By Nicholas Santiago on October 13th, 2010 10:08am Eastern Time
This morning J.P. Morgan Chase & Co.(NYSE:JPM) reported earnings. The headline in the media stated that the company's earnings rose or increased by 23 percent. This would normally be a huge beat and most people would believe the stock would skyrocket higher. However, while the headline number was very good the stock is actually trading lower as I write this small article. Let us ask why this is happening?
Can anyone really understand the accounting that is used by the large major banks? Remember these banks do not have to report their toxic assets as liabilities any longer since the FASB 'mark to market' accounting changes. These toxic derivatives that the banks actually have on their books are really credits now. Bad mortgages are also a thing of the past and very few people really understand how they write down their foreclosure losses. Personally I'm not an accountant, however, I can read an income statement and a balance sheet. These bank balance sheets really make no sense to me and looks more like an Enron statement. Every accountant that I have spoken with can't really make heads or tails out of any of the major banks balance sheets either. I suppose when you write the rules you can change the rules at anytime. Please understand that these large major banks can borrow money from the Federal Reserve Bank at zero percent. Therefore, theoretically the large major banks do not need to lend money in order to make money. They can simply buy stocks, U.S. Treasuries, and operate their credit card business. Remember the average interest rate on a credit card is over 16.50 percent. It's not a bad racket when you think about it.
This is why as a trader we must use charts. The charts will simply tell us if money flow is going in the stock or out of the stock. Who can really figure out what a bank's balance sheet or earnings report is really telling us? These earnings reports are so filled with accounting shenanigans that sometimes I wonder if they understand it themselves. My advice is too stay with the charts as price action is king.
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By Nicholas Santiago on October 12th, 2010 8:28pm Eastern Time
Since June 7th, 2010 the U.S. Dollar Index has declined by more than 12.0 percent. This means that everyone that uses this currency has seen their purchasing power diminish substantially. Please realize when the U.S. Dollar index declines the stock markets around the world will inflate and trade higher. The declining U.S. Dollar Index has been the catalyst for the stock markets trading higher since the 2008 financial collapse. The plan by most central banks and governments has been to simply inflate the stock markets back to health. The question now that many people must ask is if this is the right medicine for the sickness? After all it is this same remedy of induced inflation that has caused this problem in the first place.
When the U.S. Dollar declines the users of the dollar will have to pay more for gasoline, heating oil, food, and most commodities. This is a direct tax on the U.S. consumer when most of the necessities of life go higher in price. Can the already strapped U.S. consumer withstand these price hikes at this time? Remember this is a time when many people are unemployed and smothered in debt. The foreclosure problem does not seem to have any end in sight and may linger on even longer after the recent robot signing scam that was done by the major banks. One out of every seven Americans are now receiving assistance from the government which is not a sign of recovery. Who is really benefiting from this weaker dollar?
Gold has been surging since March, 2009 when the stock market made a low. Gold is telling us that money is being created and thrown at the stock market in order to inflate it right back. Gold is now the worlds reserve currency. When gold goes up with the stock market it is telling us that investors around the world have lost faith in the fiat currencies around the world. The only way that gold will really decline is if the stock market goes into a deflationary tailspin much like it did in 2008 when the stock market crashed. Even at that time gold still held up better than the stock market has. Do the people at the Federal Reserve see this? Are they not mathematicians, statisticians, Ph D's, MBA's, and any other title that you can think of? Yet, they cannot see any of these problems emerging and just play stupid when everything hits the fan. 'Joe the plummer' could have see most of these problems coming. Now the Fed is starting to create new bigger problem.
In life people are supposed to learn from their mistakes and not try to make those mistakes over. However, the same tricks have worked for so long that these methods have now become engraved in the brains of the Fed. Get with the times Chairman Bernanke before the Federal Reserve Bank loses all credibility. Just look at the damage that former Federal Reserve Bank Chairman Alan Greenspan did in his career running the central bank. You are simply following in his footsteps.
