Friday, December 31, 2010

Does The New Year Change Anything?

12/31/2010 - The year 2010 ended appropriately enough. The final day of trading was typical of the previous 364 days. The Plunge Protection Team and every manipulator on the planet was hard at work until the last minute of the last hour of the last day of the last month of the year. The first chart below shows the DIA in 10-minute bars for the last week of the year. Yes, December 31 was a Friday and it was New Year’s Eve. You would think that trading would be light and it was. The DIA traded 3.7 million shares. Over 600,000 of those shares traded in the last ten minutes in a ferocious buying flurry. Now, who would be standing at their station trading stocks a 3:50 PM on New Year’s Eve on Friday afternoon? Somebody obviously thought enough of the DIA to supply 17% of the day’s total volume in the last ten minutes in an effort to boost the stock indexes higher. I wonder who would do such a thing?  So, stock indexes had a positive year and ended on a positive note with a positive PPT pushing them positively. Does the New Year change anything? Nope. There’s just going to be more ‘positive’ from the PPT. Don’t attempt to adjust your portfolio. The Fed wants a market bubble and a market bubble they are going to get. Look at Chart 1.

Chart 1 - DIA 10-minute bars, intraday trading 12/27/10 - 12/31/10
Chart courtesy
Since the New Year is upon us, I’m going to keep this short. As strange as it may be, 2010 ended with the US dollar up for the year and the Chinese Shanghai Composite down for the year. Yes, the world’s most indebted nation enjoyed a rising currency while the world’s fastest growing economy (for those that really count) did not enjoy a falling stock index. See Chart 2. It would seem that manipulation will beat out growth. There in lies our strategy for the New Year.

Chart 2 - 1 year SSEC in candlestick and USD in green
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

Saturday, December 18, 2010

Soul Sacrifice

It might be a generational thing but for sixty’s generation, none of us will ever forget Carlos Santana at Woodstock in 1969. His band performed a song titled, ‘Soul Sacrifice’ in front of a half million people or so. Being the sixties, and being an outdoor festival, Carlos ingested some hallucinogens several hours before he was supposed to take the stage (at least this is the version I have read). At least, he thought he had some time for a trip. However, there was a schedule mixup and he was immediately ushered onstage. With his perception chemically altered, the neck of his guitar appeared to transform into a series of waves. Fearful of losing contact completely, he grabbed the guitar neck with his left hand and never let go. The result was one of the greatest performances in recorded musical history. If I have any of this wrong, my apologies to one of the greatest guitar players to ever play the instrument.

No, this isn’t a music review. The song, Soul Sacrifice, could very well be the theme song of central bank subterfuge. Santana’s ‘altered state’ could well be similar to the hallucinogenic state of mind of today’s society. The governing elite promise entitlements and services that they cannot possibly deliver. The citizens genuinely expect living standards they cannot possibly afford. Yet, both sides continue to wander aimlessly down a path that only exists in their hallucination.

Society’s drug is debt and the central banks are the dealer. This gives the banks the power to rule. The two cannot coexist in mutual prosperity. Central bank power is acquired and reinforced through the sacrifice of a nation’s soul.  A prosperous sovereign nation must control its currency. A central bank must control a sovereign nation’s currency. A prosperous sovereign nation must collect taxes to be spent on society’s collective needs. A central bank must control deposited tax receipts to control its subjects. Andrew Jackson won control of the US currency and its tax receipts. He left office with no national debt and a balanced budget. He set his nation on a path of great prosperity. Barack Obama, as all of his predecessors since 1913, will leave office with his country without control of its currency, without any of its tax receipt deposits (they are deposited in Federal Reserve banks), and without any hope of ever climbing out of trillions of dollars in debt that he helped grow. He will leave his nation in a state of chronic despair and under control of the Federal Reserve. How did we get here? Who are those men carrying us? Why are we headed to the alter?

Soul Sacrifice opened with rhythmic clapping. The congo players joined and upped the tempo. Imagery of a primitive culture pervades the listener’s mind as it seems we are all high on hallucinogens that make us believe we can borrow and spend our way to prosperity. Someone will have to be sacrificed to make this so. The crowd is gathered and writhes closely together in beat with the music in a trancelike ceremonial dance. On their shoulders they carried us. We have been complaining lately about the distribution of the tribe’s assets. We do all the work. We should get more of the rewards. We feel the soft hands underneath our backs and legs and butts as the crowd extend their arms pushing us to the sky. Some of the hands are rifling through our wallet but we are concentrating on the groove. It’s like we are now body surfing toward the alter. This is so cool!

The brilliant 19-year old drummer, Michael Shrieve joins with a burst of high energy rolls perfectly in time with the congo players. Carlos has a tight grip on his guitar and starts to play. At first he plays a staccato burst of notes. His solo becomes more rapid and it seems the pace of the crowd intensifies. We take a glance down and the crowd are all wearing wing-tip shoes. Their hair is neatly trimmed. They stink of vaults and loan paperwork. Maybe they are bankers? We can see the alter now. I wonder who is going to get it? Carlos is hitting the main riff now. He is in a ‘call and answer’ mode with his drummer. Each line is more furious than the last. Maybe once we get this over with we can address our needs as people. We need to improve our living standards. We need jobs. We need to rid ourselves of war. We need more liberty. We need more influence over those that govern us...

Finally, we are there. Carlos’s guitar attack has slowed. The song is more mellow. This must be the point where some poor soul gets sacrificed to the God of Money. Thankfully the crowd has gently laid us down. They are so nice. The drumming is bit quieter and a bit slower. But wait. Here it goes again. Shrieve is picking it up now. His attack is becoming furious and almost maniacal. His solo is nothing short of masterful. A minute passes. The drum solo is like a benediction to the finality of the ceremony. The rest of the band now joins the drummer and the song is racing furiously to the end. It’s a power wave sweeping everything in its path. The trance is controlled by a pulsating, driving organ line. The song is building a crescendo ending. We look around but we don’t see the sacrifice. Suddenly a hooded figure appears next to us. It can’t be the Executioner. He usually doesn’t come to the alter until the sacrifice is prepared. He is pulling his hood back. Look, it’s Ben Bernanke! What is he going to do with that axe? Suddenly the song stops. The sacrifice isn’t even here yet!

