Stock Market Kryptonite

In a world gone mad - in a world gone broke - in a world ruled by the insane - in a world completely disconnected from its foundation - the stock market is now driven by currency valuation. A stock rally must have a weakening currency. A stock selloff must have a stronger currency. Thus, stocks have now become pure inflation puppets. The Dow Jones Industrial average must have a weak US dollar to stoke a rally. Nothing else matters. 

For this week, I again bring back my favorite chart (below). It is an 8-year picture of the USD (US dollar) in green and the FXE (euro currency) in black. Please review it below. 

Why is this so important? Because it looks like the dollar wants to strengthen and thus the Dow will continue to weaken. That is, of course, absent another miracle ‘end of the month PPT rally to make investor statements look better’. The US dollar and the euro are on a collision course. The dollar is at present rising and the euro is falling. I drew in a green line to approximate the expected top in the dollar appreciation. The black line shows the approximate level of the expected euro fall. For investors in the US, it looks like the dollar can rise at least another 5% or so. This will surely produce an 8% or better drop in the Dow. That would put the Dow in the mid-10,000 level where Bernanke and the boys jolted the Dow higher by 400 points in 45 minutes on October 4. If that level is to hold, the dollar (as represented by USD) must terminate its ascension at $84 or so. Otherwise, the rising dollar will function as stock market kryptonite and a bear market will no doubt surprise investors who believe government economic propaganda. 

In the chart below, I also drew in three vertical red lines. All three red lines are approximately equal in length. Their purpose is to show that the USD and the FXE generally only move a certain distance apart before they have a reunion criss-cross. We can all see where we are in the cycle. The USD and FXE look destined to cross again very soon. Again, the ramification is the rising dollar will act as stock market kryptonite. 

Aside from the obvious chart, we can all offer an opinion as to why the USD and FXE chart trends will intersect. 

One, the european politicians are insane if they think the euro can survive without trillions of euros in sovereign debt bailout money. They continue to establish facilities to make this happen but none of the created facilities have the funding or the legal rights to offer trillions in bailout money. The ECB, the EFSF, and the recent IMF addition are all guns without bullets. The EU must follow the lead of the US and ignore established laws and legal rights so they can restore banker capital through the impoverishment of the citizens. The longer they wait, the weaker goes the euro and the stronger goes the US dollar. This is not good for stock markets. Only when the stock markets of the world looked poised to fall into the abyss will central banks act.

Two, which has a better chance of survival - the euro or the federal reserve note? I think we all know that our boy Bernanke has a nuclear powered printing press and he is not afraid to use it. The EU is in a battle with the Germans over the expansion of the money supply due to the fear of inflation. Again, they should just follow the lead of the US and simply lie about inflation. The longer they wait, the stronger will be the dollar. 

Three, let’s see. The two biggest economies in the world, the US and the EU, are both broke and hopelessly indebted by tens of trillions. Neither will ever be able to repay any of their debts and those debts will continue to balloon. The third and fourth biggest economies in the world, China and Japan, loaned a good chunk of that debt to the US and the EU. They stand no chance of ever getting repaid. If central banks choose to print money to rebate the capital depleted banks, we will all end up under one sovereign governance. It will be named, ‘Zimbabwe II’. 

Four, there will be ebullient data released over the next week or so about increased ‘black Friday’ sales in the US. Consumer spending and consumer confidence will be heading in opposite directions as will consumer debt and incomes but nothing matters but the story. And that story will be that the consumer is in great shape, he/ she is shopping their brains out, and the US economy is once again rolling. Well, of course it is. This kind of ‘good’ news inadvertently could work to strengthen the dollar. I guess we can’t have everything. 

In summary, the last few days of November will receive some ‘monthly investor statement’ repair but then it looks like shorting the markets might be the real growth strategy over time to take advantage of a strengthening dollar. However, investors following this strategy must be wary of central bank intervention by way of 1) end of the month (November) rally, 2) PPT manipulation, and 3) ECB bailout announcements. Otherwise, follow the USD - FXE criss-cross and be set to cover the shorts when the USD pushes $84. Of course, I could be wrong. Maybe the PPT doesn’t really manipulate the markets. Maybe the PPT is like Santa Claus. Maybe the USD and the FXE won’t ever cross again. Maybe a strong dollar isn’t really stock market kryptonite. Maybe I really can jump to the Moon and get a piece of green cheese!

Past 8 years - USD in green, FXE in black

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.

POMO Drives The Market

Okay, let’s be honest. The stock market is a sham and has been rendered such by the Federal Reserve. They carry on what they call the Permanent Open Market Operations (POMO) tactics to manipulate the stock market. The schedule is published on the New York Fed’s webpage. I suggest readers take note.

The so-called ‘operation twist’ is now underway as the Fed seeks to spend about $40 billion a month buying longer term maturity Treasuries and selling shorter term maturity Treasuries. They don’t want to expand their balance sheet any further than the nearly $3 trillion that they currently hold. Where, pray tell, did they get all this money? One only has to look at the mounting debt of the US Treasury to find the answer. Business is good when you don’t have to use your own money! 

