Saturday, April 21, 2012

The Fed Rally Running On Fumes

The calendar is about to give way to the merry month of May. And we all know what that means? Yep, the old adage of ‘sell in May and go away’ may be in play yet again. The last two months of May have been terrible and there is one reason why. The Fed starts a rally in late summer with some kind of stimulus program due to end in June. By May, the rally runs out of gas, and or stimulus, and reality sets in. We are a society void of courage and we let the Fed lead us around by the nose. We can’t possibly allow reality to seep into the Dow and spur a bear market. Heck, we can’t even allow reality to seep into economic data so we just lie about it. That may sound harsh but we should all question why the Fed must always be front and center buying up sovereign debt like it was a cure for stupid sold at a kiosk in the Capital Building? Well, what happens when the Fed stands down? The answer is the Dow falls. Nothing else matters. Nothing.
May is now upon us. Take cover my friends. The Fed has a very special problem this year. The WHO (White House Occupant) is in an election year and wants to continue the regime. Therefore the regime will lie to all of the people all of the time about how the economy is improving. Sure it is. The only people dumb enough to believe this rubbish are members of the regime that are granted exemptions to all of the regime’s tax mandates. You know, all of us are going to get socked with higher health care taxes except ‘friends of the Pelosi’. So, with an ‘improving’ economy, how can the Fed bring forth yet another summer stimulus package? Of course, the whole idea of an improving economy seems evermore silly given that the EU is probably in a recession already with Spain hurtling toward the abyss of insolvency. The leaders of Europe seem to think that for the first time in human existence a gooberment can raise taxes, increase debt-enabled spending, and still grow the economy. Well, they can of course just lie about all the data!
In further developments, the communist Chinese government sent agents out to talk to the legendary guitar player, Ted Nugent, about some of his comments directed toward the government. Seems they didn’t like what he said nor did they like his tone. So the regime sent out a squad to muzzle him. One must wonder why Mr. Nugent thought he lived in a society of free speech much less one that protected free speech with laws. Of course the regime cracked down...what?...what’s that? Oh yeah, my bad. It was actually the US regime that sent out enforcers to silence Ted. It is so easy these days to get the ruling regimes of the world mixed up. 
Finally, let me share something that I think is very important. We all debate the issues with the economy and we all have opinions as to the best policies to implement so the economy can support us all. I ran across an article in Smoke Magazine, 2011, No. 4 that had an article about the longest operating family owned cigar maker in the US - J.C. Newman. The business started in 1895 and has obviously prospered through the years. The make the Quorum brand that is the number-one-selling bundled cigar in the US. How does the current business environment look to this company. First, they just built a factory in Nicaragua to make cigars. Why not the US? Maybe they would have considered that but the US regime may have required the company to hang a cadaver over the door or something. Second, the company’s current President, Bobby Newman talked about the challenge of running a business in America. Here is what he said. “Our biggest industry challenge is not our competitors - nor the other cigar manufacturers - it is the government.” 
Let me repeat that quote: “Our biggest industry challenge is not our competitors - nor the other cigar manufacturers - it is the government.” Should any of us have any more questions as to why our economy isn’t more vibrant? Very simply, it is hard to breathe when the government is standing our our necks.
The chart below shows the Dow over the last 3 years with weekly bars. Clearly May has been a poor month for the last 2 years and it may well be a doozy this year. The Fed is talking ‘crazy talk’ of withdrawing stimulus and if that is the case, a rapid plunge likely awaits us soon. Be prepared. Be forewarned. No Fed - No Rally. Don’t get suckered into thinking ‘the worst is behind us’. It is not. Derivatives and debt are still a problem and they continue to grow, not shrink. Be prepared to retreat very soon. Then, we just have to wait for the great Bernanke to save us again! Fear the chart!

DJIA - 3-years, weekly
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.