Anyone doubting that the powers that be are getting desperate to maintain stock prices should consider that announcements of Bailout Ben Bernkanke’s appearance on 60 Minutes and his proposed claim that he may increase QE 2 was enough to kick off a 3+% ramp job in stocks last week.
Regardless of this mindlessness, Bernanke’s appearance did offer us a glimpse into his thinking or lack thereof. Many commentators have been stunned by his assertion that he is “100% certain” he can control inflation. I wasn’t. After all, Bernanke’s been nothing if not 100% certain of himself while being 100% wrong for the last five years.
Copper is often called Dr Copper as the metal is considered a bell-weather for the world economy due to its close correlation to economic growth (used by many industries, copper typically rallies when the world economy is growing)
Last week’s explosive rally was due to three factors:
1) Stocks came perilously close to breaking down so the PPT stepped in
2) A bullish falling wedge pattern in stocks
3) Euro options expiration/ ECB intervention
Regarding #1, stocks came right on the verge of breaking below their 50-DMA. Given the technical nature of the stock market rally (the market hasn’t traded based on fundamentals in months) this would have heralded a major decline.
What’s truly strange is to see allegedly educated, intelligent people like Ben Bernanke talk as though the stock market is somehow an economic indicator. I’m sure it’s a great indicator of prosperity if you work at Goldman Sachs or are a corporate insider at a publicly traded company.
However, for those Americans who DON’T have flawless trading records (or stock option grants) stocks have NOTHING to do with your day-to-day activities.
After all, your typical American DOESN’T buy food or pay their mortgage with the profits from their day-trading; they pay with the money they earn from their JOB.
Earlier this year, I noted that the European debt crisis was mimicking the US’s 2008 banking crisis almost to a T. Greece was the “Bear Stearns” issue: a minor player that was swallowed up in the drive to maintain the appearance of stability.
Then came the $1 trillion bailout, the equivalent of the Fannie/ Freddie “blank check”: a massive sum of money thrown at a problem meant to convey the illusion that the powers that be have everything under control and that systemic risk is non-existent.
Barron’s recently unveiled the results of its latest “Big Money Poll” on November 1. According to the magazine, 60% of money managers are bullish on the stock market’s performance through June 2011. All in all, the bulls expect the market to rally 6% over the next seven months.
Can a US Dollar rally overcome the Bernanke put? We’ll find out this week. We have a total of six POMOs this week (two today and one every other day). So the Fed will literally be juicing the market by $6-9 billion EVERY day this week. If stocks can’t remain afloat in the environment and the US Dollar strength continues, then the markets are heading into some VERY DARK times in the near future.
In closing, keep your eyes glued to the Euro. The markets seem to view the Irish bailout as a “positive” for the currency. If this view results in the European currency breaking above 37.5, then the inflation trade is back on with a vengeance and the US Dollar could potentially be in SERIOUS trouble.
The only time that Treasuries actually RALLIED (lowering long-term interest rates) was from April-August 2010: the ONLY time that the Fed hasn’t maintained a public QE program in the last 18 months.
The three biggest problems with QE 2 are:
1) The potential for a US Dollar break-down
2) Treasuries falling and pushing interest rates UP
3) China retaliating.
Of these, #3 is the most worrisome for the global financial markets. Let’s be clear here, China is extremely adept at making investing/ financial decisions. And while we do need to take its decision to cut Treasury exposure seriously, I cannot believe China would actually telegraph that it was dumping Treasuries when the dumping really starts.
As the whole financial world now knows, Ben Bernanke wants to actively foster inflation by trashing the US Dollar. Setting aside the fact that this is absolute insanity (inflation has already hit the US), Bernanke’s made it clear that he wants to trash cash to keep stocks up.
The only problem for our esteemed Fed Chairman is that Europe’s banking system appears to be even MORE adept at currency destruction than Bernanke’s money printing trigger finger.
The Fed initially claimed QE 1 was an emergency measure that would save jobs and the US economy. Amazingly this one time emergency measure (which failed to do anything for the US economy, I might add) has now become a way of life for the Fed.
Indeed, QE 1 never really ended as the Fed continued juicing stocks every options expiration week even after QE 1 was supposedly completed. And yet, despite this, the Fed has now announced QE lite and QE 2.
So here were are in 2010 and the US and China are now butting heads in a major way. The US (debtor, consumer, declining empire) wants to devalue the Dollar and export inflation to China. China (creditor, producer, rising empire) doesn’t care for this arrangement as its hurts profit margins at Chinese companies, increases food inflation (food is a higher percentage of income for the average China compared to the average American), which in turn means civil unrest.
Both of Bernanke’s claims (that QE will help housing and spur business investment) are a crock. So what’s the REAL reason he’s frantic to kep interst rates low?
Derivatives.
According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.
Five banks account for 95% of this. Can you guess which five?
Growing up, I always assumed that people in a position of power or authority got there based on merit. It never crossed my mind that someone might actually be in charge of something VERY important like, say, the monetary system, and NOT know what he or she was doing.
