QE2 is now well under way and stocks have reacted by soaring. The market figures there are no worries about selling all this debt we are creating. The Fed is just printing insane amounts of cash and buying it all for it self. Currently the Fed is set to print $600 billion in order to buy Treasury securities. This means that the Fed itself is obligating itself to funding the $1.2 trillion deficit for the next six months, and this amount is even more if you add its current re-investments into the mortgage-backed securities portfolio.
Has the loose monetary policy adopted in the wake of the crisis created a risk of new asset bubbles? (see my new poll question)
No one knows how they will reel all this cash in, but I fear it will cause rampant inflation, which will have to be combated with sky high economic crushing interest rates similar to the ones we had in the early 80s. Others are speculating it will cause enormous bubbles in some asset classes that will burn many non-astute investors, with the bond market (F Fund) looking to be the first.
But right now investors don't seem to care as stocks keep rocketing higher. The party has started and the dancing goes on. The Fed is supplying the music and the punch bowl. Fighting the Fed right now is futile. So pick your favorite preferred TSP fund and ride the trend as far as it will take you.
Some people say I get too pessimistic about our current economic situation and point out that we've had rough times before. But I counter that we have never owed sooooo much debt, and we continue going further into uncharted territory. Think about it - the Fed will own $2.5 trillion in US Treasuries by June 2011, or about 25 percent of all debt outstanding and much bigger than China’s holdings. I hope we work all this out, but right now the market is only going higher because the dollar is falling, causing commodities and equities to rise.
This week I wanted to present technical analysis from http://www.Chartadvisor.com: The Weekly Report For November 8th - November 12th, 2010
The markets finally moved out of the consolidation that had been taking place over the past three weeks and the direction they chose was higher. The markets staged an impressive rally this week that took the Dow, Nasdaq 100 and S&P 500 to new recovery highs. While volume was not spectacular, it did increase over volume levels from the past few weeks. Many market participants feared how the markets would respond to the elections and the Fed’s announcement of the QE2 program, but in the end, the prevailing trend held and the markets broke to higher ground.
The S&P 500 (C Fund), as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, finally followed in the Nasdaq 100’s footsteps and broke through its April highs. This was a very important technical breakout, as it puts SPY at new recovery highs. One could argue that SPY is officially in a bull market now, since it has made a higher high on the weekly charts. If you look at its price action objectively since the bear market began you can see that SPY bottomed in early 2009 and spent the next several months rallying higher. The markets suffered through some weakness in mid-2010, even threatening to reverse lower. However, the markets broke higher from this consolidation and set the higher high. The most basic definition of an uptrend is for the instrument to be making higher highs and higher lows. With this week's move higher, it's clear that SPY meets this criteria.
While the iShares Russell 2000 Index (S Fund) (NYSE:IWM) also surged higher this week, it couldn’t join its market index peers in reaching new recovery highs. IWM is actually trading up to an important resistance level in the $74s. This level coincides with its April highs and is the level that IWM will need to clear in order to join its peers in a bull market. The recent consolidation near $69-$71 is now the immediate level to watch if IWM stalls at this level. IWM should be monitored: small caps are entering what has been a seasonally strong period for them.
Bottom Line
This was a big week for the markets as SPY and DIA joined QQQQ in trading to new highs on the weekly charts. This is a very important technical breakout and puts these index ETFs in new bull markets. While the markets remain well off their all-time highs, this strength needs to be respected regardless of your opinion on the economy or reasons for this move. Price action is the most important indicator to watch and the trend is clearly higher right now. Despite the breakout occurring late in the week, the markets may already be susceptible to some profit-taking after their recent gap.
However, traders should focus on the recent consolidation as an important support level to monitor. If the markets fall back under this level, it could signal a reversal, but the uptrend should be considered valid as long as the markets hold above this area on a pullback.
Have a Great Day!
By Joey Fundora
CHART OF THE DAY: (Still) The Scariest Jobs Chart Ever
Yes, this morning's jobs report was "good," but we're FAR from anything resembling a robust recovery in the labor market.
From Calculated Risk, here are all the job troughs since WWII. Note that while the recovery is very mediocre, shape-wise it's pretty similar to 2001 and also the recession in the early 90s. It's been ages since we've actually had a v-shaped jobs recovery.
I’ve added two more books to my investors must read list in my
book store:
Crisis Economics by Nouriel Roubini
Roubini (Bailouts or Bail-ins), a professor of economics at NYU, was greeted with skepticism when he warned a 2006 meeting of the IMF that a deep recession was imminent. Along with economics historian Mihm, (A Nation of Counterfeiters) Roubini provides an in-depth analysis of the role of crises in capitalist economies from a historical perspective. With thumbnail sketches of nineteenth and twentieth century economic thought from Smith, Keynes, and others, they provide a context for understanding financial markets and the ways in which bankers and politicians relate to them. The authors also offer a theoretical context for understanding the current economic crisis and for using it as "an object lesson... in how to foresee them, prevent them, weather them, and clean up after them." Dismissing the "quaint beliefs" that markets are "self-regulating," they take issue with the simplistic populist assumption that the present crisis was caused by greed or something "as inconsequential as subprime mortgages." They blame Alan Greenspan's refusal to use the power of the Fed to dampen unbridled speculation, choosing instead to pump "vast quantities of easy money into the economy and keep it there for too long." This will be a useful guide for readers attempting to get a handle on the present crisis.
Reminiscences of a Stock Operator by by Edwin Lefèvre
There is a reason this book rates a mention on most lists of Wall Street Classics. Since it was published in 1923, generations of investors have found its trading advice rings true.
The fictionalized biography of Jesse Livermore, one of the greatest stock market speculators, it contains perceptive trading advice and insightful analyses of market price movements.
"I learned early that there is nothing new in Wall Street," states the book's protagonist, Larry Livingstone. "There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."
During the 1970's when this book was out of print, my friends and I would scrounge used bookshops in searching of copies of this gem. The reason: its pages contain precious pearls of wisdom with which experienced traders can identify, from which new traders can learn. Thankfully, this generation of traders will not have to go to the lengths mine did to access this wisdom.
"I did precisely the wrong thing," Livingstone notes. "The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit."
Livermore made and lost millions playing the stock and commodity markets. LeFevre, a journalist captures many of his timeless lessons in this book, which first appeared as a series in The Saturday Evening Post. There is, however, one Wall Street Pearl that did not make the book - "a speculator who dies rich, is a speculator who dies before his time." Livermore committed suicide in a bathroom of the Pierre Hotel and died a penniless man.
Thanks for reading! – Rodney