But we are. The soul of any country is its currency. The currency carries powerful images of respected leaders and landmarks specific to each country. The citizens’ identity is in their currency. It is what makes them unique. It is their pride. it represents all their possessions. Yet, we stand at the alter of soul sacrifice and passively watch as our brothers and sisters are dismembered from their currency by central banks. Countries have been brought to the alter one at a time. Iceland, Greece, and Ireland have taken their turn. Next will be Italy or Portugal or Spain. The US has already been sacrificed. The banker elite now rejoice in their riches while the populous scrambles for existence. The government elite that guard the banker elite now ask their ruler for assurances of riches albeit on a lesser scale. The banker elite now make the rules to aid their protectors. They imposed the ‘Patriot Act’ that was born from a false flag event to subvert the law of the land so they could more easily intimidate and control the populous. They initiated numerous bailouts and stimulus bills that aided only the banker elite. And now the Federal Reserve is dictating economic policy from a position of currency control. And that currency, along with the nation’s soul, has been sacrificed for the good of the elite banker. The banker elite is doing fine. The rest of us - not so much.


What do we do now? Our brothers and sisters are protesting and rioting across the world in protest of the new world order. Americans are for the most part too dumb to even spell ‘protest’ much less realize that the nation of their professed patriotism has sacrificed them in a ceremonial surrender of power. At least the Europeans realize they have been placed on the alter. In the end, they will fall. God only blesses humanity with an Andrew Jackson once. But, investors can’t be encumbered with allegiance to anything other than their own portfolio. Let’s let a few charts guide us in this period of soul sacrifice.

Chart 1 is a 20-year look at the US dollar value as represented by the USD in green. The blue line is a line that I drew at what appears to be the neckline in a big bearish head and shoulders pattern. Measuring from the peak of $120 to the neckline of $82 gives us a range of $38. A break in the neckline below $82 would give us a downside target of $44. That’s about a 46% drop in the value of the dollar. Not surprisingly, the USD is fighting the current neckline level very hard. Now, we have to ask ourselves a question about the dollar’s trend from here. Since the Federal Reserve’s inception in 1913, the dollar has lost some 95% of its value (purchasing power). Why would we expect this 97-year long trend to change now? Don’t let this chart slip out of focus. That’s the big picture. What do we do right now?

Chart 1: 20 years - US Dollar in green
Chart courtesy

Let’s move to Chart 2. This is the same 20-year time span but I have added the S&P 500 in gold and the Relative Strength Index (RSI) in black. Now we can see how the nation’s soul could be sacrificed so easily. All the executioner needed was the distraction of the stock indexes. Look at the period from 1995 to 2000. Both the dollar and the S&P 500 moved higher in tandem. That makes sense. A strong economy produces a strong stock market and leads to a strong currency. Look at the next three years from 2000 to 2003. A weak economy produces a weak stock market and leads to a weak currency. Again, currency and markets were in tandem and RSI was for the most part, fairly calm. 2003 became the ‘disconnect year’ as stocks and currency became inversely correlated. The stock market was headed to zero and even the dumbest American would soon know that something had gone badly wrong. Well, they might not have a clue until their cable TV was disconnected. Then Fed Chairman, ‘Maestro’ Alan Greenspan, took it upon himself to exert final Fed dominance by intervening in markets with currency and credit. The nation willfully complied as it was anxious to recoup stock losses at any cost. The resolution was a change in dynamics with the Federal Reserve suppling copious credit, debt exchange, and currency. The nation’s soul had to be sacrificed. And so it was from the sharp edge of the printing press. The currency continued lower but in an effort to avert a populous uprising, the bankers manipulated the stock indices higher. This is the ultimate pacifier. But since 2003, when the dollar rises, stocks fall. When the dollar falls, stocks rise. The sacrifice continues.

Chart 2: 20 years - USD = green, S&P 500 = gold, RSI = black
Chart courtesy

So what do we know? Weakening currencies benefit the central banker that controls such currency. Weakening currencies boost stock markets. Does anybody think that the Federal Reserve or Congress will work going forward to strengthen the currency? Hey, it’s Christmas - I thought we needed a good laugh! When you stop laughing, please continue.

Let’s see if we can make a prediction on currency and therefore stock trend for the coming weeks. Look at Chart 3. This is the past three months of the USD. As we zoom in, we can see what I believe to be a couple of mast with pennant formations. I have drawn the first one with a blue line and the second with a green line. Generally, these formations come in threes. Therefore, I think we are  breaking out of the second pennant and forming the third mast (dashed black line). This may take us up close to the bearish neckline in Chart 1, form a final pennant, and then fail to the downside. If so, we may have a few more weeks to rally the dollar during which time the stock indices might stall. If at that point the dollar breaks lower, we could expect to see the dollar fall much lower thus instigating another strong inflation-fueled stock rally. We should know by the first or second week in January. A wise investor may want to go light on stocks for the next few weeks in anticipation of a rally opportunity in early January.

Chart 3: 3 months ending 12/16/2010 - USD
Chart courtesy

What in heaven’s name will make the putrid US dollar appreciate? The dollar’s value is heavily inversely correlated against the Euro. The central bank of Europe, the ECB, is fighting frantically to save the banks of Europe from the debt implosion of its member nations. The worry over the expansion of the bailout package offered in May of this year is weighing on the value of the Euro. The US dollar is strengthening as a result. As the debt contagion continues, the Euro falls and the dollar rises. This is no hallucination. The soul of Europe is getting sacrificed to keep the bankers flush with cash. Ditto for the US. The central banks need the government to carry out the trivial task of governing the trifling citizens. The governments need the central banks for monetary survival. Standing between the two is the alter of soul sacrifice. Nations may willingly visit the alter. Investors will have to fight to survive!

