By Gareth Soloway on October 13th, 2010 12:40pm Eastern Time
The markets jumped higher again today as the U.S. Dollar continued its rapid decent. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $118.13, +1.12 (+0.96%). Like a plane in a nose dive, the Dollar is showing no signs of stabilizing. In all fairness, the Federal Reserve has the Dollar doing exactly what it wants. A weaker Dollar creates a fake wealth effect as equities and commodities move higher to compensate. In theory, if the Dollar drops 10%, stocks should go up 10% to maintain their balance and real value. The general trusting public will see this as an increase in wealth, spending more, buying more, but in real terms they have gained nothing. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $22.36, -0.06 (-0.27%). The Dollar is not far off the 2009 November lows and may have its sights set on that double bottom. Long term, expect it to be far lower.
As any educated investor must realize, the U.S. Dollars drop is not going unnoticed by other countries. Many leading powers are racing to devalue their currency faster than the U.S. The idea behind this is the cheaper the currency of any country, relative to its neighbors, the cheaper that countries goods will be for export. If exports rise, jobs increase. This is known as a currency war. We have seen Japan intervene and rhetoric with China explode. This path of racing to devalue one's currency is treacherous. One wrong move and currencies all over the world could collapse, much like Lehman did and other financial companies almost did in the snow ball effect. The major difference would be, the government was able to intervene with the financial firms. In a currency collapse, no government will be able to stop it. In the short term the U.S is playing a game of chicken as it relies on China and other countries to buy its debt thus infusing money into the system. However, as the Federal Reserve drops the Dollar day after day, countries like China are threatening to cease their hungry nature for U.S debt. This is exactly why the Federal Reserve is now forced to buy treasuries. They must make up for the lost demand from other countries as they piss them off by killing the Dollar. Bottom line is this, should other countries stop buying the U.S debt totally, the Federal Reserve would never be able to handle the impact. This is a game of chicken. Who will swerve first?
Also, this QE2 (quantitative easing two) is a total joke. This is the ponzi scheme of all ponzi schemes. The Federal Reserve is buying their own debt. Granted, technically they are not part of the government but let's be realistic here, they work together and it all comes out of the same pot in the end. The Federal Reserve is giving the American public fake statements much like Bernie Madoff did to his poor investors. They are paying one credit card off with another and paying that one off with an other as well. In addition, in their basement they are running printing presses 24 hours a day, diluting each hard working Americans savings and earnings. Mark this article folks, history will show this to be the biggest ponzi scheme ever. It will cause a melt down in the global system that makes the financial collapse look like a rain drop in the lake.
Even if the printing of trillions of Dollars by the Federal Reserve does somehow restart the jobs market which is unlikely, the greater fear must be the next bubble forming. Treasuries and currencies. If the economy does recover, inflation will spike massively, commodities will soar and the buying power of the U.S. consumer will shrink in a huge way. The Federal Reserve is hoping the public is trusting enough to believe they will then handle the inflation correctly. However, not once in history has the Federal Reserve been ahead of the curve in handling any major issue. Just think of all those baby boomers on fixed incomes when the Dollar is worth half of what it was. The Federal Reserve is playing a game here that is probably the most dangerous ever played. Unfortunately, we, the people will pay the price. To get market guidance, swing trades and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
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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
www.InTheMoneyStocks.comRead more…
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.
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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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