Financial Markets Loose Their Balance as Greenspan Risks Everything
The dollar is dropping and gold is going up. While bonds put in a technical reversal on Monday and are beginning to drop, the yield curve is growing steeper and is predicting a steep rise in interest rate within the next 6-8 months. Bond traders either think that either 1)inflation is going to explode or 2)the economy is about to grow very quickly.
The falling dollar and rising gold prices suggest that the answer is going to be inflation. The commodity market has been in a bear market for most of this year and appears to be bottoming out. If it begins an uptrend then this will confirm the fears of inflation.
Bottom line: falling dollar + rising gold + dropping bonds = higher interest rates in the future, which is bearish for stocks and the economy.
I would like to wait one or two weeks before making any definite conclusions from this because the financial markets are completely unstable right now, but I’ll make some preliminary ones and make some suggestions to what it means for the stock market. In two weeks I’ll chart all of these things out for you and explain in detail what they mean and how to understand the charts.
Greenspan lowered interest rates by 50 points on Monday. He is still flooding the financial system with money in an attempt to make stock prices go up. In fact the Fed Funds Rate – which is set by the market, not him – is at .50%! Greenspan usually sets his interest rate target to line up with the Fed Funds rate. Fed Fund Futures are factoring in a 100% chance that Greenspan will cut rates by 75 points by next Monday.
That doesn’t mean that he will cut rates by then, but it means that he will at least flood so much money into the economy that it will be as if rates were that low anyway.
Back in 1999 he did this towards the end of the year because he was afraid that the Y2K computer bug would spark a run on the banks. It didn’t. All of the money he put into the economy had nowhere to go so it went into the most speculative part of the economy – Inernut and so called technology stocks. The Nasdasq boomed and put on one of the fastest and biggest stock market rallies in history from November, 1999 to March, 2000 as a result. The Nasdaq bubble in the long run damaged the US economy and this current recession is the fall out.
Back then he wasn’t concerned with making the stock market go up. He was worried about banks. The market rally came as a side effect. This time he is worried about the stock market and is trying to make it bottom right now and rally.
As I mentioned yesterday, if you go by technical indicators the stock market is near a bottom and should begin to rally within the next 10 days. This is a logical assumption if you think about what Greenspan is doing.
However, the weight of the evidence suggests that any rally will only be temporary phenomena. The markets are still overvalued historically based on price to earnings ratios. Earnings have been dropping faster than stocks, while the economy has shown no signs of recovery. If this year has proven anything it is that lower interest rates by themselves are not enough of a reason to be bullish on the stock market.
At the same time, as I mentioned at the beginning of this text, the gold and bond markets are predicting a boom in inflation within the next 6-8 months.
This is also logical. Think about it. The Fed is creating extra money. That money has to go somewhere and, with a weak economy and stock market, that place is likely to be in the commodity markets.
Final conclusions:
A short term Federal Reserve induced rally is likely to begin at any moment. I’d put a target of 1700-1800 on the Nasdaq and 9500-9800 on the DOW. The flood of money created by Greenspan that fuels this rally will damage the real economy and result in higher interest rates in 6-8 months. The economic recovery will be pushed out even further. After this rally ends the market goes down to new lows and sparks a total financial crisis, one in which Greenspan will no longer be able to cut interest rates.
This bailout attempt will be a failure and disaster. In the end he will create a short-term stock market rally, which will give Wall Street institutional players another chance to sell and get out, while in the process he wrecks the real economy.
All will hinge on the commodity markets. If they break their downtrend in the next few weeks and begin to go up then you will know that this scenario is likely. If they continue to drop then it will mean that I am making these conclusions on what are inaccurate short term movements in the markets that are occurring because of the WTC bombing and the financial gyrations which are taking place as a result.
Unfortunately I think I am right. Of course there is one alternative scenario which I haven’t mentioned. And that is the technical indicators are wrong. Greenspan has failed and the market melts down right now.
For the short term I am looking for stocks to go long on in case the market begins to turn and rally.
But in the end the most profitable way to make money will be to enter short positions when the next rally occurs.
A lot of people – most of them being Wall Street fund managers who are being forced to sell out of their positions – are saying that it is unpatriotic to short sell. They are implicitly suggesting that any declines that happen will be because of short selling.
I don’t agree. Short sellers were buyers on Monday, not net sellers. They cover their positions and take profits when the market declines by buying stocks. They usually short when the market rallies. By selling rallies and buying on declines they actually make the stock market less volatile.
By short selling, short sellers do not attack the United States or free enterprise. What they attack is unbridled speculation, which causes people to funnel their savings towards areas of questionable value, by selling overvalued or fraudulent stocks. Short sellers attack people who abuse the financial markets, not the financial markets themselves. They put on guard those people who pump and dump stocks and rip people off.