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

Friday, December 10, 2010

Inflation Cures What It Doesn't Kill

The US and China seem to be at opposite polarity. The US rulers are trying to inflate the economy and thereby reflate the stock indices. China is trying to deflate the economy and thereby restrain their stock index. To Ben Bernanke’s credit, he has been specific about his desire to see inflation rise in the US. To his discredit, real inflation is already locked in with a rear naked choke hold that is turning the consumers face blue already. The Fed and the US government have of course always lied about real inflation and they have changed formulas to match their desired story. China, on the other hand, is now openly trying to contain inflation that they measure at an annualized rate of over 5% as they announced this week. One wonders why the Chinese don’t just lie about inflation like the US does. In truth, the Chinese recognize that an over-heated economy eventually crashes and that is the scenario they are trying to avoid. The US, on the other hand, has already pushed the plunger of economic destruction and only has one option left - the Zimbabwe option. They are going to try to inflate their way back to prosperity.
The interesting thing is the effect inflation has on the stock indices. The chart below clearly shows this effect by comparing the Dow Jones Industrial Index in gold to the Shanghai Composite in Red since the ‘magical’ Fed induced lows of March, 2009. As we look back, that was the point at which the Fed threw trillions into the markets via the banking system while the Treasury spat out trillions in new debt to do everything from lending support to the Fed to buying failed US corporations. We mustn’t be hard headed - trillions of dollars injected into the system does have a positive effect. The chart shows us that the Dow has outperformed the Shanghai Composite pretty handily since the March ’09 lows. During this same span, the Chinese economy has expanded at three or four times (at least) the rate of the US economy. Yet, the stock indices would imply the opposite. Can we simply infer that that stock indices are more of a function of inflation more so than anything else? It would seem so. Back to Zimbabwe, it would be hard to find an index that performed better than the Zimbabwe Industrials in 2008. But again, their economy was completely disintegrating but the printing presses kept inflation racing higher by the hour. 
That brings up an interesting question. Where would the Dow be trading if not for the extraordinary manipulation and intervention of the ruling Fed? Consider this. The Dow is about where it was ten years ago when the nation’s debt was less than $6 trillion. The US has essentially committed to another $8 trillion to keep the Dow from falling. Without that $8 trillion, might the Dow be at 1,000? We can certainly presume that the 4,000 point rally from the March ’09 lows were due to massive commitment of debt to the cause. If that rally had gone in the other direction, the Dow would be at least below the 3,000 mark right now. Further, the capitalization of the US markets is somewhere in the $13 trillion range right now - give or take a trillion. Take away that extra $8 trillion in debt and the charts would show a different story. 
Debt is of course money that neither lenders nor consumers really have. Since the US is not a saver nation, we must assume that the consumer spends everything they have and everything that anyone lends to them. We can also factor in to our scenario that the fractional banking system turns a trillion into ten trillion. So again, where would the indices be if not for an extra $8 trillion in debt to inflate the credit system to inflate the stock indices? Look at the chart of the Dow and the China Composite. If we want the Dow to continue higher, we must hope that Ruler Bernanke keeps flooding the system with credit supported by increased US debt. Sure, the resulting inflation would destroy the economy in its path and the poor suckers that eke out a living from such economy. But screw them! All that matters is a rising Dow Jones Industrial Average. Besides, while the suckers are drowning in a rising sea of inflation, they will be tricked by the rising Dow into thinking they are just taking a swim. By the time they lose sight of land, it will be too late. 
It would seem apparent that the Dow could make new highs within a year or so. All we need is for the national debt to rise by a few more trillion. Now, if the national debt could just rise to $50 trillion or $100 trillion... Aww - I’m dreaming now! Do we really want congress to cut the deficit? Maybe we should check the chart one more time!

Since March, 2009 - DJIA in gold and Shanghai Composite in Red/Black
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 

Friday, November 26, 2010

Stock Investors Should Give the Fed Some Love!

It would seem that the Federal Reserve has few fans these days. Fed Chairman Bernanke is castigated in blogs. Members of Congress are questioning his strategies. Finance Ministers in Germany call him “clueless”. His QE2 tactic has prompted near universal scorn from economists throughout the world. Einstein taught us that everything is relative. Depending up one’s point of view, maybe it’s time to give Bernanke and the Fed some love.
Those who attack and disagree with Bernanke must have a globalist view of the economy and the financial system that supports that economy. To them, QE2, and other Fed action, is simply a plan to enable bankrupt nations like the US to continue their illusion of solvency. The Fed has allocated $600 billion over the next seven months or so to buy up the debt issued by the US through the banking inter-dealer system. The US continues to live on debt. The bankers make profits on the intermediary nature of the deal. The Fed exchanges confetti dollars (electronic entries on the banks’ balance sheets) for notes issued by a sovereign nation. The Fed is also laundering another $300 billion of bad mortgage paper from the banks to the Fed to be exchanged ultimately for more notes issued by a sovereign nation. I say the mortgage paper is bad. It has to be. Why else would a bank sell the Fed a mortgage note that is returning something for confetti money that isn’t returning anything but devaluation? The US citizenry is ignorant of the whole process and will willingly herd into the the next stall open to be fitted with a bridle of control. The rest of the world objects to any expansion of credit or currency in the US because the process devalues the US currency and inflates competing currencies. In a world without true profits, the cheapest currency wins by virtue of the currency exchange accounting adjustment. So, as Bernanke tinkers with currency valuations, the entire world objects to the process. Should Bernanke reconsider his strategy?
Not from a stock investors point of view! Let’s be honest. The Federal Reserve cannot create jobs nor companies that create jobs. The Federal Reserve cannot fix the shortfalls in social security or medicare or the US fiscal budget. While they promote the illusion of omnipotence, they are relatively ineffective in promoting productivity or capitalistic integrity. They do promote grief, despair, and economic destruction. The Fed’s principal role is to enhance banking dominance through the addiction of credit and the enslaving yoke of debt. Debt addicted societies invariably spend more than they produce. Therefore, it is imperative that these societies import foreign capital. The destination of that foreign capital is the stock markets. Spending more than one produces generally leads to falling markets and avoidance by foreign capital. This is a bad situation for a central bank. The solution is of course to goose the stock markets to keep the inflow of foreign capital brisk. The Fed is, as we all know, very good at goosing the stock indices.
So, investors should give Bernanke some love. He is on their side. Well, he is only on the ‘buy’ side of the equation. He disdains the ‘sell’ side and has done everything in his power to destroy all investors inclined to sell or sell short. This is unfair to the core but that’s the way it is. Leave intelligence and investing skill out of the equation. Stupid wins in today’s markets! That suits investors just fine. Bernanke clearly wants every stock chart moving from the lower left to the upper right of the chart. 
The chart below shows the past 11 years of the SPX in gold and the USD in green. I want to look at 11 years because this covers the span of the new era in which the Fed is exercising their new powers of either profane stupidity of profound manipulation - depending upon one’s perspective. I won’t argue intent or effectiveness but the chart tells an important story. Yes, over the past eleven years, the S&P 500 and the US dollar value (versus other currencies) have both fallen. But most importantly, the lines seem to be vacillating with brief periods of intersection. Should the future reflect the past, we should anticipate something pretty important in way of market direction in the next few months. The lines have taken turns being above and below one another with brief periods of intersection. Most recently, the S&P 500 has been below the dollar, intersected it, and is now crossing above. One would expect the trend to continue with the S&P 500 rising another 300 points from its current mark with the dollar falling further and further towards insignificance. Then we should see a reversal. The S&P 500 should then move considerably lower and the dollar higher to intersect and continue the pattern. Isn’t this exactly what Bernanke is trying to accomplish? Then give the man some love! Maybe we should send him a Christmas gift of several TSA screeners to feel him up to give him a thrill!!
Obviously at the present moment, the indices don’t seem to have the ammunition necessary for a rally. This week ending 11/26/2010 gives us some reason to ponder our chart very closely. Ireland has now followed Greece to the bailout buffet to eat from the poison of central banker cooking. Portugal will be next. Then Spain. How do we know? They all say they don’t need a bailout. So did Ireland and Greece and Iceland and Dubai. The US is already on life support and claims the IV in its economic arm is only due to dehydration. Who will be next? China is trying desperately to put a lid on inflation. The Koreas are shooting at each other. Fear has gripped the markets. Thus, the Euro is declining and the dollar is rising and the S&P 500 falls when the dollar rises. Typically, periods of intersection on our chart have not lasted longer than about a year and the current intersection is breaking apart. The question is therefore simple. Who do we trust? The current situation of the world would sway us to the side of a declining market, strengthening dollar, and falling Euro. Our trust in Bernanke would sway us to depend on him to turn the dollar lower and the stock indices higher. What has to happen over the next few weeks for this latter scenario to win out? 
Ireland has to swallow their medicine. 
Happy talk has to rise to the surface of the incompetent media to convince sheople that the rest of the Euro-states are fine.
The early Christmas shopping season needs to be reported to be a success.
North Korea needs to put a plug in their artillery since central bankers are clamoring for the opportunity to lend into another war project. 
The dollar needs to resume its downward trajectory at any cost. This is the American way. As long as the precious stock indices move higher, the ignorants that inhabit the land will have no clue as to why the bankers are fitting themselves with life vests and flippers. Carry on, Mr. B!! Love ‘ya. Mean it!

