Friday, January 28, 2011

Old Fashion Sell Off: Egyptian Style!

First let me apologize for being so quiet lately.  Work has been keeping me quite busy so I haven't had time to write.  Things should lighten up later next week.

I could throw up a bunch of charts but there really is no need to.  The Middle East is now center stage.  What a frustrating day for the bulls.  They were preparing for another bold stampede down Wall St following a solid GDP number.  The private sector finally showed up in this report.  Government spending was down.

All in all it wasn't a bad report.  I am not surprised given the amount of stimulus the market has gotten from the Fed. 

I mean Christ, the private sector deserves to be shot if they can't show positive GDP growth when the Fed is handing out free money by the trillions. 

We currently live in a world where companies are essentially allowed to hide all losses via fraudulent accounting while they reap the rewards of massive money printing. 

If you can't make money now you then aren't ever gonna make money!!!! 

Profits Come at a Cost

As I have repeatedly said:  There is no free lunch.  The stock market and Wall St believe that there is one of course.....And why wouldn't they?  They have been receiving free bailouts at the cost of the taxpayer for over 3 years now. 

In other words: They have had a free lunch since this crisis started!

The reality here of course is there are "unintended consequences" when you start making risky policy decisions like deciding to print money.

They are now starting to hit and unfortunately it's occurring in the worst possible area of the world.  The Middle East has always been a complete disaster.  It's a part of the world where hate, ideology, and repression dominate their societies.

As I have said in recent posts, the Fed is creating an inflationary crisis via their money printing and the result of such actions is creating financial chaos around the world. 

The Bottom Line

The global oligarchs need to realize that they cannot continue to eat like kings at the expense of the rest.

This whole world is a mess because the top 1% has raped, pillaged, and mutilated the other 99%.   History has shown that there is a tipping point in terms of what the lower classes are willing to take.

I am very concerned that this crisis has legs because there is a structural issue within the world's societies core that's just morally wrong. 

Please let me do a little "It's just wrong" rant here.  I am sure this will make me feel better after I am finished:

It's wrong when the taxpayers are forced to bailout the banks mistakes.

It's wrong when the Fed prints money and creates inflation that forces millions across the world to starve because they can't afford rising food prices.

It's wrong when banks are allowed to hide losses and pocket profits that don't really exist in the form of bonuses.

It's wrong that the Fed can take interest rates to zero in order to save their banking buddies when it simultaneously forces senior citizens that live off of fixed income to suffer.

I don't know what else to say folks.  I am not surprised by what is happening.  I am however surprised by where it started.

The chickens will eventually come home to roost because the world is just "wrong" right now.  Hopefully we will end the corruption before it's too late for all of us.

Wednesday, January 26, 2011

Pick your Death: Stocks or the Dollar

That's the reality here folks.  The Fed is now officially painted into a corner when QE2 ends in June.

The March to June time frame will be the turning point for the markets.  My guess is we drift higher for the next few months as the Fed keeps pumping like a two bit whore on 42nd st.

The FOMC statement was totally predictable.  Stay the course and extend and pretend!!!  Like I said yesterday, Ben will continue doing this until the markets force him to stop.

The bond market didn't the FOMC statement because they realize the stupidity of QE.  Here is the 10 year:

Quick Take:

There really isn't a lot to say about the tape right now.  The bulls are stampeding across Wall St because Ben continues pumping the market with dollars.

My guess is beginning in March this rally is going to lose some serious steam as the big players start hedging their bullish bets as QE2 inches closer to ending. 

The million dollar question is does the Fed have the balls to cut off the program?  I doubt it if they think they can get away with a QE3.  The problem  they have is I don't think the bond and currency markets will let him.

Just look at the hissy fit the bond market threw today when the Fed simply announced that they planned on maintaining QE2.

The Bottom Line

Somethings got to give when June comes around folks.  Here are my two scenarios:

Scenario 1:  The Fed Pulls the QE3 Lever

The way I see it, if the Fed tries to continue printing I think you could see chaos in the bond market.  The dollar and treasuries would nosedive on the announcement. 

