The Fed has been deliberately debasing the value of money in real terms. It has been doing this while protecting stockholders and bondholders of financial companies.I object to these policies and believe, that as in World War II, the full force of the government and the mainstream media has been marshalled to sell people debt instruments that the government (through a compliant central bank) intends in good measure to inflate away rather than repay in full and in good faith.http://dailycapitalist.com/2010/09/19/hedging-against-dollar-weakness-part-ii/Read more…
Posted by Geofract on September 22, 2010 at 6:55pm
Potential long trade from key level - orange line. Looking for pin/buob/ H1 123 pattern as entry trigger. In theory with a bit of help from the BOJ, this could be a lovely swing trade!
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By Nicholas Santiago on September 22nd, 2010 9:58am Eastern Time
Since the August 25th stock market pivot low the major stock indexes have rallied higher by 10.0 percent. This is a major point move in less then four weeks. In the past, the stock market would rarely move 10.0 percent in a year. These days we are seeing these 10.0 percent type of moves during rallies and corrections. The talking heads in the media are now getting very bullish pointing to the actions of the Federal Reserve Bank as one of the catalysts.
If you look at a chart of the SPDR Gold Shares (NYSE:GLD) you will notice that the popular ETF made a pivot low on July 28th, 2010 at $113.08. This morning the GLD is trading over $126.00 a share. That is nearly a 12.0 percent jump in the GLD in just 39 trading days. The point that I'm trying to make here is that gold is the way to tell when money is being created or printed. The U.S. Dollar Index topped out on June 7th, 2010 at $88.70. This morning the U.S. Dollar Index is trading around $79.70. This is nearly a 10.0 percent decline in the dollar since that June high. We all know by now if you want to get the stock market higher the dollar must decline.
Simply put when gold increases it is telling us that the Federal Reserve Bank is continually providing liquidity to the markets. Yesterday the Federal Reserve Bank kept the fed funds rate at zero percent. This rate is what the Federal Reserve Bank charges the large major banks such as J.P. Morgan Chase & Co. (NYSE:JPM), Bank of America Corp. (NYSE:BAC), and Wells Fargo & Co. (NYSE:WFC) for overnight borrowing. Therefore, these banks can borrow money for nothing and simply buy U.S. Treasury notes and make money. When you include the banks credit card business in which they sometimes charge very high interest rates they actually have a sweetheart deal. When you think about it the banks do not have to make any traditional loans in order to make money.
Now that we know gold is telling us that the money supply is extremely loose when does this artificial dilution of the U.S. Dollar stop? What are the repercussions of all this money creation and liquidity? Since 2006, M3 money supply is no longer published or revealed to the public by the Federal Reserve Bank (US central bank). The Federal Reserve Bank stated that it was simply not in the budget to keep revealing the M3 money supply data to the public. These are the same people that print money for a living. How can it not be in the budget? In any case this is where gold comes in. Gold is now telling us that the printing presses by the Fed have been running on overtime. At this time the stock markets seem to love it. However, at some point this flood of liquidity will become a negative for the stock markets.
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By Gareth Soloway on September 22nd, 2010 11:34am Eastern Time
In general, the markets soar on a big drop in the dollar. Over the last couple days, that has not been happening. Today the SPDR S&P 500 ETF (NYSE:SPY) is dropping sharply to $113.25, -$0.73 into the 200 moving average on the 10 minute chart. In many previous articles, I have noted how there were many disconnects in the market. Bonds were soaring, the dollar collapsing, gold jumping to new all time highs and the market was holding steady. This is not usual, in fact, it is extremely unusual. In my previous articles I pointed to this as a main negative divergence that would most likely see a drop in the markets shortly. A drop in the markets? But every analyst, media mogul and market guru has been calling for a continued rally? Well if you do not know by now, I could not care less about what everyone else is saying, I speak my mind and continue to be right a majority of the time.