11 years (weekly) - SPX = gold and USD = green
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc. Copyright © 2010 BMF Investments, Inc. - All Rights Reserved

Friday, November 19, 2010

Deceptive Dollars

This week (11/15/2010 - 11/19/2010) was an uneventful week. The major US indices were basically flat on the week. To be sure, Ireland was back on the front page fears of another debt meltdown. Bernanke embarked on a world tour to try to convince the rest of the world that his ‘village idiot dunce cap’ was on straight. The Germans said he was “clueless”. The Chinese seem to be in scramble mode due to Bernanke’s war on currencies. QE2 got off to a rough start because the world thinks the US is now run by Homer Simpson. The Fed started buying Treasuries and investors started selling stocks. But by the end of the week, everyone was sure that Ireland would get a bailout package from the ECB and Bernanke would sober up next week. I think it is a slam dunk that Ireland will get a bailout rammed up their rear end but there is no chance that Bernanke will sober up. He has been drinking the cool-aid far too long.
So let’s turn our attention to an interesting chart. The chart below is a chart of the Baltic Dry Index (BDI) in blue, Union Pacific Railroad  (UNP) in red, and West Texas Crude (WTIC) in black. The chart is interesting because it shows the deception of the dollar. The chart covers eight years and over that time span, the dollar has lost some 30% of its value versus a basket of currencies. Keep that in mind.
Union Pacific is the largest railroad operator in the US and its stock price has been moving higher over the last two years. One would expect that with an economy finding some strength from the depths of a recession. The same upward trajectory can be seen in the price of oil represented by the price of West Texas Intermediary Crude. Let’s bring the dollar back into the conversation. As stated, the US dollar has been in decline and one would expect the declining dollar to ‘inflate’ the price of things like oil and goods shipped via railroads. The same could be argued for stock prices period. I would argue that the Dow index is simply a reflection of inflation and is now completely disconnected from any relationship with reality or fundamentals. I would even extend that argument to the overall economy. It too can be ‘inflated’ with a falling currency. The Federal Reserve has orchestrated this scenario.
But here is where the dollar can be deceptive. Some analysts are pointing to the Baltic Dry Index as a sign that economies of the world are still very weak. Maybe, but here is the important part of the equation. The BDI is an index of shipping prices for dry goods priced in US dollars. As we can see from the chart, the BDI is up over the last eight years even with the dollar being down over the same time span. Thus, we can say that shipping rates, in terms of real dollars, has indeed increased over the last eight years. The chart indicates much more weakness in the BDI than the currency exchanges would confirm. Don’t let the charts fool you and don’t let the dollar deceive you either. 
Now, what is ruler Bernanke up to? He is trying to stoke the crushing effects of inflation. In particular, poor people are harmed most by inflation as they don’t generally have the investible assets to offset the damage of rising prices. The goal of the Fed is to redistribute all the wealth in the world into as few hands as possible. Ultimately, he wants to concentrate all the wealth into the shill banks that fence and launder the Fed’s weapons of debt destruction. They will point to the BDI and claim that there is deflation or that there is no danger of inflation. It is there. Relativity must be employed to see it.
Back to Ireland for a moment. I’m sure everyone has heard by now that the country is like every country. They are over indebted and are in danger of defaulting on their sovereign debt. Here is the sad part of all this. In US dollars, Ireland’s GDP is just a bit over $200 billion. Even if their debt was 50% of GDP, that would be $100 billion US dollars. Is that enough to sink the world’s markets as we were led to believe this week? Come on, now - let’s get real. Bernanke is pouring $110 billion or so into the US banking system every month for the next eight months through the QE2 program. Think about it. The real problem always turns out to be the derivatives and swaps tied to the debt. A default sinks the derivatives and only the big banks get hurt. That’s why a tiny debt like Ireland’s is a big deal. The elite bankers won’t stand for a loss so they showed up at Ireland’s central bank this week with a bailout proposal. No doubt, the proposal will not be ‘optional’. Ireland may try to fend of the sinister clutches of the ECB but they don’t have an Andrew Jackson to rally behind. The dollar deception rolls on. 
At some point very soon, I would expect to see yet another ‘bailout’ announced for Ireland. The casinos of the world will rejoice and all will be well for another month or so. Why can’t we stop it? You can read my article titled, America Surrenders for the answer.

