Sunday, September 11, 2011

Currency Control

For the week ending 09/09/2011, I have included a year-to-date chart showing four lines. The Swiss Market Index (SMI) is in red, the S&P 500 (SPX) is in gold, the US dollar (USD) is in green, and the Swiss franc (FXF) is in black. The media and the market pundits are volunteering all kinds of reasons for everything that is going on in the stock market. I’ll keep it simple. The truth is just that way!
The stock market is nothing more than a psychological tool that is used by the central banks to dupe the worlds’ populous into believing that the economy will survive banking exploitation. Market values are set by central bank meddling and therefore completely correlated to currency valuation. Very simply, relative market valuation can be controlled by currency valuation. The cheaper the currency, the the market becomes valued in that currency. The chart below tells the story.
The Swiss central bank this week stunned the world by announcing that they would no longer tolerate a Swiss franc above 1.20 to the euro. They would by whatever denominations of other currency in whatever volume they needed to achieve this peg. Their reasoning was that they felt the Swiss franc was way overvalued due to the sorry state of every other asset class in the world. Like the US central bank, the Swiss central bank has already lowered interest rates to zero but still, the world has poured into franc given that the central bank of Switzerland can still print francs at will. Many believed this policy would result in the Swiss bank buying euros outright to facilitate the strategy of currency devaluation. 
Allow me to inject the truth. The chart below shows that the Swiss Market Index dipped into bear market territory in August as it had lost 20% of its value from the beginning of the year. Now, as I have been postulating, all markets must move inversely to their underlying currency. The Swiss stock market had been falling because the currency, the franc, had been rising. As I have been postulating , all central banks work for one singular purpose. Their only job is to goose their stock markets. Thus, the Swiss market was down and it could only be righted with a weaker currency. How do they do that?
Taking a look at the US dollar, we have a clue. As I wrote in my last post, I suspected the US markets were goosed at the end of August to make client statements look better. When the calendar turned to September, down they went. The first six trading days of September (closed on Labor Day), were all powerful negative days except Wednesday as the Dow rose and incredible magical 275 points. Anyway, the demise of the US markets was coincidentally met with a rise in the value of the US dollar. Given the pathetic shape of the US fiscal condition, what would cause a rise in the value of the currency? My guess would be that the Swiss have been busy buying every currency on the planet in an effort to devalue their own in a effort to resuscitate their stock market. I don’t care what they say in public. Besides, politicians are nothing more than professional liars. The US dollar is highly liquid and the Swiss can sell francs and buy dollars all day long. 
What does this mean for the US markets? Again, markets can only rise in tandem with devalued currency. If the Swiss continue to buy US dollars and cause the dollar to appreciate, the US markets will likely depreciate. And, it would appear that the Swiss government is serious and just as desperate as every other government on the planet to continue their sham. Behold - the chart below. 

YTD 09/09/2011 - SMI (red), SPX (gold), USD (green), FXF (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. Advisory services offered through BMF Investments, Inc.

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