If bond prices are spiking, big money is running for cover. That is the first signal that must be noted. In addition, the last two days, the dollar has been smoked to the downside. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $23.12, -$0.19 (-0.82%) on the day. The dollar and the markets have an inverse relationship. When the dollar falls, the markets are supposed to go higher. Yesterday, the markets remained flat with a huge fall and today, the dollar is getting smoked again, and the markets are lower. The next signal of a market pull back has been gold. Gold has been charging higher, hitting new all time highs day after day. Spot gold is approaching $1,300 per ounce. The SPDR Gold Trust (ETF) (NYSE:GLD) hit an all time high today of $126.63. Gold has always been a safety play and a place where traders stash cash when fear starts to rise. According to the media, there is no fear whatsoever. This can also be looked at as a psychology play, going the opposite way of the crowd. Bottom line is this, the signals have been there and continue to be there. I have pointed them out in the previous days and with the market dropping today, it looks more clear than ever. To gain more insight, analysis, guidance, swing trades and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
By Nicholas Santiago on September 21st, 2010 10:10am Eastern Time
It is not uncommon to see a rally begin or start around a holiday. Recently that was exactly what occurred before the Labor Day holiday. On August 25th the S&P 500 Index traded as low as 1039.83. Since that low the S&P 500 Index has rallied higher by nearly 10.0 percent. Yesterday the S&P 500 Index closed at 1142.00. This rally has been very explosive when you look at the size of the gains in such a short amount of time.
It is very important to realize that there are a few problems with this huge point rally. The first and most obvious negative for this rally is that the volume in this surge higher has been extremely light. In normal times when the markets trade higher on light volume it is often a sign of weakness. However, a case can be made that since the March 2009 low the volume has been light on almost every move higher in the market. Is this just the way it is now or is this a giant warning sign of things to come? Only time will tell.
The other major negative for the stock market is that the stock indexes have seemed to struggle in 2010 despite the huge amount of stimulus in Europe and in the United States. It is important to remember that if things were really better in the world the central banks in the United States and Europe would not have the overnight bank lending rates at or near zero percent. In the United States the Federal Reserve Bank has kept the fed funds rate(overnight lending rate to the large major banks) at zero percent since December 2008. We can all remember what damage the Federal Reserve Bank Chairman Alan Greenspan caused when he lowered the fed funds rate to 1.00 percent in 2002. That low rate in 2002 could have very well been the cause of the 2008 credit crisis that rattled the world markets.
The next major negative for this rally is the recent decline in President Obama's approval rating. The late great Sir John Templeton used to say, “as a president's approval rating goes, so goes the market”. We can all remember what happened to the stock market in 2008 as President Bush's approval rating plummeted. It lead to one of the greatest stock market declines in nearly 100 years.
Remember 2010 has been up and down all year. This afternoon the Federal Reserve Bank will announce their rate decision. The market is not expecting any surprises out of the U.S. central bank and rates are very likely to remain unchanged at zero percent. While these markets have exploded higher in the past three trading weeks it is now getting a little overdone and likely a time start worrying again.
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By Gareth Soloway on September 21st, 2010 12:16pm Eastern Time
From the President, down to the retail investor, the bulls are back in full force. Just three weeks ago, many were ready to jump out the window claiming the double dip recession was in play, things were as bad as they could be and there was no end in sight. Truly amazing, the switch that has ocurred.
The markets are trading flat to slightly lower after a 10% rally in September so far. The SPDR S&P 500 ETF (NYSE:SPY) is lower by $0.30 to $113.90 (-0.26%). The market is unlikely to make any major moves prior to the Federal Reserve announcement on interest rates at 2:15pm ET. Volume has remained light as well prior. The dollar is weaker again today, inching lower. With the economy looking stronger, it is unlikely the Federal Reserve will do anything but continue to ease using quantitative easing methods. They will not tighten. Knowing that, the dollar should continue to remain weak as we are seeing it. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) sits at $23.47, -0.10 (-0.42%).
As bullish sentiment increases, retail money starts flowing back in the markets. With the S&P 500 up 10% for the month, is this a fake rally or one that will continue for months to come. Join the Research Center to find out.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