Nicholas Santiago
Chief Market Strategist
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By Nicholas Santiago on October 12th, 2010 3:11pm Eastern Time
Everyday seems like Ground Hog Day. The stock market sells off early in the trading session only to bounce up and rally throughout the afternoon. The catalyst for the stock market is not the positive economic data such as the jobs report, or the price of gasoline and food. It is not the great corporate earnings from Alcoa Inc. (NYSE:AA), or Equinix Inc. (NASDAQ:EQIX). No it is not any of those things, it is the decline and deterioration in the U.S. Dollar Index. It is the decline in the purchasing power of 76 million baby boomers and countless retirees in the United States.
When this stock market rallies it is because of the falling U.S. Dollar Index. Therefore, there is not real wealth being created in the stock market. In the 1990's the U.S. Dollar Index rallied with the stock market and that was real wealth creation. This is not real wealth because your purchasing power is diminishing while your assets increase. This is a zero sum gain. It is a wash at best and really nothing more.
Quantitative easing part two is all the rage right now. The only thing QE-1 did was kill the U.S. Dollar. America can't compete with China or anyone else just because the U.S. Dollar is falling or declining everyday. In fact the U.S. can only compete when China raises their wages to the levels that are paid here in the United States. We all know that is not going to happen.
Most states and cities in the U.S. are broke. How are they going to fund or pay for these pensions and state obligations. Forget Greece, in the United States we have fifty Greece's. The effort made by all these central banks to crush the U.S. Dollar will have repercussions and it won't be pretty. Keep all your Jewelry and gold because we may need it to barter for goods one day if this dollar gets any weaker.
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By Nicholas Santiago on October 12th, 2010 10:23am Eastern Time
Since June 7th, 2010 the U.S. Dollar Index has declined by more than 12.0 percent. This means that everyone that uses this currency has seen their purchasing power diminish substantially. Please realize when the U.S. Dollar index declines the stock markets around the world will inflate and trade higher. The declining U.S. Dollar Index has been the catalyst for the stock markets trading higher since the 2008 financial collapse. The plan by most central banks and governments has been to simply inflate the stock markets back to health. The question now that many people must ask is if this is the right medicine for the sickness? After all it is this same remedy of induced inflation that has caused this problem in the first place.
When the U.S. Dollar declines the users of the dollar will have to pay more for gasoline, heating oil, food, and most commodities. This is a direct tax on the U.S. consumer when most of the necessities of life go higher in price. Can the already strapped U.S. consumer withstand these price hikes at this time? Remember this is a time when many people are unemployed and smothered in debt. The foreclosure problem does not seem to have any end in sight and may linger on even longer after the recent robot signing scam that was done by the major banks. Please remember that one out of every seven Americans are now receiving assistance from the government which is not a sign of recovery. Who is really benefiting from this weaker dollar?
Gold has been surging since March 2009 when the stock market made a low. Gold is telling us that money is being created and thrown at the stock market in order to inflate it right back. Gold is now the worlds reserve currency. When gold goes up with the stock market it is telling us that investors around the world have lost faith in the fiat currencies around the world. The only way that gold will really decline is if the stock market goes into a deflationary tailspin much like it did in 2008 when the stock market crashed. Even at that time gold still held up better than the stock market did. Do the people at the Federal Reserve see this? Are they not mathematicians, statisticians, Ph D's, MB A's, and any other title that you can think of. Yet, they cannot see any of these problems emerging and just play stupid when everything hits the fan. 'Joe the plummer' could have see most of these problems coming. Now the Fed is starting to create new bigger problem.
In life people are supposed to learn from their mistakes and not try to make those mistakes over. However, the same tricks have worked for so long that these methods have now become engraved in the brains of the Fed. Get with the times Chairman Bernanke before the Federal Reserve Bank loses all credibility. Just look at the damage that former Federal Reserve Bank Chairman Alan Greenspan did in his career running the central bank. You are simply following in his footsteps.
Read more…
By ITMS News on October 12th, 2010 12:03pm Eastern Time
In a speech to the National Association of Business Economists, president of the Kansas City Federal Reserve Bank Thomas Hoenig, repeated that he is opposed to another round of bond buying by the central bank and states quantitative easing only adds to the uncertain conditions in financial markets with very few offsetting benefits. He stated that quantitative easing is a "very risky strategy" for the Fed because there would be "no idea" at what level inflation might settle as a result. Hoenig so far this year has dissented at all six meetings to date of the FOMC and repeated his call for the Fed to lift interest rates off the zero level and to cancel its pledge to keep rates low.
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