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 StockCharts.com
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