8 yrs. weekly - BDI in blue, UNP in red, WTIC in black
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 

Friday, November 12, 2010

$7 Billion Ain’t What It Used To Be


This week started with Mr. Obama making the rounds in India, Indonesia, and Korea. He danced, he shook hands, he acted presidential, and he signed a few documents. He made a few speeches and he tried his hand at bending a few arms. In the end, he was mostly rebuffed and turned away. After all, America is not what it used to be. This was simply a week of surrender.
The power of America has been diminished by a reliance upon the Federal Reserve Bank. The bank has now assumed command of the economic helm as it steered the country into the promised QE2 quagmire. Starting on Friday, the Fed began buying Treasuries and bad mortgage paper from its shill banks to the tune of $7 billion per day for the next 8 trading days. Of course, the Fed will plow $600 billion into Treasuries and $300 billion into agency debt by June of 2011. All the while, the government continues to sell economic recovery. Supposedly, the private sector is creating jobs. Supposedly, industrial production is trending up. Supposedly, housing has bottomed. Supposedly, consumers are spending, saving, and growing in confidence. Supposedly, the banks are making a killing and corporate profits are soaring. Supposedly.
Of course, reality is that Cisco crushed the market on Thursday with a poor forecast, homebuilder DR Horton said housing contracts were something that rhymed with ‘sucked’ but worse, and a great proportion of the jobs that were supposedly created were done so by virtue of the mercurial and nefarious birth/ death ratio. Cereal makers were bumming as were Campbell’s and Wendy’s. Did I mention that big bankers were bursting with profit? Maybe reality brought the Fed to their QE2 decision. 
But a funny thing happened on their way down Manipulation Avenue. QE1 and the resulting POMO activity of the Fed served to devalue the US dollar and inflate everything else from stock indices to commodities. This week, the opposite happened. The chart below shows the week with the Dow (in blue) losing more than 200 points and the dollar ETF, UUP (in green) gaining. What? Everyone thought creating dollars from thin air for QE2  would drag the dollar lower. But no, the opposite happened. Of course, with an artificial economy driving an artificial Dow, stocks can only be inflated by a devalued dollar. Will the trend of this week spill over into next week?
Mr. Obama was abroad trying to sucker or foreign friends into following us into the Sea of Insanity. They all balked. The Chinese think we have lost our minds. The Koreans showed Obama the door. The Indonesians politely ushered him out of their country and probably thanked their God that the man didn’t stick around from childhood and become their President. It seems that the rest of the world is looking at the US and wondering how anyone could make such a mess of things. And no, they didn’t want to go along with us to insolvency as we destroy our economy with  conjured dollars, subsidized markets, and pensions that aren’t funded and can’t be funded. 
But the chart is clear. The culprit of a sorry market is a stronger dollar. Perhaps the dollar strengthened because Treasuries have to be bought with dollars. The Fed needed a quick $7 billion. Given the Dow’s reaction, $7 billion just doesn’t buy what it once did. We call that ‘inflation’. Maybe that’s why Wendy’s and Campbell’s have watched profits evaporate. The Fed, on the other hand, is launching their QE program because they say there is deflation about. 
You want the truth? The 146th US bank failed this week on the year. The Treasury buy is a ruse. The real point of the Fed’s QE move is to continue to bail out the banks from their mortgage cancer and in so doing, usurp power from the government to the Fed. The American sheople are so stupid they don’t even realize what is happening. The Fed carries on without any resistance whatsoever. Heck, if $7 billion won’t do the trick, maybe the Fed will throw $100 billion a day at the big banks. Sooner or later, the Dow will respond.

DJIA in blue, UUP in green - 11/8//10 - 11/12/10 intraday 10-min bars.
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 
Copyright © 2010 BMF Investments, Inc. - All Rights Reserved 

Saturday, November 6, 2010

11/06/10 - Bernanke’s Bubble

What in heaven’s name do they babble about all day on financial networks? The casino is simple. The Fed runs the show. There you go. Now you don’t have to watch the nitwits anymore. Financial networks are about as necessary as a WWE referee. Look at this past week.
Monday was kind of a flat day in anticipation of Tuesday’s mid-term election. Tuesday brought a small rise in the indices as investors anticipated a change in Washington that would result in a checkmate between the village idiots on the right and the village idiots on the left. Wednesday saw a nice pop at the open as election results confirmed investor nirvana. But basically, the casino indices didn’t move much and volume was poor. No big deal. The ruler of the village idiots, Ben Bernanke, held a pow-wow on Wednesday and decreed the banks were worthy of another trillion in Fed conjured dollars. Yep, the Fed would buy $600 billion more in Treasuries from the banks as well as $300 billion in MBS (Mortgage Backed Securities). I included a chart showing the SPY ETF (candlestick line, 10-minute bars) intraday trading we can see the reaction. The indices all went crazy for about thirty minutes and then they settled down. Obviously, the Fed has a bigger influence over the indices than politics. Thursday, of course, the indices exploded with the Dow jumping more than 200 points higher to finish  above its pre-Lehman failure mark. I have been saying for a long time that this was the Fed’s target. Now they are there. All it took was a few trillion dollars including the trillion they promised on Wednesday. Friday seemed like a consolidation day but without the Fed punching buttons on their manipulation keyboard, the indices slumped. Well, the Dow slumped until it experienced a furious 40-point rally in the final 20 minutes of trading to finish in the green. Glory be!!
So what did we learn, kids? Well, we learned that the only thing that moves the stock index these days is the Federal Reserve. I would like to emphasize that I said, “the only thing”. Nothing else matter. I would like to emphasize that I said, “NOTHING ELSE MATTERS”!!! One might argue that earnings matter. Please. Don’t get too excited about Thursday’s big rally and mistake shill for skill. Fannie Mae and Freddie Mac were up on Thursday like everything on the planet. Fannie and Freddie both lose tens of billions every year. As for politics, does anyone think the clowns elected on Tuesday can do anything to make the economy better? Do any of them have a clue? Please. Bring in Mr. Bernanke and his suitcase full of trillions. Bang! Up go the indices. Yes my friends - it’s that simple. 
Clearly our country has been sabotaged by the Federal Reserve. Greenspan gave us market bubbles, the Internet bubble, the Y2K bubble, and the post 9-11 bubble. Bernanke gave us the credit bubble and the housing bubble. Now he is going to give us a stock bubble. Bubbles don’t come free of charge. 
After Thursday’s big run, a friend of mine told me that he was ‘rich but poor’. What he astutely pointed out was that while the stock casino floated higher, it did so in a lake of rising inflation. The chart below is again, the SPY ETF in candlestick and the sugar ETF, SGG, in gold. I picked sugar because I could remember the ticker off the top of my head. Clearly, investors made money in stocks only to lose it in the grocery store. Bernanke is determined to blow another bubble. But why? Is he stupid? Is he incompetent? Does he work for al-Qaeda?
I think the trillion dollar missile was not necessarily fired at the stock casino. That missile had China’s name on it. Bernanke is doing several things here. One, he is devaluing the US dollar in hopes of increasing the value of the Chinese yuan. Here, he is stupid because a higher yuan increase our inflation rate. Also, Bernanke wants to try to even up the trade imbalance but that can’t happen because China makes all the cheap crap that keeps all of us at the shopping mall every weekend. Bernanke is incompetent in that he is no doubt frustrated that trillions in stimulus and zero percent Fed Funds rates have no revived the bad real estate paper that the banks still hold. Uh, I mean all that stuff hasn’t revived the economy. Yeah, sure, that’s it. The Fed is trying to make the economy better. Uh-huh!
The second thing Bernanke is trying to accomplish is to complete the theft of America’s assets. The $600 billion was for all the dopes that are so transfixed on the Dow. Of course it will go up. Yea! But the $300 billion in mortgage paper will be swapped out for new Treasuries and the Fed will then have $3 trillion on their balance sheet. Of course, the shill banks will have cash and we will have debt as far as our grandchildren can see.
Look at the chart and understand that a federal reserve note would buy less sugar on Friday than it would on the previous Monday. Ditto for the entire commodity spectrum. Oh, I almost forgot. On Friday, the government said the private sector added 151,000 new jobs. Pardon me while I yawn. That number didn’t even make the Dow wiggle. Where was Bernanke? What was he doing? Was he putting his face on the new money he was printing up? Bring on the trillion Ben! It’s your bubble, baby!
11/01/10 - 11/05/10 - 5 days, intraday 10-minute bars, SPY in candlestick, SGG in gold
Chart courtesy

