<We all are well aware that this is not the typical bear market. The bear markets we are accustomed to are inventory demand related, the result of inflationary pressures or currency crises. This bear market was created by a credit contraction of historical proportions. While credit has been contracting in the private sector. The US government (public sector) has committed $23.7 tln in cash infusions, loan guarantees, debt swaps and debt monetization. Considering that the entire US GDP is only about $15 tln, this is a massive monetary intervention. In addition, the US government is running unheard of budget deficits, the FED is debasing the USD through it's monetization program, while Congress is trying to push through huge programs like Health Care Reform and a Climate Change bill. While all this is occurring the unfunded future liabilities of Medicare and Social Security go unaddressed. Naturally, most of you have heard all of this before. Yet, the question remains, what's driving this stock market higher? Simply put, the decline in the USD and record low interest rates.
Everyday we report the results in trading for stocks, bonds, crude oil, gold and the USD. We will attempt to make sense of what's transpiring using these five asset classes plus another factor, inflation. A credit contraction leads to deflation. We see this specifically in real estate, resulting in bank failures, rising unemployment and a contraction in demand from highly elevated levels. In response the government, treasury and the central bank have tried to re-inflate the economy with the previously noted actions. The result of committing funds equal to 1.5 times the GDP has had a stabilizing effect in the near term. Long term, however, there is still a problem for this economy, namely the potential for inflation.
Typically when a currency declines, and/or debt is monetized, imports become more expensive and the end result is inflationary. With the overriding trend in the US deflationary, and China's currency the Yuan pegged to the USD, its largest trading trading partner, the potential for inflation has been stable. This allows the US to maintain record low interest rates in an attempt to allow time for the economy to heal itself. The result of low inflation, low interest rates, a declining USD and an expansive monetary policy, is a rising stock market, and rising prices for Crude and Gold. Excess dollars, created by the FED, are flowing into the stock and bond markets. While Gold and Crude are rising inversely to the decline in the value of the USD. .>
Scoot over simmon your stealing my lines.
It is done as far as I'm concerned. Testing 1090 now and
I hope it comes all the way back tomorrow. I want to get
more on the down hill ride. I still believe in the 950.
A US senator just verbally creamed Timmy on captial hill.
ZSL was under 4 yesterday. I've got a small position in that as well as SMN. It is a bubble, so who knows how high the stuff can go or whether there will be a meaningful correction? I don't try to guess anymore. Good luck!!!
Top Insider stocks traded as reported Wed. night 10 PM Nov 18, 2009
BXG Bluegreen Corp $69,205,593
GOOG Google Inc $57,526,570
K Kellogg Co $28,153,771
MEE Massey Energy Co $22,370,030
IACI IAC/Interactivecorp $7,432,936
TXRH Texas Roadhouse Inc $6,878,180
RBC Regal Beloit Corp $5,463,730
CAAS China Automotive Systems Inc $5,261,087
GLW Corning Inc $4,748,632
IBM International Business Machines Corp $4,459,350
UVE Universal Insurance Holdings Inc $4,177,500
CLH Clean Harbors Inc $4,157,790
GS Goldman Sachs Group Inc $3,561,040
Insider Sales 11.18.09 $304,414,214
Insider Purchases 11.18.09 $7,441,770
Insdier Sales/Insider Purchases as Percent 4090.62%
.....If the FED has the luxury of maintaining this posture for a few years, which is probably its intention, while the deflationary cycle runs its course. Then when credit has stabilized and starts to expand again, the deflationary pressures will ease, and the expansive monetary policy can be begin to unwind. This is the best case scenario.
The problem with this scenario is that it requires a fine balancing act between deflationary pressures and re-inflationary intervention. Many things can go wrong. For example on the currency front. If the USD drops too fast, or breaks to all time new lows, the FED will have to act. The last time they did act was in mid 2008. The FED created a $600 bln currency swap to strengthen the USD. The end result was a crash in the stock market and commodity markets. CPI inflation, at the time, was running over 5%, and PPI inflation had hit 9%. If China decides to allow its currency to float more freely, which was announced this week, inflationary pressures will again start to rise in the US: http://www.reuters.com/article/usDollarRpt/idUSSHA20591820091112. With $437 tln in interest rate derivatives worldwide, anticipating years of low interest rates. The FED will not be able to raise interest rates, and again have to respond by supporting the USD. This would not be good for stocks or commodities. If the economy rebounds too strongly and pent up demand, with plenty of excess dollars, starts to drive up prices due to limited product supply. Inflation will become a factor again. Inflation, as they say, is the canary in the coal mine. For now, with the USD declining expect the Stock market, Crude oil and Gold to be generally rising, and Bonds to be generally steady. When inflation kicks in again, and it will, the FED will need to respond, and its options are limited.>