My Central Banker Can Beat Up Your Central Banker!

Another week - another gain for the Dow. The S&P was slightly positive but what’s up with the Nasdaq? It was actually down a few percentage points. While the other indices were rising because the economy was getting better, the Nasdaq was falling because the economy was not getting better. Go figure! Was Bernanke only buying the senior indices this week? Isn’t that all that matters? I think the following chart explains things quite clearly.

The chart shows the time frame from the QE2 announcement and the effects of the Fed’s manipulation. The major US indices have been rising since September 1, 2010. They will likely continue to do so through June of 2011 - the end of QE2. The Shanghai Composite, however, initially rose with its compadres but has not been able to sustain the rally. Why not?

Here’s where we can see the new era very clearly. Investing is most certainly not tied to fundamentals anymore and it is also completely detached from investing skill, intelligence, and knowledge. Today, all that matters is central bank manipulation. If you will, the US is saying to the rest of the world, “My central bank can beat up your central bank”. Boy, howdy! Compare the US stock markets to China’s Shanghai Composite. For the past four and a half months, the US markets have gone nearly straight up. Indeed, there have only been four weeks out of the period that were negative. We can only assume that Bernanke must have been too busy manipulating the bond markets to keep the air under the stock markets for those four weeks. But comparing the US markets to China is interesting.

Pure and simple, the Chinese central bank is trying to contain inflation in their country and the US central bank is trying to foment inflation in theirs. The stock markets reflect inflation. Economically, China is certainly growing their economy faster than the US is growing theirs. The US is hopelessly growing debt obligations to the moon and the Chinese have so far supplied the fertilizer. President Hu came to visit this past week and Mr. Obama did his standard bowing act to his superior. One must maintain proper manners when the landlord is in the house. Maybe the only thing Mr. Obama could claim as a ‘one up’ on Mr. Hu is the US stock markets are outperforming the Chinese stock markets. Maybe President Hu wanted to get Mr. Bernanke’s secrets to manipulation. Mr. Bernanke is, of course, a master!

For his part, President Hu wanted to emphasize that the clock is ticking as the US dollar status as a world reserve currency is ‘past history’. Countries around the world are beginning to trade commodities in currencies outside the US dollar. This is bad for the dollar but it could be good for the US stock market. Yes, Virginia, the stock market is purely a reflection of inflation. And luckily for, and unbeknownst to, investors, there is a lot of inflation out there. I’m sure that Mr. Obama imparted the secret to controlling inflation to a worried President Hu. In the US, the government simply lies about inflation. The government lies about everything. They fabricate data and news stories to placate the populous. Statistical formulas are nothing more than wet clay that can be molded to represent the ruler’s view. 

For our study, however, all we care about is the stock market. As long as Mr. Bernanke pushes the indices higher every week, I suspect Mr. Hu could come to America and start putting his name on properties in exchange for debt default and not a single US investor would mind. They are all just thankful that they are getting some of their lost portfolios back - at any cost. Mr. Hu may have been here to tally up the bill! What we are seeing in the stock market is the US central bankers are boosting the domestic stock market. Unless the Chinese central bankers get on board and boost the Shanghai Composite, we must be content that our central banker can beat up their central banker. It looks like the US markets will do better than Asian markets as long as this mindset is in place. But, whenever the Chinese pull off the old currency switch-er-rue, it all crumbles like a dry cookie. 

Chart 1 - DJIA in black, Nasdaq in green, SPX in blue, SSEC in red - Past 3 mths

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.

Will This Be The Dow’s Best Year - Ever?

Could it be? Will it be? I haven’t been this giddy since 1999. Of course, I’m all jacked up on POMO and TOMO and QEs. But think about it. The Dow is already up about 2% for 2011 and January is only half over. If the Dow could go up 4% every month, it would be up 48% on the year. Certainly our Ruler of all things bubbly and bubblicious, Mr. Bernanke, will over shoot a few months and push the Dow up 6% or 8% on some months! What? What’s that? You haven’t heard that the stock market was captured in August of ’07 and it is now the sole contrivance of the wealthy to amass more wealth? What’s that? How are they doing it, you say? Well, first the super wealthy had to take the helm of the world’s largest economies. They did that by putting the dumbest people they could find in political office and then creating a seemingly horrendous economic event so the dumb people would hand over the keys. The super wealthy have this thing called a printing press and it can conjure up money at the snap of a finger. They say it can cure the cuts, heal the hurts, bandage the bankrupt, fix the foreclosed, and straighten out the stupid. Seems no one knows how the contraption works except that Bernanke fellow and when he tickles that thing - magic happens! So now the Federal Reserve is running the whole show. The stock indexes are theirs and they want to make sure the super wealthy get super-er wealthy-er. Trouble is, the world’s economic machine is running like an 1974 Chevy Vega with a hundred-thousand miles on it. The economic machine is not generating wealth. Neither is its ‘American Motors Pacer’ cousin, real estate. So, all the wealthy have left is the stock indexes. And, since the super wealthy put, and keep, the bankers in power, the bankers have to make sure the super wealthy are taken care of really nicely. I believe I read a stat that the top 10%  in terms of wealth own 90% of all stock. If that is wrong, I would love to be corrected. What they all need is a really good year from the stock indices and maybe they would then own 95% of all stocks!

