Monday, November 15, 2010

QE2 Flops Again: Stocks Down, Bond Yields UP!

Pumping another $7.9 billion into the coffers of the Primary Dealers (the usual crooks: JP Morgan, BofA, Goldman Sachs, et. al.) seems to be working wonders for... just about nobody, unless you were convinced it was such a bad idea you went short stocks, bonds and commodities all at the same time. Stocks were initially up, but took an abrupt about-face at 3:00, with the NASDAQ and S&P finishing marginally lower and the Dow closing with single digit gains.

If that's what we're getting for a mere $7.9 billion, what should we expect when the Fed's QE2 program runs its course and delivers the total blow of more than $800 billion? By June, the 10-year note, which was under 2.5% before the Fed commenced its dangerous liquidity action, and is over 2.94% now, will probably be running at 6-8%, and if that's not good enough, stocks will be off significantly, maybe the Dow in the range of 4-5000 strikes your fancy or the S&P toying with the 850 mark makes your day.

Our intrepid Captain Blowhard Bernanke, obviously a complete toady to powers well beyond his control, is attempting to stimulate the economy (or so he says) by pushing on a string. His relentless injections of capital into markets are already causing such extreme distortions in all capital markets that 23 high-level economists, strategists and analysts sent a letter requesting he curtail his actions.

Obviously, Bernanke isn't listening to anyone and the US public pays for it every passing day that he is allowed to pursue his reckless and possibly destructive policies. One would like to believe that congress would eventually exert some control, but that's not an option for at least another two months, as the current congress is of the lame duck variety and the new one won't get down to business until the third week of january, 2011.

So, we're stuck with probably about $200 billion going up in smoke on the wing and a prayer that it will somehow cause inflation that will stimulate the economy. While his rampant spending spree (just in time for Christmas) will almost certainly result in inflation, that's not considered a good thing by the vast majority of Americans. And even if we spend more because everything costs more, where's the gain?

Somebody needs to put an end to this madman's reign of financial terror. Perhaps the American people could find the will to protest at some point, though that seems about as good a possibility as Dallas winning the Super Bowl this season.

And, since no bad deed gets punished these days, the financial press will continue to place the blame on Ireland or Portugal or the first EU nation that officially defaults. The global financial condition continues to worsen by the day, thanks to the very people who are supposed to have a handle on such things.

Dow 11,201.97 9.39 (0.08%)
NASDAQ 2,513.82 4.39 (0.17%)
S&P 500 1,197.75 1.46 (0.12%)
NYSE Compos 7,617.51 5.73 (0.08%)

Losers edged out winners by a narrow margin, 3234-3187. New highs continued to shrink while new lows expanded again, with the tally at 183-95. If this indicator flips, its usually a sure sign that lower stock market prices are dead ahead and would continue for some time. What many are calling a "blip" may turn into a rout. Volume remained sluggish, if one can even call it that. Markets are so blatantly manipulated (as today's rise and sell-off would argue), the next round of theft may come in the form of another major correction to the downside.

NASDAQ Volume 1,866,283,250
NYSE Volume 4,075,506,000.00

The front end NYMEX light sweet crude oil contract finished unchanged again, at $84.88. Gold slid once more, this time to a one-month low of $1360.40, off $8.40. Silver dropped 56 cents, to $25.48. Who knows, maybe silver will come back to the low 20s or even the teens, making for a tantalizing entry point for renewed buying. A 50% retracement of the recent gains would bring it back to around $24.00, which should spur buying interest into the end of the year.

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