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Thursday, October 14, 2010

Have you Punched your Fed Chairman today?

 Ever buy a new TV or microwave, take it out of the box and instantly try to turn it on, and all the while getting annoyed that its not working immediately?    Of course you don't- because you have basic common sense.   You know the TV or microwave will not work until you plug it in.  You know there has to be a connection for the electricity to pass between the wall socket and the electronic item.  Without that connection, that new item will never ever work.

Now in finance, there is supposed to be the same theoretical connection.   When the economy is bad and people are losing their jobs and homes at an alarming rate, the stock market is supposed to display this reality by going downward. 

The past 2 years this exact opposite as been the case.  Trillions of dollars in interest-free money given away by the Fed to the banks and financials to put into the markets while not addressing any structural problems in the economy do tend to skew things.

While there are countless examples over the last couple years how Wall Street is completely oblivious to Main Street, some news from today can serve as a good example of the disconnect.

Applications for Jobless Benefits Rise To 462k- "More people applied for unemployment benefits last week, the first rise in three weeks and evidence that companies are reluctant to hire in a slow economy. Initial claims rose by 13,000 to a seasonally adjusted 462,000" - AP  (10/14)

The key word is 'initial'.. as in 'first time' applicants.. as in people who had jobs, who now don't and who will not find a new job in quite a while.

Here's the corresponding article..

Stocks Dip; Likely Fed Move Keeps Loses In Check- "Stocks dipped.. Losses following weak economic reports have been limited recently because such disappointment supports predictions the Fed will step in to support growth.  "Good news is good news and bad news is good news," said Sarah Hunt, a research analyst at Alpine Mutual Funds."- AP (10/14)

In other words, Wall Street will take any piece of news as a positive whether it really is positive or not if it serves their specific interests.  It is not important to Wall St. whether you have a job or home, or the nation as a whole is doing well.  Their focus is on that half-a-trillion dollar stimulus (Free play money) that they fully expect the Fed to release after early November's meeting.  And the worse the economic reality, the more likely they'll get that fun money--  money that will Not be used to create new jobs. 

Because remember, the specific goal of the additional $500billion, known as Quantitative Easing II, is to generate more money for loans to stimulate economy.  Loans mean debt; to be indebted to others.

So, have you Punched your Fed Chairman today?

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