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…
