Crazy Stock Market Rally & The Plummeting US Dollar: Have We Reached The End Of The Road?

Has the rally reached the end of the line? Crazy buying - UP UP UP  day after day, week after week, grinding it higher; destroying shorts and bears that dare to stand in the way of the FED.  What does the FED have up their sleeve today?  What can they do or say that will gun it higher another 15 points?  Valuation is passe.  This is a market that is driven on fear and emotion.

Investors are confused. They’re not sure who or what to believe.  Should I believe Geitner, Bernanke, Obama  or should I put my faith in what I see and feel and hear on the street.  10% Unemployment? A slogging and painfully slow recovery? Each investor can only decide for himself or herself where to put their chips.  The rally has been nothing short of breathtaking.  In my lifetime, I’ve never witnessed such a strong and powerful rally. Also, I have never witnessed an economy that was on the brink of collapse.  I’ve never seen a nation so in debt. I’ve never seen so much “gasoline” (stimulus) dumped on a fire that was close to burning out.  The market is priced for perfection.

The Fed must now somehow start to convince the rest of the world that the economy is on sound/firm footing - while beginning the process of withdrawing reserves from the banking system.  Failure to do this will result in inflationary pressures.  In the 2nd quarter alone, the FED bought 1/2 of the UST’s that the government issued. They’ve indicated that they’ll start to pullback on purchases in October.  We’ll see.

There has been talk about “reverse-repos” lately which is a FED tool to drain reserves.  Essentially the FED is loaning the banking system UST’s.  The FED will sell UST’s to the banks and agree to buy them back at a higher price at a later date.  It’s essentially a loan.  The difference between the purchase price and the higher price the FED will pay to buy them back is the interest that the bank receives. It’s more sleight of hand by those in control of the banking system.  The US is able to print money and hand it to the banks.  Bankers are enriched at the expense of the US taxpayer.

The value of the US dollar has plummeted. This is due to the depreciation of our currency.  Toilet paper is nearly worthless as it’s so plentiful.  Is the US dollar any different ?

The FED will need to contain the plummeting dollar or risk a bout of hyper-inflation.  Gold is offering a warning as it’s hovering near the $1000/oz mark.  The US dollar is slowly losing reserve currency status.  Investors are shorting the US Dollar and investing it in risk based assets.  The FED, by keeping rates low, is encouraging this trade.  I’m looking forward to hearing what Bernanke and Co. has to say today.

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Comment by Bad Economy

2009-09-23 11:13:20

The banks do not want the feds to withdraw reserves from the banking system, and they will likely take measures to ensure the status quo. It is also hard to convince the rest of the world that the economy is on sound/firm footing while you are being controlled by the banks.

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