You know you are in a srong uptend when the Elder impulse system charts flash several clusters of blue bars, yet the trend never changes. We haven't had a red bar in over 2 months now, not even a nominal pullback since September 1st. We haven't even breached the 20dema since breaking through it on the follow through day. Yet The FOMC thinks we not only need extraordinarily low interest rates "for an extended period of time". Hell, it's been a year and a half since they Fed funds rate went to zero. On top of that, we need to monetize $600 billion of debt? That is not going to make our creditors happy. At all.
The question remains: can the market go up fater than the dollar drops? I guess we will get to retest FDR's grand experiment in devaluing the dollar and inducing inflation, thus creating economic growth. You know, the one that blew up in their faces in 1937.One that we never got out of without reducing most of the world's industrial capacity to rubble and killing about 27 million people.
Oil broke out of a very long trading range and appears to be headng toward $100. Just remember, if you don't buy gasoline or eat food, then there is no inflation.
Was there a winner today? Why, yes, the banks, which have been on death's doorstep for quit some time. They rallied the hardest coming out of Bernanke's Jackson Hole speech in August, in which he hinted at the QE to come. They ran out of steam quickly, and I suspect they will do so again. There is only so much insolvency you can paper over.
The bad news for the banks? Barney Frank is no longer the chairman of the House banking committee, The worse news? Ron Paul is. This could be a fun 2 years.
I will have the new highs update shortly.
3 comments:
Hi David. Im glad to visit you again. Ive been busy with a new little baby girl. Im very intersted in understanding qe2. So let me get this straight. The fed is going to buy back half a trillion dollars worth of long term treasuries from the banks so that they can lend that out, right? My question is where are they getting this 600 billion dollars and who are they giving it to? Is it to banks in the form of buying back bonds?
Also, what exactly happen in 1937 with FDR?
And finally, why is it necessary to destroy industrial capacity to improve the economy? Ive heard this before, but it sounds counterintuitive? How is it that making ourselves poor in a capital goods sense make us better off?
How do you think Ron Paul will make things better or worse for the banks? I couldnt tell by your comment if you like him or not.
Thanks for the help.
Eddie B from up the 15.
Hi Eddie,
Congratulations on becoming a father. My daughter is in the hospital right now about to give birth to my granddaughter.
From what I understand, Bernanke is trying to keep interest rates low by buying up Treasury debt. Of course, the banks, who may be crooked but certainly are not stupid, will gladly sell to him, at inflated prices. Bernanke may be trying to spur lending, but he has 2 problems: the banks aren't stupid enough to make a bunch of bad loans again without a backstop, and very few credit worthy people want to borrow money in this environment. what Bernanke may really be trying to do is blow another asset bubble, and it looks like he is targeting bonds. As far as where he gets the $600 billion, he conjures it out of thin air (actually, the Fed does not print money, they actually print credit, or more accurately, debt, taken against future growth. If that growth doesn't materialize, then there will be real trouble. That is how we got into the situation we are in now). The Fed buys from the Primary dealers (mostly the big banks), who then are supposed to lend it pout, but they, having more brains than Bernanke, will probably use it to buy more bonds.
In 1937 the stock market crashed after about 5 years of reovering from the 1929-1932 crash. Most economists blame it on the Fed raaising interest rates, and that may have done it, but if so, at least in my opinion, if raising interest rates cashes a crash, the recovery wasn't real, and in fact was due more to the devaluation of the dollar than real growth. I didn't mean to imply that the war was good for the economy, but it was the fact that our industry was untouched while the rest of the world's was destroyed that enabled us to recover after the war. Had it not been for the two oceans that separate us from the rest of the world, we might have been in the same boat. As it was, for about 20 years after the war, we supplied just about everything to the rest of the world. But, no, wars are not good for the economy.
Ron Paul is no friend of the Federal Reserve system. He is kind of kooky, but I still like the guy, mainly because he thinks the government should actually follow the Constitution. He has always given Bernanke a hard time, and now that he is the chairman, Barney Frank won't be able to shut him up.
It's great hearing from you again, you always ask questions that make me learn a lot. Again, congrats on the baby.
Post a Comment