Monday, June 11, 2012

Was It Something I Said?

Okay, it’s really simple now. Believing is reality. All we have to do is believe and fantasy turns to reality. The week that just ended is the new era in a microcosm. The problems in Europe are growing. Last week, Spain vehemently denied needing any financial assistance. Come Monday morning, they awoke to find their pockets turned inside-out with nothing but dust falling out. Yes, as those of us with a functioning brain cell knew long ago, Spain does indeed need financial aid. The only question is how much?
China lowered interest rate for the first time in several years. No one does that unless the economy is fading. Several major companies amplified this sentiment noting that Europe’s drag was affecting business in a negative manner. US economic data has not been very positive given that the US regime lies about everything to make the regime look more effective. Investors have taken all this in and elected to sell stocks. May was a particularly weak month. But now the calendar has moved us to the month of June.
It seems likely that the Fed would like to mend portfolios so a stock rally would be in order. Would they elect to goose the indices for the entire month or would they prefer to spank the indices higher in the last week of the month for some extra excitement? Either way, the rally is just a con instigated by the Fed.
By now, though, investors know the game. The economy is in the tank. Stocks are over-priced and a index correction is at hand. The Fed’s current manipulation plan known as Operation Twist is ending at the end of June and when Fed manipulation goes away, so too do the indices. Naturally, no one wants to be the last one to leave the party so the indices have been sold off. And now, we all know the con. We simply have to wait for the next stock manipulation program to be rolled out by the Fed. This is not rocket science. And, this is no longer a ‘market’. This week revealed the truth.
That is, as the stock indices were poised to eclipse ‘correction’ territory and possibly push ‘bear’ levels, an anticipation story broke that the Fed would be forthcoming with ‘stock manipulation 4’! Somebody said something about an imminent announcement and like stupid in full Congress the indexes took off! Was it fundamentals? Had a cure been devised for Europe’s ills? Was China’s rate reduction the elixir for a better world economy? Nah. It was something that was said. ‘More stimulus is on the way’. How pathetic is this?
Spanish banks are awaiting a bailout that is expected to come this weekend. But the point of all this stuff is exemplified by the chart below. We are in a period in which reality no longer matters. Fantasy is in charge now and a kind word or two from a central banker determines the beginning as well as the duration of any stock rally. Everyone knows big banks get bailed out. But now everyone is beginning to realize that this is not an economic solution. This is furtive filching at its worst and does nothing to stimulate an economy. Stock values are supposed to reflect economic potential. Today, however, they only reflect what has been said and what is anticipated to be said. This is the most pathetic period in the history of stock indices. So, Mr. Bernanke. The Dow is all yours. Get a megaphone. Don a short skirt. Wave some pompoms. When will the US bankers get another bailout?
The chart shows the past week of trading in the Dow. The ‘stimulus’ rumor was released and up went the indices. As the rumor effect faded, so too did the rally. Reality or fantasy. Belief or disbelief. This is the reason to invest or not to invest.

DJIA - Last 5 days, 6/4/12 - 6/8/12, 15-minute 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. Advisory services offered through BMF Investments, Inc.

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