Wednesday, October 6, 2010

Ending Well...?

Well, Mr, Bernanke and his illustrious companions are at it again. Its apparent that all the brainiac economists over there at the central banks think that inflation at all costs is the answer. This is why I phrased my post regarding the primary down trend line several days ago the way I did. (Please see the previous post "A Dog with Fleas"  for the charts and analysis.) If we sell off from fiddling around at that trend line (as posted earlier today), as I still expect we will, that represents the best possible outcome for the markets. It means failure does not get rewarded. It means that pending insolvencies will be recognised as insolvent. It means frauds will be revealed, identified and handled. It means that there will be a point at which stability is possible.

Now the alternative is not so good. If we breakout decisively above these levels, I have no problem with that from a trading perspective as my systems will trade long. However, it means that the chances for the constructive scenario will be slim to none. The death nail will be layed to rest in the carcass of the economy. The brainiac economic team at the Fed will have succeeded in disconnecting reality from reality - and that's a very difficult thing to do. They will have determined that higher prices for inflation assets, lesser currency based buying power and lower wages can coesxist to establish a stable economic foundation. I would like to point out that there is only one way to support sustainable higher prices and that is through high employment, wages and productivity. None of these issues are even being addressed.

Wages are decreasing as they have for the last 10 years for the middle to upper middle class. Jobs and opportunities are decreasing and likely will not stand much chance of rebounding - especially if commodity and raw materials and general asset prices increase. Additionally, if indeed the US thinks that it can repay its debts by drastically devaluing the dollar and crushing the purchasing power of an already weak America, then we will face another problem in a staggering rise in interest rates which will finish the economy off once and for all. No jobs, no purchasing power, no credit and no chance for a reprieve.

The upside is that the Bankers will own your house after you lose your job and all your savings, - they will likely offer to rent it to you. The concept that the market will sustainably store value simply because dollar devaluation is in full swing will not support the unilateral objectives the bankers would like you to believe. Business relies on consumers of services and products in order to generate profits. Demand collapse will force most companies to eat through remaining credit lines, if they are still available, and the cash that they carefully reserved in bonds with collapsed principle value due to raging interest rates. The Fed, by the way, only controls the Fed rates are quite another matter entirely and they will not nor do they deserve to influence any of them. Any way you cut it corporations will NOT do well - unless of course you are a BANKSTER and would like to own everyone's assets without bringing any value to the table at all.

The setup brings up yet another issue, people with nothing will have no problem losing the nothing that they have left by rising against the Barron thieves that will have been identified as having stolen from them. Our illustrious banking community as led by Bernake and Co. and politicians may have quite a problem on their hands. No wonder we need all those new executive orders that we never really hear about publicly.

The end in this scenario will likely result in the markets falling much further than I have already thought they would, a total loss of confidence in fiat money, total distrust of banks and governments and a near halt to productive business transaction. Much worse than if we wring out the insolvencies and corruption now. However, I would like to point out that it appears that, whether Bernake and Co are successful or not, they have already decided that inflation via dollar collapse is an acceptable risk. It does not matter the risk. If people can not afford gas, eggs or bread - who cares?

This issue alone demonstrates Bernanke's incompetence. In fact, I think that Benanke and Co should face charges for this disastrous handling of our situation. In time I think they may indeed get that wish. However, for now, the market will likely see the scenario painted above fairly clearly and will not allow Bernake's BS to get too far before slamming it back where it belongs. The sad thing is that the Fed is willing to simply throw taxpayer money out the window without even a care for the future, the economy or the people of the United States of America - that alone dramatically increases the risk for the stock market, the economy and the country for market particiapants. I am not the only one who sees that the Fed has NO credibility nor capability...given that, confidence is not inspired by this episode in the least.

This is all very troubling. In fact, I have spent quite a lot of time writing systems precisely for this reason. When dollar devaluation occurs or dramatic deflation bites the violence can not be handled by the human mind. Some people may have good reasons for the trades they do and get one leg right but will get crushed by the one they don't see. It is important to remember that markets can remain solvent much longer than their participants. Benake and the Fed are but participants in our markets and one insolvency I am very much interested in seeing play out.

For now, weekly systems are building shorts at these levels and my current expectation remains for the markets to be down substantially (20%+) by the end of the year.
© 2009 m3, ltd. All rights reserved.