The best year ever for the Dow was 1915. The Dow was up 81%. Coincidentally, that was one year after the birth of the Federal Reserve. Even more coincidentally, that was one year into WWI. The second best year ever for the Dow was 1933 as the Dow was up 66%. Coincidentally, Americans were losing their homes in droves in those days. Even more coincidentally, small banks were imploding like super thermite coated buildings. In case you are wondering, the third best year ever was 1928 with the Dow up 48%. So, it is easy to see that we have a chance for a historically good year in stocks this year, 2011. Why should we be confident?

It’s the Federal Reserve, silly! They have the money machine. The citizens are either doped or dopey and the people’s Congress remains stupefied in a state of catatonic cognition. Thus, the Fed rules supreme! They can do whatever they want without challenge. And what they want is quantitative easing. 

Now that we know what they want, we must extrapolate where they want to go. I have included the chart below for a roadmap reference. The chart is the Dow in candlestick and the USD (US dollar) in green since September 1, 2010 (the beginning of QE2 and its announcement). The chart is a weekly look at how the Fed’s program has progressed. And yes, it is a thing of beauty. Four months and two weeks of trading and there have only been four, count them - four, down weeks. And, only one of those weeks was even the least bit painful. Of course, the dollar has to lose in order for the stock indices to gain. Check out the chart and imagine another eleven months of this pattern! Yes, we may indeed experience the best year ever in the Dow this year! QE2 will wind down in June. I can’t wait for QE 3! The Fed will be buying municipal bonds, stocks, Treasuries, and everything else to make the Dow rise. Heck, Bernanke himself might start calling each of us to make us a premium offer on stocks we are holding!

Chart 1 - DIA in candlestick, USD in green - since September 1, 2010

Chart courtesy StockCharts.com

The only thing even restraining gains on the Dow has been concerns over corporate earnings. Ha! I like to include jokes so readers don’t get bored. No really, investors have been concerned about the continued trouble in real estate. Ha, ha - that’s another good one! No one cares about anything because the Dow is no longer based in reality. It is now simply an indicator on a ‘Ring the Bell’ carnival game. The Fed has a monetary mallet that they use to hit the pivot board. However hard they hit the board, the indicator reacts accordingly. Along that line, this past week was witness to a bit of nervousness over the fate of Portugal’s bond offering. You know the story. Portugal is just one more in the succession of European sovereign (or as I prefer - pseudo sovereign) nations that can no longer pay their bills. They are carrying on the American way - they are going to borrow their way to prosperity! Of course, no one wants to buy junk debt at single digit interest coupons so Japan and the ECB generously offered to absorb the rancid bonds. And of course, just like every other bankrupt nation, Portugal vehemently denied needing a bailout. Really - they did!  Well, I guess they were right - they were already getting a bailout. But the debt was ‘well received’ and the investment world took the news like it takes all news. Bad news is ‘good news’ and good news is ‘better news’. So, Portugal’s debt is solved just like Greece’s and Ireland’s. It’s time to rally, rally rally! Ta-da! I think I am starting to like the ECB. I think I’m starting to like quantitative easing. I think I would like to see the best year ever in the Dow! I think I am even starting to like Ruler Bernanke! The way he shakes his POMO is a real turn-on!

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.

Dow 15,000 By Year Ben - Uh... I Mean Year End

And....., we’re off! The New Year is off and running and the Federal Reserve is busier than ever. The first day of the new trading year started off with a bang. The Dow bolted up some 100 points as the trading continued from the ferocious last 15-minutes of the last day of trading on New Year’s Eve that I documented in my last post (http://bmfinvest.blogspot.com/2010/12/does-new-year-change-anything.html). The rest of the week turned a bit more pessimistic as Friday was looking downright ugly until one o’clock. What happened at one o’clock? Oh yeah - the great Bernanke finished up his meeting of the Village Idiots (he testified before the bozos we call ‘Congress’) and got back to his real job, juicing the stock markets. If there is anybody that still thinks we really have ‘stock markets’ anymore, you should go read a book or something. All we have is Bernanke and his printing press. 