I see a scenario here where the markets could possibly act as a hedge against a crashing dollar and move higher as the resource and mining stocks surge as Wall St looks to protect themselves from a collapsing currency and soaring inflation. 

The Fed may roll the dice and try and pull off QE3.  They know if they don't then the whole house of cards comes tumbling down without further printing.   There isn't any demand for risky paper like MBS or the long end of the treasury curve without the Fed backing it.

I mean think about it:  Who on earth would buy a 30 year bond if QE3 is announced and the dollar starts to crash?  You would have to be a total moron to even touch the stuff.

I also see a scenario where QE3 could tank the markets.  Stocks could collapse if the bond market goes apeshit and pulls a "Greece" in defiance to the Fed's printing.  Another risk for equities would be a falling dollar which would force energy prices to soar.  This would tank the consumer and the higher interest rates would destroy the housing market.  If this is how it plays out it's Game Over.

Scenario 2:  The Fed "Walks Away"

This one is easy.  Deflation takes over and everything collapses.  Investors would run for the hills from both treasuries and stocks because the Fed would no longer have their back.  Demand for treasuries would tank on the simple fact that the Fed would no longer be purchasing them.

Interest rates would then rise, commodities would get crushed as demand collapses, and the dollar would likely strengthen because the Fed would no longer be destroying it via printing.

The banks and housing would both be toast as housing prices crash as a result of soaring interest rates and higher unemployment.  Unemployment would soar because budgets and entitlements would have to be slashed because the money simply wouldn't be there to continue paying them.

My Preference?

Both would be painful but scenario 2 is a much less painful route to take IMO.  The soaring inflation seen in scenario 1 would eventually lead to scenario 2 anyway because no one could afford to live.  Prices would eventually crash because there would be no demand due to lack of affordability.

I wish I saw a way out of this folks.  Unfortunately, I don't see how we don't go down one of the two paths described above.  My guess is the Fed chooses scenario #1 out of desperation.  They know there are no markets without them. 

Just look at the credit markets if you don't believe me.  It's virtually non existent unless the paper is backed by the government.

Enjoy the breather over the winter as Ben throws money out of helicopters.  Things aren't going to be pretty in the latter half of the year.

Tuesday, January 25, 2011

Everything is Just Fine

Today's market is is so stuffed with cheap money that it reminds me of a turkey that's about to be served for Thanksgiving.

The dislocations are unprecented.  Treasuries are soaring despite the stock rally so far this week:

Meanwhile, the dollar continues it's collapse as the Fed continues to rain money all over the markets:

The USD unsuccessfully tried to rally today after it broke through the critical 78 level like butter on Monday.  We now risk breaking back down to the recent November lows of 75.63 which was when the Fed announced their ridiculous QE program.

Folks, if there was any confidence in this rally then bond yields would be soaring right now because the markets would be worrying about inflation and a falling dollar as the economy recovers.

The fact that investors are flocking into bonds despite the above risks tells you that the market is scared ****less.  No one that believed in an economic recovery would be in bonds at this point.  The inflation risks would simply be too high.

The Bottom Line

The deady combination of Helicopter Ben and high frequency trading robots has turned the markets into a total mess.

"Cheap money" is sloshing all over the system and it's ending up everywhere:  Stocks, bonds, and commodities(until recently).

I don't know why anyone would want to touch this cesspool at this point.  This is a total frickin speculative DISASTER.

Everything's fine for now as long as the music doesn't stop. 

The problem we have here is that history has showed us time and time again that the music always stops when the fundementals are ignored.

Betting "the house" on equities thinking that "the Bernanke" will always have your back is simply foolish.

Bernanke will continue this game as long as he can get away with it.  However, since this is unsustainable he will eventually have to stop.  It will end in one of two ways:  The dollar will crash or the bond market will take yields to the moon.

Like I have said before:  THERE IS NO FREE LUNCH!