Sunday, December 9, 2007

Devaluing the currency and other Fed scams

Let's take a closer look at this supposed bull market from 02 till the present shall we. First off notice the strong dollar as the bear market commenced. It wasn't long after 911 that Greenspan realized that just cutting rates wasn't going to do the trick and the serious currency devaluation began. By this time the bear was firmly in place and it took over a year of massive currency debasement to halt the bloodletting in the stock market. In the bottom chart we can see that oil started to respond to the printing presses almost immediately. The smart money was already on board the commodity ship. As we progress through the cycles we see two times where the Fed tried to drain liquidity from the system and both times the markets stagnated. One of these was right before the 04 elections. Whew that was almost a major mistake. However we can see that Greenspan got with the program just in time to salvage the market and get Bush re-elected. Then in 05 we see another attempt to drain liquidity from the market and again stocks stagnated. Back to pumping again as this was about the time the public started to get fed up with the Iraq situation and Bush's ratings were in the dumps. Up goes the market except now we are starting to have a real problem with energy prices. As a matter of fact energy prices are starting to trump stock market gains. Something needs to be done before the mid term elections. Next we see a concentrated effort to move energy prices lower. The stock market suffers to some extent during this campaign even though the Fed never really drains liquidity from the system. Once the energy markets are brought back in check the Fed goes back to the printing presses just in time to levitate the market into elections. All's well. Well sort of. Right after the elections the pressure is released from the oil markets and wow look what happens. Like a spring that's been compressed and suddenly released the energy markets rocket upward gaining almost 100% in less than a year. All that liquidity that was being held in the paper markets drained right back into commodities. Now we come to July and Aug. Something big happened here IMO. The dollar was allowed to break through to new all time lows. Now the currency was in uncharted territory. There was no support under the dollar at all. Instead of the market continuing higher as its done for the last 5 years that the Fed has been busy devaluing the currency all of a sudden the market changed character. Volatility started to spike upwards and the markets are swinging wildly back and forth. In the meantime oil just kept climbing straight up. The massive amounts of devalued dollars the fed has been pumping into the markets is almost immediately draining off into commodities. We see the same picture in the gold market. A straight shot up from the Aug. lows. Now the Fed is again embarking on an even more massive liquidity pump. Not only are they printing money but they are lowering rates to make that money even cheaper to borrow. How will they ever keep all this liquidity out of the commodity markets? If they can't keep it out then what is going to happen to the price of oil, gas, gold, silver, natural gas, food, etc. in the coming months? Just what we need as the economy slows, skyrocketing prices for everything we need to live. Do us a favor Bernanke and raise 50 not cut 50.