Really Think It Was Short-Covering?

The conventional wisdom on many investment-related websites is that the Fed decision yesterday touched off a major short-covering rally and from here things could go much higher.  That they could continue upwards, I won’t dispute, but as to the implied “cause” there’s likely something else at play:  The seldom mentioned role of currency valuations.

Although it’s normally the kind of thing best explained on our  subscription service, there’s so much dumbed-down thinking on what causes rallies, that it deserves a little wider consideration.  So here’s a nickel’s worth of economic what-for on the house.

Currency, you must understand, as was pointed out to me by the late Dr. Paul Erdman years ago, is a much larger factor that people realize when it comes to pricing markets.  He had an uncanny ability to see the future better than anyone I’ve been since (nearly 40 years, now) by simply looking at some currencies, the currency futures and in particular the 90 day dollar futures.

So what we had yesterday was a fine example of how this plays out as the Fed made what is essentially a currency decision.

Let’s begin with the dollar/euro spread and the S&P 500:  An hour, or so, before the Fed decision I noted the chart of the dollar was showing the currency ratio was one dollar to .75 euro  At the same time, the S&P was around 1,700.58.

This morning, we see dollar was only buying 0.7368 of a dollar.  The question is:  Where should the S&P go today?

We observe that the Fed playing chicken with tapering from quantitative easing has dropped about 1.75% from the dollar’s purchasing power on the international market.  This is because the “quantitative printing” means to buy the same goods and services will take more of our lesser-valued paper.

It also means we can take the Wednesday pre-announcement S&P divided by the currency move, and predict with what should be stunning accuracy that the S&P should hit 1,731.46 sometime in today’s trading session. 

Did the S&P really hit a new high yesterday, then?  Well, on a nominal basis, yes, of course.  But in purchasing power terms did it?  Well, that’s one for Peoplenomics this weekend. 

But this move (quantitative printing), which again water’s down paper money’s purchasing power, shows up in other places, as well. 

Take the price of gold, for instance. It was running about $1,298.10 before the Fed decision and our little cheat-sheet approach to pricing opines that it should be priced post-decision around $1,321.25. 

But wait! spot gold this morning is showing in the $1,363 range earlier.

So what gives?  To be sure, gold traders may be a little carried away with themselves, but it likely means a further decline in the dollar, since the price at $1,363 is about 5%.  Which means the S&P could rally further from here…with a possible target of $1,785 or higher.

What’s open to debate is whether the currency trader view will prevail – which means the bulk of the rally is over – or, whether gold is telling us the future.  For now, I’ll be the guy following the lesser discussed currency relationship.  But, in either case, our trading model has once again gotten it right and betting against it has cost me another ham sandwich worth. 

Like Marty Zweig used to say (and I manage to ignore this good advice almost constantly)
Never bet against the Fed.”  Especially one with nothing to lose on printing more paper which means it will take more paper to buy the same stocks…but to the lesser-schooled, it will look a lot like a short-covering rally.

Reader Peter has awakened, too:

I couldn’t get this song out of my head after the Fed announcement today. I’m pretty sure it is in public domain (but who knows in the Google era) and you are welcome to my adaptation. By the way, the original is by Milton Ager and Jack Yellen, which seems oddly appropriate.

Happy days are here again

Bernanke’s made it clear again

Bankers sing a song of cheer again

Happy days are here again

Let us not talk falsely now

He’ll let the presses run – And How!

For the bankers it’s a grand cash cow

Happy days are here again

In-flation must be increased

For the e-con-o-my it is yeast!

The Dow is hitting highs again

We’ve once again avoided pain

One must wonder who’s in charge again

Happy days are here again

Let me put on my best imitation Ed McMahon voice and say…”Heeeeeres Fearless Leader!”

{And just ignore folks who are also warning of an all-out currency war…}


Meantime, president Obama is making the point that raising the national debt ceiling does not raise our debt

The problem with the debt ceiling is that is is simply not honest.  Anyone who believes the federal debt has been stuck on “Full” for several months doesn’t understand the hijinks of underhanded, off-books accounting.

Which, sadly, is the only reason the debt hasn’t busted the “offishul” ceiling long ago.  Does the phrase “Print and reclassify” mean anything to you?