In addition to operation twist, the PPT is no doubt staying very active. The October rally was fueled by the monstrous 45-minute 400 point Dow rally on October 4, 2011. But, I want to keep it simple this week. 

The chart below is the intraday, 10-minute bar, weekly chart of the Dow ending on 11/11/11. Wednesday was the only negative day as the Dow fell almost 400 points. What was the problem? Greece? Italy? General debt? Please! I think we all know that Europe has surrendered to the central bank, as did the US, and will accept any form of austerity that the central bank chooses to mandate. Yes, that includes a change of leadership meaning the heads of state that the citizens democratically elected are being replaced by heads of state implanted by the central bank. So much for democracy. So much for sovereignty. So much for freedom. At least the stock market went up! That’s all that matters to anyone, right? Anyway, what happened on Wednesday? The Fed only engaged in the selling of securities on Wednesday. Monday, Tuesday, and Thursday they were buyers. On Friday the rested I suppose so they could reload the ink jets on the money printer. But the Dow jumped 200 points higher at the open and Wednesday’s huge loss was erased in a fabulous 2-day rally. Way to go, boys!

How about next week? The Fed is again a Wednesday seller. Stand clear for that one day. The other four days are scheduled buying days. My sense is we will enjoy another fabulous rally next week and it does not matter if Italy falls in a hole or not. That’s not important. The Fed has decided that their subjects need a rally and a rally they shall instigate. Just look at the chart below for guidance. 

DJIA - Intraday 5 days ending 11/11/11, 10-minute bars

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.

The Truth Is Found Between The Keys

Jazz and blues musicians alike have tried to describe the sound that makes their music unique. The great musicians play what is in their heart. They play the truth. How do they express it? They often say it is the notes in between the keys for the jazz piano players. Blues guitar players express the notes between the keys by bending the strings so that the tonal quality of a note resonates somewhere between two true notes. That’s the feel of the music. That’s what is in the heart of the player. That is where the truth is found.

In our world of economics and investments, our government is the orchestra. They play the notes that we hear. And, they have a tendency to play the same song over and over. ‘Zippity do-dah, zippity yea! There’s plenty of sunshine headed my way!’ There may be plenty of sunshine coming our way but I’ve got a feeling our gooberment leaders are just trying to blow that sunshine up ‘you know where’! If we want the truth, we have to look between the notes.

For instance, Canada just announced that their economy lost 54,000 jobs in October. That’s the most since the depths of the financial crisis and the second straight monthly loss of manufacturing jobs. Unemployment increased from 7.1% to 7.3%. The Canadian economy actually shrank in the second quarter. What did they blame for this weak economic data? A weaker than expected demand from the US. Yes, the US is the primary destination of Canada’s goods. 

In searching for the truth, we would obviously not rely on the mendacious propagandists that work for the US gooberment. We have to look in between the keys. We have to get in between the notes. We know what the Canadian government said. Canada’s manufacturers are making less stuff because they see weak demand in the US. Of course, the US economy is a complete ruse and the US needs a stock rally to avert an admission of recession. The stock rally needs some good economic news. Ala-ka-dabra! The US gooberment said third quarter GDP was probably humming along at 2.5% growth. The US economy supposedly added 80,000 new jobs in October and unemployment actually fell to 9%. Nevermind that most of the magical new jobs were temporary (I’m sure these jobs were actually real) and nevermind that unemployment continues to fall even though the economy needs to add in excess of 100,000 per month just to keep up with population expansion (no, the math does not add up). 

Again, Canada said demand from the US slowed and the US said everything picked up. Those are our two notes. The truth is in between them but without a doubt, the truth is not, nor ever will be, found on any note that the US gooberment strikes. So what do we do with the truth when we find it? 

Set is aside. It means nothing to the advancement of the Dow Jones Industrial Average. All the Dow needs is and active Fed, a constant influx of cash from the PPT, and glorious economic news that seems to be more mendacious by the day. The truth is the stock market has no connection to the truth. It is not interested in the truth. Therefore, we should not concern ourselves with the truth either.

At the moment, the Greek debt problem is standing between us and a big stock rally. As soon as the Greek government surrenders to ECB demands that will leave Greece in a perpetual state of depression, the rest of us can take advantage of the stock rally. Greece is only a month away from running out of money. They are desperate for an EU lifeline. Next in line will be Italy. They have a much bigger debt problem than Greece and so the true economic risk goes on and on and only grows over time. The only real solution is to cut back debt and that does not serve the purposes of the central banks. The can only dominate us with debt and the populous is simply too stupid to understand that. 

So, for the coming week, look for the Greek surrender and the ensuing stock rally. Forget about what Canada said. The lie that the US spouts is much more conducive to a rally. 

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.