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Monday, October 25, 2010

Understanding the News- 10/25/10


 Today I decided that rather than demonstrate through numerous headlines how detached Wall St. is from Main St and how the government sincerely does not care about everyday people, I decided to explain the disconnect using only one article entitled "QE2- How To Play the Fed's Next Big Move"- Wall St Journal (10/25/10)

Before we get into the specifics of the article, notice the headline- how insipid that is.  Really.  The Fed is about to circulate hundreds upon hundreds of billions, if not a trillion dollars into the US economy which will weaken the dollar and make the money you & I currently possess weaker and cause goods and services to cost more.  Yet this financial publication is treating QE2 as a fun game.  If you go to the bookstore, you will see asinine titles such as "How to Win at the Casino" or "How to be a Millionaire by 30"-  this WSJ article headline deserves its place alongside those 'quality' pieces of literature.

Now onto the meat of the article...

"Federal Reserve Chairman Ben Bernanke seems poised to deliver a second round of "quantitative easing," meaning the Fed will buy assets like Treasury bonds to lower long-term interest rates and boost the economy. Investors who pile in after the Fed could get hurt."

~  This will Not boost the economy- repeat.. will Not boost.. It will keep interest rates super low to benefit banks and punish savers.  Bernanke will give this money to banks for free and the banks in turn will Not lend it- they will buy back Treasury bonds and get 3% interest in the process.   ** I can't possibly express this any clearer-  QE2 and any other Fed stimulus, is a backdoor bailout of banks who are holding collectively over $50 Trillion (with a T) in toxic debts from the subprime mortgage crisis of the 2000s.  Most banks currently are zombie banks.

"The central bank is expected to announce at its Nov. 3 meeting that it is launching the second round of quantitative easing since the financial crisis began.  If it works, the thinking goes, bond yields should fall, the dollar should drop and riskier assets like stocks and commodities should rise. That is what happened during the first round of quantitative easing, at the height of the financial crisis. The Fed's bond buying, which was first announced in November 2008, pushed stocks up 29.5% during the next 12 months, while gold gained 44.5% and high-yield bonds rose 16.6%. The dollar plummeted 12.6%."

~  In other words the Dow, currently at 11,190 as of this moment, is really 29.5% higher than it would be naturally if not for the vast amounts of money pumped into the markets- money that could have been used to create jobs-  money that has Not created any real employment for everyday people.   If not for the funny money, the Dow would currently be at 7,800 range which is not catastrophic by any means.  But then those who make money on the stock market would have less profit and government cares more about them than us.

Gold going up in value ultimately isn't a good thing- it means there's a lot of volitility and people do not know where to put their money so that it does not disappear or get destroyed by evil Fed Secretaries..  So professional and everyday investors put their money in gold as a safe haven to hedge against a weakening dollar or a collapsing nation.  In simple terms, the higher gold prices go, the worse the economy is and the more frightened people are.

In addition, the dollar plummeted 12.6%-  that is 1/7th the value of the dollar prior to Nov. '08!!.  In other words, what you could by for $100 prior to Fed intervention,  you now need $112.60.   It may not seem like much if you're getting a burger and fries, but it adds up when you're looking to buy a big ticket item like a TV, car or home.

"Mr. Bernanke's speech at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo., persuaded the market that quantitative easing was on its way... Since the end of August, the Dow Jones Industrial Average has gained 11.3%, oil has jumped 11.2% and gold has increased 7.6%... True to form, the dollar has dropped 6.6% against a basket of six currencies since Mr. Bernanke's Jackson Hole speech."

~  Like vermin attracted to musky cheese the investors get excited.  In the process, the price of gas per gallon to fill your car has gone up and the dollar has lost another 6.6% in value.  Aren't government and investors just 'wonderful'?

"Shorting the dollar has been a favorite trade of some market professionals. Bets against the greenback by hedge funds and other speculative investors have more than doubled from $13.6 billion on Sept. 14 to $29 billion on Oct. 12, near the record of $36.5 billion reached in 2007, according to Commodity Futures Trading Commission data."

~  Nice to know someone is profiting from the deterioration of our currency...

"The long bond has weakened in recent weeks: Yields, which move in the opposite direction of price, have leaped from 3.53% to 3.94% since Aug. 26, the day before Mr. Bernanke's Jackson Hole speech. That has presented an attractive buying opportunity, says Richard Cookson, the London-based global chief investment officer at Citi Private Bank, especially if investors think the Fed's bond buying won't cure what ails the U.S economy.  "Unemployment remains very high, inflation is falling and quantitative easing isn't going to change that," says Mr. Cookson. Long-term interest rates, therefore, aren't likely to go up, and could even fall from here—meaning bond prices could rise."

 ~ The simple way to interpret all that gobbledygook is this:  Everything to a sociopathic investor is a 'buying opportunity."  There are people out there in Finance-land who see your pain.. see the statistics.. then figure how to best invest and financially profit off your economic suffering.  Your financial pain is an investor's "buying opportunity"  And the government aids and abets the investor by spending billions upon billions to make the conditions for the investor as smooth as possible, while we all can eat cake.

-  Lastly, the quote in the final paragraph says it all-   "Unemployment remains very high, inflation is falling and quantitative easing isn't going to change that"-    Correct- no it isn't.   So why do QE2 in the first place?  By know we all know the answer to that and it has nothing to do with our benefit.

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