Most of you know the story of Genesisintermedia(GENI). It is a company that will probably go bankrupt within a year and hired a group of stock promoters to make their stock go up. An international arms dealer and man wanted for bank fraud is its largest shareholder. The stock has been dropping for the past week and insiders have been selling. It is a fraudulent company and useless investment. However, people who have been stupid enough to buy shares of GENI have in effect bought them from criminals.
It does not help the United States of America to buy shares of GENI and give your money to crooks.
In a similar way it does not help the country to buy a technology stock from an insider who is selling or a mutual fund that is selling.
If you want to help the United States right now then give money to charity. Give money to one of the relief groups that are operating in New York or Washington, DC.
Helping prop up the stocks of corporate America does not help. Most of these stocks are overvalued and reached ridiculous valuations because of the moral hazard created by Alan Greenspan and the “new economy” lies told by analysts and fund managers that work on Wall Street.
They put the market in a situation in which it is doomed. It will bottom out, but because of where it went the past 10 years and its current valuation it will have to reach much lower levels to do so.
I can’t stop that. You can’t stop that. If everyone you knew bought stocks today it wouldn’t change things.
We have one duty for ourselves and that is to use the financial markets to make money. If that means short selling so be it.
As a human being you do have a duty to the people around you. Going long on stocks won’t help them. You need to find a different means to do that. That is why buying stocks is not called charity. Does your pastor tell you to buy stocks?
Back in 1929 when the stock market crashed a decade of similar policies were wiped out. The US went of the gold standard and international debts were forgiven. The Bank of Morgan lost its political influence. A wholesale changing of behind the scenes financial and political elites took place. When Franklin Roosevelt became President and delivered his first inaugural address he said that he “the rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated…They have no vision, and when there is no vision the people perish. The money changers have fled from their high seats in the temple of our civilization. There must be an end to a conduct in banking and business which too often has given to a sacred trust the likeness of callous and selfish wrong doing.”
If the financial system does crash it will be blamed on the WTC bombing. Although this was a horrible event it didn’t cause the market or the economy to collapse. The moral hazards of Alan Greenspan and the Treasury Department did. A policy of free markets for Main Street and government bailouts and intervention for a few wealthy speculators on Wall Street did. Never forget that. Just like in the 1930s a move away from their misguided policies, which created this financial crisis, will eventually have to be made. If Bush doesn’t do it, his successor will.
I’m going to close out with some words that Waxie of trendfund.com sent out yesterday:
”They [stocks] inevitably will be under pressure until legitimate earnings turn up for an EXTENDED period of time,and not for a quarter or two.
I keep reading these stupid idiot morons on other sites who say that things will turn around.
Doesn't anyone care about the world we live in? Seriously, who the freak cares about MSFT? As far as I am concerned all these companies can go to hell. The total donations from all of corporate America is something like $125 MIL.
Think about it. Everyone feels sorry for these companies. Poor things. AMAT gave a grand total of $250,000 so far and they have a market cap of $30 BILLION.
MSFT gave $5 MILLION. Market cap of $400 BIL or whatever it is. Are you kidding me? Insane. Bail these pieces of crap out? Why?
The Japanese government has pumped TRILLIONS into the economy and the Nikkei over the past 2 years. They have ZERO % interest. Every time they do so, the market screams higher - only to collapse to new lows.
The FED can pump whatever they want into the system. Suzy Ormon can tell everyone to dollar cost average down. The bottom line is, though the market will rally, the Bear market is not nearly ready to give way to a new Bull market.
Not yet anyway.
I'm sorry, but corporate America sucks. They are selfish and they do not care about this country. Too many years they have sucked things dry, and now they are getting the dessert that had to happen. The Fed is foolish if they try to bail out the companies instead of just letting the market go where it is meant to go. We are supposed to learn from others mistakes.
The smart man learns from his own mistakes, the WISE man learns from others mistakes. We are acting like FOOLS.
We have to bounce, no question, and my guess is that its TODAY. However, for a meaningful rally to take place, companies need to start doing the right thing. The right thing being to start reciprocating the support they get. Take care of the investor by being forthright, and the analyst community has to step aside and stop the BS.
Do you realize that AMAT, NVLS and these semis all got upgraded by several firms recently? Based on what? Analysts are awful. Abby today came out and said that S & P would hit her "target" in a year from now. Two months ago she said it would hit 1450 by year end. Last year she said 1650. Last year she said to buy JNPR at $200 and CSCO at $60s and BRCM at $175 or whatever. Abby Conehead is a TOTAL idiot. They all are.
They know NOTHING. Just short every call they make and you'll get rich. PDLI got upgraded and crashed. Give me a break. IBM gets a BUY today. Every software stock getting trashed and you should buy IBM at $96.
Ah, yeah, OK. We watch for an in on IBM on the next rally so we can short it and ride it to $70s. Total dung heap….
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Stop looking at stocks as investments. They are NOT! If anyone still thinks that we can not go lower, they are sadly mistaken. Dollar cost average down and you'll be left with $1.” |