Of course, the Fed is trying desperately to spin an economic recovery so they don’t look so stupid in all their efforts to save the big banks from the oblivion of their ineptitude and stupidity. And, the Federal Reserve was shoulder to shoulder with the lenders of lunacy egging on the derivatives and credit default swaps that drowned the world in debt. Yes, all the rest of us have to pay for the banksters’ folly but this is the new era. Greetings, fellow suckers! The US just passed the $14 trillion mark in the national debt.

So we got some good news on employment. The official unemployment rate dropped to 9.4% and more jobs were created, more people than expected filed for new claims, and more people dropped out of statistical relevancy. Yippee! The service sector was up, home sales were up, consumer spending was up, Christmas was good, blah, blah, blah. Fill in whatever ‘happy news’ you want to. Stock indices need the happy news and the dopes of the world never get tired of hearing it. Pabulum and a binky is all the investing world needs. So be it. 

I have included two charts for our discussion this week. The first chart is a one-week intraday look at the ETF, the DIA, for the first week of January, 2011. Here’s the deal. In this new era of complete Fed dominance, we have to go on feelings and instinct. I look at this chart and I get a little nervous. Yes, it is a one-week chart but it is a head-and-shoulder looking kind of thing and that is bearish. The past two Januarys have been ugly and it seems like the real money players are trying to play the rest of us for suckers. Selling has picked up in the wake of economic nirvana. Maybe next week we see some weakness. Why? Well, it’s the same old story - just another year. Europe is a basket case and the weaving is getting even more loose. The broke countries were allowed to borrow their way into insolvency through the magic of derivatives and credit default swaps that were sold by German and French  banks. The debt that can’t be repaid is pummeling the swaps and the banks that are on the hook for the bad debt. The Euro currency is fading against the US dollar. That pushes the valuation of the dollar higher and when the dollar goes higher, stocks generally go lower. So, my guess is if the indices begin to roll over early next week, we could see a little correction. Go to the next chart.

Chart 1 - Intraday 15-minute bars 01/03/2011 - 01/07/2011 DIA

Chart courtesy StockCharts.com

The next chart (Chart 2) is the past two years of the Dow Jones Industrial Average. Forget everything that you think you know. It no longer matters. Forget earnings. Forget growth. Forget sales or profits or debt. The Dow will hit 15,000 before the end of the Ben - uh..., I mean, the end of the year. Why? Call it ‘quantitative easing’ or anything you like. I prefer ‘stock and manipulation’. The old S & M. The chart is all that matters. Yes, the whole thing is one big con game and it gets more silly each day. So I drew football goalposts in orange to outline the first wave of Fed stock manipulation. Starting in March, 2009, the Fed started buying Treasuries and garbage paper from the banks and this first phase ended in August, 2010. As it ended, the stock indices looked poised to fall apart. How could a Dow decline be arrested?

The solution was the same as all stock solutions in the new era. The Fed announced the start of QE2 in September and all was good. I drew the QE2 goalposts in green but of course QE2 will last until the end of June. The important thing is that QE1 drove the Dow up some 46%. Let’s call it 50%. So, if we get the same kind of effect from QE2 that we got from QE1, then the Dow should add another 50% before the summer and that would put us at Dow 15,000. Maybe Bernanke got one of those bubble blowing kits for Christmas! It is also worth noting to the doubters out there that since the announcement of QE2 on September1, 2010, the Dow only had 4 weeks of negativity through the end of the year. Wow! Talk about complete control. And two of those negative weeks were very minor losses. As we get to the end of ‘S&M’2, look for ‘S&M’3 and that will likely include large index purchasing from the Fed. Only now they will do so in plain view!

Chart 2 - Past 2 years DJIA weekly

Chart courtesy StockCharts.com

To summarize, the short run looks a little dicey and the long run looks a little like a roulette wheel whose pockets all have the same number. Europe may still be the driver as it tries to tighten up its basket of debt insanity. The two biggest economies in the world, the US and Europe, are indebted to infinity and have not yet realized that the only way out is through the door labeled ‘Default’. Most investors are enamored with their modicum of stock picking prowess unaware they are playing gin rummy at a poker table as the dealer is just letting them win until the pot is big enough for the kill. A lot of money can be made in a bubble. A lot more money can be made when the bubble pops. For now, the Fed just needs a week or so to load up the bubble machine for another puff of expansion. Tread carefully and time it accurately!

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.