Thursday, November 4, 2010


Hallelujah! We are saved! At last, the big banks have found a buyer for their garbage real estate securities they call MBS (Mortgage Backed Securities). Finally, their balance sheets can be cleaned up and our economy can be healed. It has been a while since real estate fell off a cliff. And, I think if we are all honest, we know that real estate has a long way to go before it hits the bottom. But in the meantime, who cares? The most important thing isn’t whether or not any of us have a place to live. It matters not whether we have food to eat or jobs from which we can eek out a living. It doesn’t matter whether our civil liberties have been abolished and we now have to board airplanes in the buff. (By the way, I said this was coming years ago in one of my newsletters in which I suggested we board plans completely naked and change the name of the government airline to NUDE – No Undue Delays En-route.) It doesn’t even matter if we no longer live in a free and capitalistic society. We all know it’s all gone. What matters most is our big banks have found a buyer for the garbage paper they generated by scamming the public through various fraudulent schemes and products. Thank heavens the banks are saved!!

The Federal Reserve met today (11/3/10) and made one of their most anticipated announcements. The wonderful and all-powerful Fed will commence quantitative easing 2 (QE2) and carry forward through June of 2011. During that time, the Fed will buy $600 billion in US Treasuries and $300 billion more in MBS paper from the banks. You can read my article that I posted in August of 2010 on why Treasury yields would all eventually yield zero but I don’t chew my cud twicst - Why Treasuries Will Eventually Yield Nothing. Sure Bernanke wants Treasury yields to all be zero very soon. How else can a bankrupt, intellectually vacant nation continue to borrow their way to prosperity? By carrying out this strategy, the Fed all but admits the economy is already in ruin. Who else is there to rescue us? This strategy has not worked where it has been tried and will ultimately bury us in debt and default. But, Bernanke is going to try it anyway.

It’s like the episode of the Roadrunner and the Coyote cartoon in which the Coyote rigged up a bunch of rocks in an arch under which the Roadrunner would run. At just the right moment, the Coyote would pull a rope that would be tied to a strategic rock and the whole pile would fall surely crushing the Roadrunner. At long last, the Coyote would eat the Roadrunner. However, when the time came, the Roadrunner ran under the arch of loose rocks, the Coyote pulled the rope, and only the single rock fell allowing the Roadrunner to escape the trap. In a moment of frustration, the Coyote stood under the arch of rocks trying to find the reason they did not fall. He climbed on top of them. He jumped up and down. He furiously climbed down and stood directly under the rocks still lodged in place and proceeded to poke at them with a stick. Now enraged, the Coyote poked harder and harder until a few rocks began falling. Realizing that his once anticipated avalanche was now under way, the Coyote pulled out a sign for the audience to read. It said, “What in heaven’s name am I doing?” By launching QE2, Ben Bernanke is now holding the same sign as the Coyote.

But, where will the Fed get this $900,000,000,000.00 to buy Treasuries and garbage from shill banks? Yep, out of thin air. The Fed is buying the treasure of the United States with confetti. In essence, he is handing the sign to us. We are the Coyote standing under the mass of rocks. Each dollar of asset purchase by the Fed in turn reduces the value of our assets by slowly destroying the currency. We, the taxpayer, are the ultimate buyer of the big banks garbage. Why their towers have yet to be turned to embers I don’t know. What does it take? Congratulations, fellow suckers. We will soon have some $2 trillion in extra debt for the purchase of bank garbage. What in heaven’s name are we doing, indeed!!!

Oh, did I mention that big banks rallied nicely today? The Fed would like to thank you for your sacrifice. They also would like to pass on that when it gets cold this winter and you find yourself unemployed, please don’t press on the glass of the banking towers for warmth. It creates fingerprints and, well, the FBI probably already has those on file. Anyway, there’s nothing like getting rid of a little garbage to stoke a rally! The BKX ETF was up almost 2% today! That’s all anyone cares about anyway. Only next time, maybe Bernanke will have a drawing and let the lucky winner pull the rope themselves.

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

Copyright ©2010 BMF Investments, Inc.

