Saturday, September 24, 2011

Dollar Rises - Everything Else Falls

Stock indexes entered this week fresh off a 5-day rally from nowhere fueled by nothing but hope. Momentum was lost on Tuesday of this week as the markets prepared for the Federal Reserve pronouncement on Wednesday. There was all kind of speculation as to what the Fed might do. What they did was their next operation of manipulation. Deemed ‘operation twist’, the Fed will begin selling their holdings of short maturity Treasury bonds and buying longer term maturities. They expect to pump another $400 billion or so into the stimulus pump. It is stupid. It is desperate. But, the Fed is pretty much out of bullets. 
The stock market promptly took a dive late Wednesday. Apparently, investors concluded that the Village Idiots who are charge of manipulating and stimulating the stock markets are clueless and dumbfounded. Thursday left the Dow with a near-400 point loss. Friday brought forth a slight gain with the help of yet another wonderful last ten minutes of the day rally. What happened to the miraculous rally of the previous week? What changed?
Well, nothing really. The two biggest economies of the world are still broke and job prospects are still waning. What happened is the US dollar continued to strengthen. Period. Read my previous posts and it becomes obvious that the stock market is nothing but a commodity. The Fed policy of buying longer term yields has fueled the strengthening trend in dollar. Stronger dollars kill inflation and commodities. Precious metals crashed. Copper entered a bear market. Look at the chart below.
The US dollar gained 1% this week and the Dow lost 5%. The dollar’s big surge coincided perfectly with the Dow’s big plunge. The Fed seems determined to destroy the income stream produced by US Treasuries by manipulating interest rates to zero. Obviously they want investors to put their money in stocks so they can keep the con game going. The con game is the illusion of wealth perpetrated with the distraction of a Dow Jones Industrial Average trading at a level that is pure fantasy. The Fed can only buy so many call options to boost the Dow and they can only promise a free trip to Kansas for Dorothy to return home so many times before even the dumbest investors has to cry ‘BS’. Nevertheless, the rally in Treasuries strengthened the US and everything else in the world fell. 
The question is will this trend continue? 
Most likely, the US dollar is rising in large part because its diametric opposite, the euro, is falling. We all know Euroland is broke and bankrupt as the big banks continue to choke on the derivatives of sovereign debt. The euro will fall until the ECB enacts another bailout program to steal money from the poor citizen suckers of Europe to ‘re-capitalize’ the big banks. When this program is announced, the trend in currencies will reverse. The euro will rally and the dollar will fall and the Dow will again rally. Earnings anyone? Please. Does corn produce earnings on its own? Oil? Sugar? Gold? No. Commodities rise and fall with currency valuations. The stock markets have become pathetic puppets of the banker elites and are now simple commodities. The chart doesn’t lie. The only thing that matters in today’s market is currency valuation. Period.

DJIA = red line, UUP = green line - Intraday, 10-minute bars, 9/19/11 - 9/23/11
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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