-week MA of $1.3938 would sharpen selling. A close above $1.40 this week, could qualify EURUSD for renewed gains towards $1.4320 & $1.4450 resistance. EURCAD DROPS below $1.41, testing its 55-week MA for the first time this year. The cross-over in weekly stochastics aiming at 1.4040-50 support, which would be followed by 1.38. HERES THAT EUR vs SPREADS CHART
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A BULL MARKET!
So far, this stock market is doing everything we expect to see happen if following a bull market. It acts like a bull, trades like a bull, goes up constantly like a bull... so it is a BULL!. Make no mistake! This is not going away any time soon!
our noble friend oscar
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