Friday, October 29, 2010

10/29/2010 - Gold Divorces the Dollar

Nobody knows nothing. The data, cooked and contrived as it is, gives no definitive answer. The bulls think the economy is mending but ever so slowly. The bears think the economy is taking on water and bound to sink like the Titanic. Investors are clueless and there is an election a few days away. Bernanke described the current conditions very well with his ‘unusual uncertainty’ reference a few months ago. We are all guessing. Which way is Bernanke guessing?
SuperBen emerged from the Jackson Hole retreat at the end of August hell bent on another round of quantitative easing. In layman’s terms, quantitative easing is when the Fed snaps its fingers to conjure dollars with which they then buy US Treasuries from the shill banks that are required to buy the debt issuances of the US Treasury. Obviously the idea is to stoke the economy by pumping trillions into the banking system. Banking voodoo quickly turns a trillion into ten times that with the lending power of nine. The Fed would not consider doing such a thing unless the economy was in critical condition. Point taken. 
The poor old US dollar, though, is in for a shellacking if the Fed pulls a trillion out of its derriere. Sure, the Fed pretends that creating dollars from a mouse click in a spreadsheet isn’t really increasing the dollar supply but who’s kidding who? Since their inception, the Fed has destroyed the dollars value. In fact, they have substituted the Federal Reserve Note for the Dollar Bill. The Federal Reserve Note is a promissory note. It is a debt instrument in and of itself. It has no value whatsoever. But this is the Fed’s con game.
But what about inflation? Most people associate inflation with currency devaluation. Indeed, as the Fed has increased its balance sheet by creating electronic dollars to buy Treasuries, inflation has accelerated. Commodities of all types are on the rise and will likely continue the upward trajectory with more quantitative easing. Most people who believe inflation is rising also believe gold is a hedge against inflation. However, that’s not entirely correct. Gold is more of an alternative to currency. In fact, gold and the dollar are like a marriage. I included the chart below which is a year-to-date look at gold and the US dollar. The fact is, the two climbed in harmony (the chart is not meant to be of scale) until Bernanke emerged from his hole at the end of August. Suddenly, it seems that gold and the dollar have filed for divorce. The moment Bernanke brought up the subject of QE2, gold and the dollar went their separate ways. The driving force in the separation is not inflation or even monetary supply. The driving force is the Fed. They are the fornicator.
What does the chart imply as we move forward? It all depends on QE2 and how much Bernanke pumps into the banks. If he goes for a trillion or so, gold looks poised to rocket higher. If blundering Ben disappoints investors with less than $500 billion, the dollar may find footing and gold may tumble. Whatever you invest your money into, pay attention to Ben. He is the ruler of Wall Street and whatever he does will have an instant impact. A big QE2 should be good for gold and bad for the dollar. Divorces are always an ugly matter.
YTD - GOLD in gold and US Dollar in green
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 

Friday, October 22, 2010

Watch Your Asterisk

America has become an asterisk. That means it only exists conditionally. The conditions are explained by asterisks. For instance, big banks earn a lot of money as long as minor details like expenses, losses, and derivative valuations are ignored. The governments car company, GM, will soon release an 'electric' car that gets 280 miles per gallon equivalent. However, it is not really 'electric' as it has a small gasoline motor and at highway speed, the motor kicks in. In truth, it will return mileage equivalent to a Toyota Prius. Only, the US taxpayer will have to chip in about $7k per car sold to even make it seem competitive. What about the stock casino? Well, as long as the Fed is hard at work every day manipulating the indices higher with POMO or TOMO or PPT activity, the casino appears to the dopes of the world to be a 'market'. Without the Fed, it's a yard sale and everything must go! Monday was a POMO day. Tuesday was not. Wednesday was. Thursday was not. Friday was. Check the charts. Charts don't lie. Governments do.
The US government was overthrown in the coup of '07 by the Federal Reserve. The Fed is now cementing its power of control with the tool of debt. It's not like they are acting in a clandestine manner. It's all in black and white. The Fed's own balance sheet lists a sum of just over a couple of trillion dollars for total assets. A trillion of those assets are MBS (Mortgage Backed Securities) paper  that they are using to steal $2 trillion in Treasuries from intellectual Treasury caretakers like Bernie Frank, Nancy the nitwit Pelosi, and the rest of the feckless Congress. That MBS paper has an asterisk beside it. The corresponding footnote says that the trillion-plus MBS paper is all backed and guaranteed by Fannie and Freddie. I can't imagine a reader of this blog not knowing this but Fannie and Freddie is you and me - the taxpayers. The Fed has no risk in the bad mortgage paper. None. You can read my article entitled 'The Fed's Furtive Filching' that is posted on sites like but the outcome is sealed. The banks had bad mortgage paper in 2008. They lost all of their money in derivatives trading based on the bad mortgage paper. They were, and still are, bankrupt. Yes, I know. They all report good profits. Go read the asterisks. So the Fed engineered the greatest theft in history. They got Congress to sign over a few trillion in Treasury notes so the Fed could issue the banks a dollar for dollar exchange of Fed cash for bad mortgage paper. Now the Fed has bad paper, the banks have Treasury notes, and the taxpayer has debt. The Fed is now buying Treasuries from banks to complete the heist so they can replace the bad paper with good Treasury notes. Very soon, the Fed will have converted a trillion in bad mortgage paper into a trillion in Treasury notes, the banks will have converted a trillion in bad paper into Federal Reserve Notes, and the taxpayer will have converted stupidity into an extra trillion in debt. Watch the asterisks. They are important.
Here is another one. On Tuesday of this week, the Federal Department of Pathological Lying said housing starts increased .3%. Not that anyone pays government data any attention anymore but I do get a kick out of the footnoted asterisk. It basically says, 
'The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can’t be sure whether starts increased or decreased. In September, for instance, the standard error for starts was plus or minus 10.3%. Large revisions are common.'
In other words, housing starts could have been up 10% or down 10% or anything in between. Who knows? Anyway, the market needed a positive number so it got one. Well, it came with an asterisk!
Meanwhile, every country continues to fight currency appreciation versus the terminally cancerous US dollar. China raised interest rates slightly to try and dampen economic growth thus lessening the yuan appreciation. Brazil imposed higher foreign taxes to bond purchasers outside of Brazil as did Thailand and other sovereign nations in a effort to dampen their respective currencies appreciation versus the US dollar. It seems that there is a flight from US dollars as the current US administration continues to scare the bejeepers out of the rest of the world with a continued maniacal economic policy of borrowing, lying, and surrendering to the central bank. Even the US debt comes with an asterisk. The debt is not very large compared to GDP unless of course you have the audacity to also count off-balance sheet expenses and unfunded obligations into the tens-of-trillions. 
Let me leave you with a chart of the SPX for this past week. The chart is the last five days showing 10-minute bar intraday trading. As you can clearly see, the POMO days were positive. In case you are interested, next week looks promising with POMO days on Tuesday and Thursday. Also, the Treasury will be issuing over $100 billion in new debt so that should drive the greenback down. Combined with POMO intervention and manipulation, the dissolving dollar is likely to push the indices higher. Just don’t forget to watch your asterisks. These are the riskiest indices in history. Why? They are all based on an asterisk. Yippee!

