THEME: FED CREDIBILITY
Fed's Bies Says U.S. Growth `Solid,' Oil Not Fanning Inflation
is a headline for a Bloomberg story today. This strikes me as illustrating the number one underlying reason why the market is in an unhealthy state. The market is just not acting like the Fed's statements ring true.
We are not in the same kind of bear market that we had in 2000-2002. In that market, retail was long stocks in a highly leveraged, super charged beta fashion. The sell off during this market was due to a long period of liquidation, leading to a reduction in retail's leverage.
Right now, we are in a market dominated by professionals with high tech WMDs. The massive sell-off in insurance stocks could only be accomplished by computers. There are not so many retail customers who are daytrading insurance stocks! Basically, we've entered into a massive zero sum game, where the little guy is hugely disadvantaged if he chooses to play the same game.
However, the little guy can have an advantage if he simply lies low and waits for all those computers to make a mistake together. In other words, the market needs the little guy's liquidity because the big guys are all going the same way!
The market is confused because the Fed is confused. It is slowly losing its credibility. How can Fed Governor Susan Bies say that she expects "underlying inflation to remain relatively low" when we are all feeling inflation around us?
The Fed has been raising rates at a gradual pace to signal that the economy is better. At least that is the official story. What we suspect, but don't realize quite just yet, is that the Fed is so concerned about inflation that it is trying to raise rates just to prevent a disaster. We suspect that all the Fed's happy talk is to deflect blame from the incumbents who may lose the Election.
We are not in a normal recovery. Growth in the economy is not generating jobs and is beginning to generate inflation. The Fed is beginning to show a weak hand.
I think that the Election certainly is a frightening event. The specter of civil unrest due to controversy over the Election outcome could be a catalyst to tip the market over for good.
The problem is that with the Fed losing credibility, then a panic in the dollar is likely at some point. This would be a major disaster.
TRADE: Buy gold, short dollars.
Fed's Bies Says U.S. Growth `Solid,' Oil Not Fanning Inflation
is a headline for a Bloomberg story today. This strikes me as illustrating the number one underlying reason why the market is in an unhealthy state. The market is just not acting like the Fed's statements ring true.
We are not in the same kind of bear market that we had in 2000-2002. In that market, retail was long stocks in a highly leveraged, super charged beta fashion. The sell off during this market was due to a long period of liquidation, leading to a reduction in retail's leverage.
Right now, we are in a market dominated by professionals with high tech WMDs. The massive sell-off in insurance stocks could only be accomplished by computers. There are not so many retail customers who are daytrading insurance stocks! Basically, we've entered into a massive zero sum game, where the little guy is hugely disadvantaged if he chooses to play the same game.
However, the little guy can have an advantage if he simply lies low and waits for all those computers to make a mistake together. In other words, the market needs the little guy's liquidity because the big guys are all going the same way!
The market is confused because the Fed is confused. It is slowly losing its credibility. How can Fed Governor Susan Bies say that she expects "underlying inflation to remain relatively low" when we are all feeling inflation around us?
The Fed has been raising rates at a gradual pace to signal that the economy is better. At least that is the official story. What we suspect, but don't realize quite just yet, is that the Fed is so concerned about inflation that it is trying to raise rates just to prevent a disaster. We suspect that all the Fed's happy talk is to deflect blame from the incumbents who may lose the Election.
We are not in a normal recovery. Growth in the economy is not generating jobs and is beginning to generate inflation. The Fed is beginning to show a weak hand.
I think that the Election certainly is a frightening event. The specter of civil unrest due to controversy over the Election outcome could be a catalyst to tip the market over for good.
The problem is that with the Fed losing credibility, then a panic in the dollar is likely at some point. This would be a major disaster.
TRADE: Buy gold, short dollars.
posted by Johnny @ 8:32 AM
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