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.