Everything’s looking great again.
The iron ore price is back up to USD$100, after dipping below USD$90 last week.
The German Constitutional Court has given approval for the 700 billion euro European Stability Mechanism (ESM)…although we prefer to call it the euro bailout fund (EBF).
China has kick-started a USD$157 billion stimulus program.
And according to a survey of economists by Bloomberg News, almost two-thirds of economists believe, ‘The Federal Reserve is likely to announce a third round of bond purchases tomorrow.’
In other words, get ready for the next round of central bank money printing.
Even our old pal, Slipstream Trader, Murray Dawes says he’s struggling to find a single Aussie stock to short sell right now.
So, is all this good news for stocks? It could be. But before you jump into the market, consider this first…
Before you get too excited about Murray drawing a blank with short trades, consider that he hasn’t found any new buy trades either.
And it’s not because he’s not looking. Each day he looks at hundreds of stock charts.
As he told us this morning:
‘I have pared back the Slipstream Trader portfolio to almost nothing. I want to be able to trade the [US Federal Reserve’s] FOMC announcement and not have to spend my time putting out fires. The market is now so heavily manipulated that you can throw any normal analysis out the window. I’m a bear, but I can’t keep shorting the market if it’s in strong long term uptrend. There’s a point where the central bankers will force my hand to buy the market even though I think it should be going down.
‘For now I’m resisting, because I think there’s a good chance we could see a false break of April’s high in the S+P 500 which could lead to a vicious sell-off over the next month or so. The outcome of the FOMC meeting will be crucial to the direction of the market over the next month so I would prefer to sit on my hands and not trade until that meeting is out of the way and I have observed how the market reacts.
‘The Fed might print, say, $50 billion a month to buy Mortgage Backed Securities and the market could spike on the news. But I fear the market has priced this in, so we may see an initial spike and then a sharp sell-off. On the other hand, if the Fed is too scared to act just before an election we may see them dangle the carrot, but do little else. In that case the market will gap down 2-4% in the blink of an eye. I don’t want this volatile market throwing me around like a ragdoll. I’d prefer to sit with very few positions on and wait until I get a clear signal of which way the market wants to go.’
Of course, when traders look at minute by minute moves, there’s always a chance his view could change between us writing this email and you receiving it.
But for now Murray seems pretty firm on sitting things out until the Fed releases a statement tomorrow.
So, will the Fed do anything? We can’t say for certain. But there is something we’d like to know…
One Big Reason Not to Print
The question we have for the goons who cheer for euro bailouts, China bailouts and Fed bailouts is: what happens when this plan doesn’t work?
Not that they’re thinking about that now. The shills are screaming at the central bankers to do more. The unnamed ‘Editors’ at Bloomberg News write:
‘If Federal Reserve Chairman Ben S. Bernanke fails this week to announce new measures to stimulate the U.S. economy, he’d better have a good reason. We can only think of a bad one, and we urge Bernanke to refute it explicitly.’
The bad reason — apparently — is that Bernanke may not want to announce more money printing before the US election that’s due in early November.
But aside from that, as far as Bloomberg’s ‘Editors’ are concerned, there’s no other valid reason for the Fed not to print oodles of freshly minted cash.
Perhaps we can help them, seeing as they can’t be bothered thinking for themselves. Because we can think of a reason, a big reason.
The Fed’s policy of money printing is destroying an already dying currency. The following chart from the Federal Reserve Bank of St Louis shows how well the Fed has performed in one of its key mandates — ensuring stable prices:
The index has shrunk from over 1,000 in 1915, to just 43.6 today. In other words, the value of a US dollar over that time has fallen over 95%.
Even since 1980, its value has fallen 56.4%. So much for the mandate of achieving stable prices.
With a record that bad, you have to wonder why the markets still trust the Federal Reserve and Dr Bernanke.
It’s clear the last thing the Fed and other central banks are concerned with is stable prices. More important to them is maintaining the easy money and credit expansion of the past 40 years.
To do that, they need to keep printing money.
Brainless
Earlier this year, we thought the market would start getting bored with central bank meddling. We figured the big market players on Wall Street, Martin Place and in the City of London were smart enough to see the damage it was causing.
Turns out we gave them too much credit for having brains. Turns out they’re just as dumb as we always thought they were.
Based on market action, the big players still crave more central bank intervention. After four years of this policy repeatedly failing, the madmen in the madhouse keep cheering for more of the same.
And so, like Murray, we’ll wait to see what the Fed says tomorrow. You should be under no illusion that it will do anything to help the US or world economy, but it could give you a clue about how much longer this madness will last.
Look out for our thoughts on the Fed’s announcement tomorrow.
Cheers,
Kris
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