The Incredible Money Growing Machine

Today (Wednesday) the Fed announced that it would spend an additional $300 million over the next six months to purchase US Treasury Securities. Essentially, this amounts to nothing more than the printing of money. Bernanke should have come on TV at 2:15pm today, standing in the Bureau of Printing and Engraving, while the machines hummed and whirred, firing off fresh and crisp $100 dollar bills for everyone to have.

I’m very concerned about this. Pundits were applauding the Fed’s move, suggesting that it was a “brilliant maneuver” to embark on a course of purchasing Treasuries. How insane. We’re printing money to purchase our own debt. WOW!

If I knew that it was that easy, I wouldn’t have worked. I would’ve just bought a big printing press and printed dollar bills to pay for my mortgage and my children’s education. When does this insanity end? This artificial “bubble” (and it isn’t much of a bubble-except for treasuries) is going to pop. Eventually, inflation will start to strangle us. The prices that we pay for food, energy and services will increase dramatically. It will be at that time that the Fed announces it needs to start increasing interest rates or shrink the money supply, and that will have the opposite effect of today’s rally.

We will look back over 4 or 5 years and realize that our investments have not really grown in value, but they have stayed the same. The dollar will have declined against most other currencies and as a nation, we will have sacrificed purchasing power as a result of a beaten down dollar. Take a look at how the US dollar was treated versus the Euro this afternoon. More of this is in store as we weaken our balance sheet by purchasing toxic assets and trying to inflate our way out of the crisis.

The Swiss Franc (CHF) also took a beating versus the US dollar. Just last week, the Swiss announced that they would begin to purchase other currencies as a means of weakening their own currency. I believe that it was a coordinated action with the US Government. They wanted to increase the value of the US dollar so that it would not be devastating when the Fed announced their Treasury repo program.

Now the ES has gotten to the top of its channel. What’s next? Take a look at the chart below that shows the path that the ES traveled. The ES moved up and tested the red trendline, as I projected that it would. Question is, will it move off of the channel or will it continue its downward movement and start the next leg down of the bear trend?

I will not attempt to trade the ES until its movement and direction becomes clear. Anything else is just gambling. My gut tells me that this wants to test the trendline and move lower. I will not anticipate, but will wait for the markets to reveal themselves.

Gold also moved substantially below its trendline and then rallied strongly into the afternoon as the dollar plummeted. Crude also managed to close above the $50/barrel level.

Tomorrow, the true test will be to see if any of these movements actually hold. I believe that most of them will start to corrrect, with the exception of gold.

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