SPX - 10/18//10 - 10/22/10 intraday 10-min bars.
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 

Saturday, October 16, 2010

Banking Bummer - 10/15/2010

The stock rally stalled this week when banking stocks stumbled. in 2008, it was the 'toxic illiquid assets' that stopped up the system. in 2010, it is the stampede of foreclosures on that toxic illiquid asset mess that has stopped up the system. Over the past couple of weeks, the banks agreed to halt the foreclosure process across the nation. Seems that no one quibbled about the fraud in lending on the front side of the sales process. Now everyone is upset about the fraud on the backside of the foreclosure process. Or maybe the government just didn't want a million foreclosures in the year to show up in dispute of a well publicized and much cheered economic recovery. The fear is that the mortgage paper absorbed by Fannie and Freddie might get sent back to the banks if the foreclosures are not legitimate. Yes, there are a lot of problems from bad signatures to missing paperwork. This could cost the banks billions.

Also at stake is the idea that banks that extend loans must retain the right to evict when payments are not met. As the foreclosure lines get longer and longer, the ability to evict in a timely manner becomes more problematic. And at the end of the day, if the banks now have to take more time to make sure the process is done correctly, expenses are sure to rise. Thus, banks stumbled this week and muted the QE2 rally. Well, I should say the 'QE2 anticipation rally'.

Quantitative easing is the operation conducted by the Federal Reserve whereby they buy Treasuries from the big banks. The Fed gets rid of garbage mortgage debt and the banks get billions to lend. Okay, okay - please stop laughing. We all know that the lending model is a failure. The banks use the money to jack the stock indices higher. The rally from August has added more than a trillion dollars to Americans' net worth. Unfortunately, when Wall Street gets on a drug, the eventual withdrawal process is ugly. That drug, is Federal Reserve stimulus like the QE variety.

We know the government lies about everything so I don't even pay much attention to 'government data'. Supposedly, the economy lost some jobs last month but gained some jobs in another column. Inflation is up but if you don't count the things that are up in price, inflation is at zero. Sorry, SSN recipients. Consumers were supposedly buying but feeling less confident. The economy added jobs but more people applied for unemployment benefits. In other words, our government could tell the truth if Jesus wrote it on index card for them to read.   

So let's look at a chart. The chart below is a 15-year look at the US dollar in green and the banking ETF, BKX, in blue. The chart of the BKX looks to me to be a double top so I took the liberty of drawing in a neckline in red. The red arrows show the anticipated target low once the neckline is broken. Check. Interestingly, I call 2003 the 'magic year'. Everything changed in 2003. The market was overtaken by the Fed and no longer functioned from that point on. For instance, the BKX and the dollar were pretty well correlated until 2003. Since, they are inversely correlated. The Fed has made a mess of the indices and life in general. Where do we go from here?

The dollar is heavily oversold right now. It is due for a bounce. Thursday and Friday it did indeed bounce. Banks fell. The dollar might bounce some more next week and the week after, but the Fed will soon be back in QE mode which destroys the dollar. Thus, banks might continue falling and the indices might just wallow in the low 11,000 range. But soon, Santa will be back driving the indices higher. Uh, I mean Bernanke will be back driving the indices higher. Just be advised that POMO activities are scheduled frequently in the coming weeks so there should be a few pretty strong days in store for the Dow that will quickly be tempered by the banking mess.

15 years - BKX in blue, USD in green
Chart courtesy

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

Friday, October 8, 2010

10/08/2010 - The Dollar Melts, The Dow Cooks

The Fed is now intent on finishing what they started in 1913. The US dollar is history. Whether it is quantitative easing or debt as far as the eye can see, the currency has become the sacrificial lamb. The Fed is of course buying Treasuries to manipulate the interest rates lower than the market would price them. The Fed's chief trader, Brian Sack, gave a speech this past week (10/4/2010) in which he detailed this idea. He also mentioned that the Fed figured to manipulate the stock indices higher as well by using the same strategy. The link to the speech is:

I would suggest we all read what the new leaders have to say and what they want from us. With out a doubt, they want the stock indices higher. The economy is still in a fetal position from the real estate depression so the Fed's only recourse is to inflate, inflate, inflate. Now, for the first time in history, they are even putting their objective in print. They are backing up their words with $30 billion dollar injections into the system each month. Here is what is going on.

The Fed has $2 trillion dollars in bad MBS (Mortgage Backed Securities) paper. They obtained the paper by taking $2 trillion dollars from the Treasury and then buying the garbage from the big banks. This expanded the Fed's balance sheet and they are not going to allow it to contract. As the MBS garbage rots and dissolves, they are printing up some $30 billion dollars per month to buy Treasuries from the big banks. That gives the big banks ammunition to buy stocks knowing that another $30 billion is coming next month and another $30 billion is coming after that. The current rally is completely artificial but that's the way a fix works. Back to the Fed.

So now the Fed is going to exchange the MBS paper for freshly issued US debt Treasuries. The heist should be completed in a year or so and the Fed will then have $2 trillion in Treasuries. Ain't that swell! But what about the poor old US dollar that they are throwing under the bus?

The Fed wants control and owning the debt is control. When they finally kill the dollar, the Fed will no doubt issue some currency that they themselves conjure up. To the rest of us, we can look at the chart below for an insight as to what to expect going forward. The US dollar is the green line, the Euro currency is the gold line, the Dow is the blue line, and the Euro stock ETF, VGK, is the black line. Very simply, the dollar is inversely moving everything. Since we now know the Fed's full intent is to destroy the dollar, we can assume that other asset classes will be inflated. Enjoy the 'rally'!

Dow= blue, VGK = black, US dollar = green, Euro = gold
Chart courtesy

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.