Friday, September 28, 2007

End of Quarter Apathy

Friday was the final day of trading for the third quarter. Usually there's quite a bit of trading activity when a quarter ends because mutual funds and institutions generally unload or pick up stocks for their various portfolios, but this day ended with a whimper instead of a blast.

Trading volume was light, and, as the recent market activity continues to suggest, the market has no direction because investors on either side of the buy/sell equation have been spooked and rendered somewhat inert by the credit calamity and the Fed's gigantic rate cut.

Nobody wants to believe or admit that there's still a problem in credit markets, even after central banks injected over $1 Trillion in liquidity over the past six weeks. The Fed cut the discount rate a full percentage point and the federal funds rate by 1/2%. The resultant rally on Wall Street was the expected result, as was the run-up in gold, silver and oil, and the run-down of the US dollar, which continues to reach new lows against the Euro and other currencies daily.

Dow 13,895.63 -17.31; NASDAQ 2,701.50 -8.09; S&P 500 1,526.75 -4.63; NYSE Composite 10,039.28 -17.67

Logic would suggest that a lower value for he dollar would drive stock prices higher (since the money backing those stocks is worth less every day) and logic would, of course, be correct. However, the long term aspect is frightening. Stocks will price themselves to infinity as the US dollar buys less and less of everything. Sure, you'll own 10,000 shares of stock XYZ at an all time high, but you won't be able feed your family with the proceeds because bread is now $400 per loaf.

The Fed rate cut may have been good for multi-national firms and their stock prices, but it is inherently inflationary. More news on that front came in the form of today's core PCE deflator, a favorite inflation indicator for the Fed, being up only 0.1%.
Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.
However, year over year core-PCE is 1.8%, close to the high end of the Fed's "target range" of 1-2%. This serves only as more evidence of the fraud in statistics and the Fed's overall rationale. Core-PCE (personal consumption expenditures) covers everything except food and energy, the two items that have more impact on everyday life than anything else and the two areas which have been rising the most over the past two years.

Analysts say the Fed will be able to justify more rate cuts in coming months with inflation so low, but the idea that inflation has or is being contained is a figment of some very dull economic minds. Adding in fuel and food expenditures, inflation has been running at a steady rate of over 4% for at least the last three years.

But, using the Fed's numbers, we'll all be told that inflation is not a problem as the Fed cuts rates again and again, debasing our currency even further. If you thought Alan Greenspan was a master economist, you'll love Ben Bernanke. Greenspan only damaged the economy with his boom and bust strategy. Bernanke intends to break it permanently.

Declining stocks once again held sway over advancing issues, by a 4-3 margin. New highs ruled the day, beating new lows, 310-172, a fairly slim advantage.

Oil dropped $1.22 to a mere $81.66, but gold and silver had banner days, with gold up a whopping $10.10 to close at an even $750.00 per ounce and silver adding 28 cents to $13.92.

The money's in the metals, the dollar's in the toilet, but the DJI is just $105 points away from the all-time high. For a holistic, humanistic view of economics, I suggest taking a drive to buy a gallon of milk. That's where it's really at. Thanks, Mr. Bernanke. Sleep well, you bastard.

No comments: