USD down 1.9% against the EURO

[blazespinnaker]

Sure, the markets went up 1.9%, but global purchasing power just dived 1.9% (1.7% against the YEN)

How does that really make you feel?

[jk]

the nominal and the real

i feel fine about the last 2 days. i'm pretty much market neutral on equities, but i made money in metals and currencies.

the tough part, as you point out of course, is going to be maintaining and growing buying power. an "anti-spin" in some thread here suggests that equities will look ok nominally, just won't be ok in real terms. i guess the 1970's are the model, where 1966 to 1982 was flat nominally [looking at the endpoints only- it was much more exciting along the way] but lost 75-80% to inflation.

my question is whether the equity market can avoid serious nominal losses at some point along the way?

[Jim Nickerson]

I feel better than I did 2 weeks ago.

Nice article I thought in today's Barron's--interview with Ned Davis.

If I had to buy things outside of the US right now, I would not feel well at all, nor for the last 3 or 4 years, but I live here.

Another opinion that should aid anyone wishing to get head screwed on correctly. http://www.comstockfunds.com/index.c...menugroup=Home

[blazespinnaker]

That's an interseting article Jim, but I think they underestimate the dovishness of the fed statement.

I think the market believes that inflation is obviously coming down the pipe even when it's not showing up in the numbers.

The fed is basically saying they're going to pause if the numbers are soft, even though most people know that purchasing power is declining.

Honestly, I don't think these are bullish signals. I think people are just adjusting for inflation, and not because they believe that the markets are returning to a bull cycle.

[Jim Nickerson]

That's an interseting article Jim, but I think they underestimate the dovishness of the fed statement.

I think the market believes that inflation is obviously coming down the pipe even when it's not showing up in the numbers.

The fed is basically saying they're going to pause if the numbers are soft, even though most people know that purchasing power is declining.

Honestly, I don't think these are bullish signals. I think people are just adjusting for inflation, and not because they believe that the markets are returning to a bull cycle.

I didn't take the guys' at Comstock Partners message to be pooh-poohing the likelihood the fed is going to pause (but maybe they were), but they see downside despite whatever the Fed does next, and then I got John Mauldin's interpretation of "What the Fed Really Said." now available at http://www.safehaven.com/article-5468.htm. He thinks rates are going up.

I tell you Thursday was a weird day as I saw it. I'm glad the equity market went up and the RUT rebalanced, but I think the market is moving on the fumes of irrational exuberance. My finger is on the "sell" trigger to act soon and worry later.

[bart]

...
I tell you Thursday was a weird day as I saw it. I'm glad the equity market went up and the RUT rebalanced, but I think the market is moving on the fumes of irrational exuberance. My finger is on the "sell" trigger to act soon and worry later.

Especially if you take "irrational exuberance" to be related to Fed Open Market Operations. On Thursday there was $23 *billion* injected in term repos which is well over 4x the normal amount.

[Jim Nickerson]

Fomc

Especially if you take "irrational exuberance" to be related to Fed Open Market Operations. On Thursday there was $23 *billion* injected in term repos which is well over 4x the normal amount.

Bart, that is exactly what I took the action to be about. It was the Fed statement, and for the Fed to have raised rates yet agiain, and whether or not one believes it's the last move, for the markets to jump up as they did, did not come across to me that many people were rationally thinking--perhaps wishfully thinking. People bought stocks in a frenzied manner, one could say it was "panic buying" when looking at positive volume and point ratios to negative volume and points. My numbers which may not be the "industry standard" i.e, they could be off some, showed 93.65% of NYA volume was up, and 98.01% of the point movement was positive on Thursday. Thursday was the 3rd +90% points day in the past 11, and was the 3rd day of 11 with > + 80% up volume--two of which were >+90%. To me these are very bullish days, but the fly in the ointment may be that they were not such big total volume days.

Conclusion: I do not know what is happening. Hang loose.

[bart]

Bart, that is exactly what I took the action to be about. It was the Fed statement, and for the Fed to have raised rates yet agiain, and whether or not one believes it's the last move, for the markets to jump up as they did, did not come across to me that many people were rationally thinking--perhaps wishfully thinking. People bought stocks in a frenzied manner, one could say it was "panic buying" when looking at positive volume and point ratios to negative volume and points. My numbers which may not be the "industry standard" i.e, they could be off some, showed 93.65% of NYA volume was up, and 98.01% of the point movement was positive on Thursday. Thursday was the 3rd +90% points day in the past 11, and was the 3rd day of 11 with > + 80% up volume--two of which were >+90%. To me these are very bullish days, but the fly in the ointment may be that they were not such big total volume days.

Conclusion: I do not know what is happening. Hang loose.

Yes, we're tracking - Thursday to me was to a large extent a "made by the Fed" rally given the huge move, the lack of follow through on Friday and the volume.

As far as what is happening, my main watchword this year has been and is volatility. It appears to me that its "just" a crossover into a more severe stagflation in the US, and with a likely much faster continuing devaluation of the dollar... and with a much higher likelihood of a derivatives accident than since LTCM and Orange Country and S&L days.

[blazespinnaker]

Especially if you take "irrational exuberance" to be related to Fed Open Market Operations. On Thursday there was $23 *billion* injected in term repos which is well over 4x the normal amount.

Hmm, interesting stuff.

By injecting 23 billion via repos, that would be the equivalent of purchasing 23B worth of treasuries?

Is this why the bond yields declined? I was really scratching my head over that because I would have thought that inflation expectations would increase.

Isn't there something contradictory about injecting money on the same day you announce a tightening of monetary policy?

[jk]

liquidity

Hmm, interesting stuff.

By injecting 23 billion via repos, that would be the equivalent of purchasing 23B worth of treasuries?

Is this why the bond yields declined? I was really scratching my head over that because I would have thought that inflation expectations would increase.

Isn't there something contradictory about injecting money on the same day you announce a tightening of monetary policy?

it looked like another flood-of-liquidity day = everything went up against the dollar. it's one of the things that makes me concerned about the precious metals move. how can bonds and pm's move together, along with equities? everything's correlated. at some point these asset classes will have to diverge, won't they?

but from barron's interview with ned davis, just published:
davis: "Being bullish on bonds and gold is a strange combination because one is deflationary and one is inflationary, but I think gold is acting now as a currency replacement and, in that light, it looks pretty bullish." davis recommends intermediate term bonds, saying they tend to bottom around the time the fed stops raising rates. he recommends gold because the dollar's got to go down. his argument for bonds is short-intermediate term, his argument for gold is long term.

i guess bonds can go up and gold can go up too, as long as the foreign holders of bonds are seeing their own currencies drop against gold at nearly the same rate that the dollar does. all the paper is turning to confetti.

[blazespinnaker]

all the paper is turning to confetti.

You know it. I'm almost tempted to buy gold!

(almost, but not quite

[jk]

when to buy gold

You know it. I'm almost tempted to buy gold!

(almost, but not quite

so blaze, what will be your signal to buy gold? a fall in ALL assets including gold, or a breakout to the upside?

[blazespinnaker]

so blaze, what will be your signal to buy gold? a fall in ALL assets including gold, or a breakout to the upside?

I worry that that the chinese might be manipulating gold prices as they stockpile. You know, buy a lot, and the sell a bunch to shake out the weak hands trying to ride their coattails, and then they buy a bunch more.

I could see gold going up right now as the chinese buy a bunch. It'll hit 1000 and then they sell a bunch and squeeze the naked shorts and what not, until it hits 700 or 800 or whatever, and then they'll buy a bunch more until it hits 1500 or whatever.

Anyways, I really think that kind of yoyoing would probably kill me in short order. Which, I suspect, is what the chinese are counting on.

[bart]

Hmm, interesting stuff.

By injecting 23 billion via repos, that would be the equivalent of purchasing 23B worth of treasuries?

Is this why the bond yields declined? I was really scratching my head over that because I would have thought that inflation expectations would increase.

Isn't there something contradictory about injecting money on the same day you announce a tightening of monetary policy?

My current belief is that repo injections tend to affect the stock markets as per the repo chart on my Fed watch page. Temporary repos are usually done via short term loans of Treasuries and other securities.

The Fed open market operation called Securities Lending is what they use I believe to affect Treasuries. A chart of it is also on my Fed watch page.

I also expected that rates would go up on Thursday too but perhaps it was the "flight to quality" in action? I do believe that the Fed did and does want rates to go up to avoid negative yield curve issues. I note that the last 4 days of SecLend operations was about 3x normal.


As far as the Fed being contradictory with that injection, the best thing I can say is to cite one of my favorite quotes:

"The last duty of a central banker is to tell the public the truth."
Alan Blinder, Vice Chairman of the Federal Reserve, on PBS’s Nightly Business Report in 1994.