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Investment in Stocks - Forum for sharing info about stocks and options.
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Posted by Don Tiberone on September 4, 2008, 9:12 pm
http://www.victoradair.com/pdf/BobHoye20080820.pdf
The Dollar Index has rallied nicely. This seems to be confounding the
street and likely
scaring the hell out of academics and policymakers, who have designed
a perfect system
for "managing" the economy.
As we enjoy mentioning, the worst thing that could happen would be an
outbreak of a
sound currency and this could be on. After all, the main
characteristic of a post-bubble
contraction is a senior currency that is firm relative to most
commodities and most
currencies, for most of the time.
However, it is getting overbought and could correct for a few weeks.
Technically, the structure of the bottom of the chart for the DX is
sound. An important
low was possible as the rebound in stocks and commodities ran into
spring. On the way
to that low, the dollar registered a Downside Capitulation as it was
concluding the
Sequential Buy pattern. Also, this was the basis of our successful
call in December 2004,
and this completed at 70.7 in March. The big test was at 71.3 in July.
The speed of the recent rally has been impressive and with the rapid
decline in
commodities it confirms our observations that the game has essentially
been to get long
the hot stories which is a short in the dollar. The more reckless the
employment of
leverage =96 the weaker the dollar. And as instructed recently (with
some drama) the
phenomenon works the other way.
There has been a popular notion that in a credit-based economy that
the Fed can
depreciate the dollar at will. This is not the case as the central
bank needs ardent
borrowers to perform its portion of a credit expansion. The problem
that is slowly being
faced is that policymakers created an investment world free of risk. A
couple of years
ago in housing there was no risk. If it was merely a matter of issuing
credit the housing
bubble would have been perpetual, but it wasn't. Prices started down
and rather than
proving the concept that Fed liquidity could push prices up the market
has shown the
opposite.
The Fed kept the pedal to the metal and before long there was no risk
in the stock market.
In July a year ago mutual fund cash reached its lowest level in
history as NYSE margin
debt reached a record (repeat record) high. Risk =96 non, nada, stricken
from street jargon.
Then the old credit markets accomplished another remarkably well-timed
culmination of
a financial mania. Typically, the final stage of a boom will run for
some 12 to 16 months
against an inverted yield curve. So long as short rates are rising
faster than long rates the
boom is on. Then when the curve reverses to steepening it indicates a
lessening of
demand for short-term funds by speculators, which turns out to be the
instant when the
wheels begin to fall off the most blatant speculations.
This time around the 16 months counted out to June 2007, and the curve
accomplished its
reversal in that fateful May.
What follows is what these pages described in that July as the
"Greatest train wreck in
the history of credit". Naturally, this would be expected to wreck
inadequately
researched theories of interventionist economics. The effort to
reflate the bubble has
been massive and continuous since the wheels collapsed last August.
If past examples of violent market forces continue to guide, the next
crisis is building and
could be fully visible by the fall and it could be severe enough to
drive policymakers
sane.
Our view has been and continues to be that the failure of this
financial mania would mark
the end of the radical experiment in interventionist economics that
began early in the
1900s, and one indicator would be a chronically firm dollar.
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Posted by BuffetHater on September 4, 2008, 9:54 pm
Excellent post!
Kinda fills in the blanks about why we are staring down a complete
collapse of credit and equity markets while gov'ts from Bejing to
washington are trying to inflate the hell out of markets.
The final legacy for an incompetent bush 'central planning' exercise?
In this part of the election cycle we should be up at least 12%. I
think
they have lost control of the economy and their manipulation of
markets
has backfired. They have used the short squeeze too often, they
have
made markets predictable.
Predictable? No, no one can tell the start and finish numbers, but
we
have noticed the fed steps in at 11, 2 and 3PM and pumps the futures
full of air.
By the time someone like me figures out the patter and is able to
scalp
$2-3,000 a week from the pumping and dumping of the fed, professionals
are taking the system for billions, Federal billions.
I have repeatedly stated, encouraged and profited from selling short
the
SDS/QID on panic selling at open (ditto SSO/QLD) and cover an hour and
half later as the Fed steps in to 'support' markets.
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