One thing the price of gold may be screaming this morning is “We have a lot more watering down to come in order to make things work…” Oh, and that means the currency crowd might want to have some QuikClot®  handy to stop the bleeding as the rest of the world reprices goods sold to us at higher prices to come.

Oh, that will look like higher prices overseas being charged by overseas suppliers…which is how it’s bound to be sold.  But the reality?  It’s just our addiction to printing up money is just coming home to roost.  Should be arriving in 120-180 days, so we know when it should be here.

More after this…

Ugly Questions Post-Shipyard

RT is reporting this morning that a crack anti terrorism team showed up at the DC Shipyard and was sent away without seeing action.  From this comes the ugly question “Who told them to stand down when these folks were designed and built for such purposes?”

Personal footnote:  So there we were last night, having a toddy with a consulting client in a big Seattle hotel last night and the client (who is exceptionally astute) wonder “You know with that 147-day cycle stuff, do you ever get to thinking maybe the PTB are just doing all this as a kind of sick experiment?

He then wondered if the whole pole-flip between the USSR and USA positions in the world, leadership and style flip, might also be nothing more than a big test to see how easily flipped whole populations are.

Oh…he doesn’t watch MSM TV anymore, either.

If you really want to find the power-player’s here’s a major hint for you as to who really pulls our strings: Interlocking directorships.

Afghan Military Sales

Say, here’s an eye-opener of an email purported from the office of Texas senator John Cornyn which let’s the cat out of the bag on how your tax dollars are being spent to paper-over?pacify Asscanistan:

“…Furthermore, since the atrocities in Syria began, I have pressed the Obama Administration to end all U.S. government business dealings with Rosoboronexport—the Russian state-owned arms broker that facilitates the Russian Federation’s arms transfers to Syria.  I am deeply troubled that the U.S. Army continues to do business with Rosoboronexport, purchasing dozens of Mi-17 helicopters for the Afghan military, as the atrocities in Syria have continued.  It is unconscionable that U.S. taxpayers would be forced to pay for a contract with a Russian firm that is simultaneously enabling the Assad regime to murder its own people.  

Because the Obama Administration ignored my requests, I offered Senate Amendment 3260 to the National Defense Authorization Act for Fiscal Year 2013 (FY13 NDAA; P.L. 112-239), which prohibits the use of funding for the U.S. government to enter into any further contracts or business agreements with Rosoboronexport.  I am pleased that this provision was included in the final version of the FY13 NDAA, as signed into law on January 2, 2013.  However, I am deeply troubled that despite this law, reports indicate that the Army has entered into a new contract with Rosoboronexport to procure additional helicopters.  I will continue to press the Administration to end these business dealings.

You may be certain that I will keep your views in mind as the United States’ policy toward Syria is discussed.  For more information regarding my position on Syria, I encourage you to visit my website at:

I appreciate having the opportunity to represent Texas in the United States Senate.  Thank you for taking the time to contact me.”

Wait!  Doesn’t this sound a lot like a US/Russian deal to split up arms sales more than genuinely solve what we went there for?  Better yet, could you remind me of what we were doing their in the first place, other than marketing for arms makers?

Earthquake Trends

Frequent contributor Tony R has been busy but did get some time to rerun the latest Earthquake trend data this week.  Here’s the view going back to 1953 though Sept 1:

N No, your eyes do not deceive you, there is a long term increase here.  I’m better on two 7.0s in the next couple of weeks.  But, if not, then the cooling of Earth may have more to do with quakes than meets the eye.

Solar Drop Report

Sure Sounds like an Urban Story…

We notice the Times of India has picked up the story about the sun going into more than 100 years worth of quiescence.  But they have so far failed to label it the Ure Minimum that we christened it in our Peoplenomics discussion of the sun’s epic fail a couple of months ago.

Still, look for a record cold winter in many places this coming dark season, even though that won’t be in the MSM for a couple of months, more’n likely.

GTA V Sales

Big dough in the video game world:  Grand Theft Auto V rolling in $800-mil in its first day out.

Worth Thinking About

Time Magazine’s “Can Google Solve Death” which wonders about human lifespan extension.  The ugly math is that if I could live long enough, the federal government would owe me everything so I expect the feds and big pharma will give the googsters a good talking to.  Look for headlines on that front eventually.