XOM double-top

Jim Rogers on bailouts and inflation

(Source: Bloomberg)

China, not the U.S., is the beneficiary of U.S. stimulus

"Made in China."

Whatever Washington decides to spend and inject back into the economy goes directly overseas. Fact of the matter is, stimulus packages are creating jobs but not here in the US.

The reason is simple: Producers take stimulus funds to make product overseas where the cost of labor is cheaper; employing people of developing countries and not the US.

Inflation will then come back to the US in the form of commodity prices. US workers will demand higher wages as a result. Higher wages leads to higher expenses for producers, who will pass those expenses onto consumers causing more inflation. The Fed will be forced to "sponge up" the excess liquidity by raising interest rates. Triggering massive bubble bursts around the world.

Day trade: Scalp $122.13

Markets are very resilient. It continues to shock me how long it can go up without a correction. I'd be blown away if SPY breaks out of its channel.

Market gaps into major resistance

Yields Spike on Qe-2

Investors are demanding more out of their investments

Intraday Bear-Flag

Based on the pattern the market could sell off soon. Target: 200-MA

Gold is down big on the day

Watch gold, treasuries, and the dollar tomorrow.

The 10-year treasury note yield has been steadily rising.

Get ready for tomorrow and understand Ben Bernanke and QE-2

During a period which we should be saving, we have to spend. Americans don't have an incentive to save. Artificially low interest rates and a depreciating currency. Why should we save today when our buying power erodes each day we decide not to spend?

Inflation is a huge problem for this country down the road. Huge. Ben Bernanke said he would have combated the Great Depression by giving consumers a false impression that a recovery was underway giving people the confidence to spend, therefore leading to a real recovery. That theory is in practice today.

The Fed, the controller of the US Dollar, has been doing its best to devalue the dollar. We've seen this 85% of the time for the past year; dollar up-markets down and vice-versa. By dropping the dollar, you prop the market, you inflate the value of the DOW. True wealth is not being created only a trick to fool the retail investor that looks at 2% gain on the DOW as something good not knowingly that his/her buying power has also diminished by 2% off-setting any real gain.

This, I believe, is a major flaw in Bernanke's theory. If our purchasing power drops by 2%, meaning we pay 2% more for everything like food and energy, people's living wages will not be able to keep up with the increase cost of living. So to compensate for the differences in wages and costs, Americans will have to reach into their 401K and whatever savings they have to pay for the difference. This in turn depresses asset prices, and if asset prices fall too much too fast, we can always count on the Fed to print more money and inject it back into the economy. Sounds great except the economy will forever be in a range, 2% gain on the DOW is not a guarantee that your portfolio saw a 2% gain if any, jobs are long gone, taxes will rise, inflation will rise.

In inflationary environments, it is better to be the debtor rather than the creditor. Why? Would you loan me a million dollars today if I paid you back in 10 years plus 1% interest? No. Because if inflation is 5% a year, when you get your money back, it wouldn't be able to buy as much as it could have the day I asked for the loan.

And who makes those loans? Banks. Who needs those banks? Businesses. The chart below shows sources of funds for nonfinancial businesses.



94% of a business's funds comes from bank loans, bonds, and stocks. 62%, 30%, and 2% respectively. So we know banks won't loan to businesses, because its worse to be a creditor during times of inflation. People won't buy bonds, because if you buy a bond you become a creditor so that's no good. Asset prices are no good because people keep withdrawing money from stocks for the reason mentioned earlier.

The last resort for funds--Government. How will the Government issue loans to businesses with money it doesn't have? Print more money causing even more inflation! This also equates to government takeover of businesses.

I don't know if Conspiracy Theories are true or if our officials are downright stupid. I think it falls somewhere in between. I think officials know the consequences of QE-2 but refuse to address it, because they want to get re-elected, and its hard to get re-elected if you're dragging down the economy. At least with QE-2 you can fool the Average Joe that the economy is doing better. But somewhere down the road the effects of too much spending will become irreversible and money printing and market manipulation will no longer work.

The only thing that does work is Capitalism, but we aren't allowing it to work. Recessions are good for an economy. It flushes weak businesses out of the economy so that only the strong ones are left. The government really needs to let the market situate itself.

Pivotal day for Americans

It's "Election Day," and it's very important that we elect officials who will represent us on Capitol Hill for the next 6 years.

I fear this could be the last chance we have to prevent our economy from getting any worse. Washington has to cut spending. We have freeloaded off of the rest of the World for too long, it's time to get back on our own two feet.

What will happen when the World stops buying our debt? Hyperinflation with no jobs; Stagflation! The Federal Reserve Bank will be forced to buy up the debt. Although the Federal Reserve Bank is NOT a branch of the Government, it's ludicrous to think that someone can finance their own debt with more new debt. Debt and money will become worthless. For example, if you had bad credit, no creditor will be willing to loan to you ("you" being the U.S. and "creditors" being the World) but if you owned a printing press that printed US Dollars, you can spend as much as you can print, but sooner or later you'll realize, "What's the point of even having a dollar anymore?" The Dollar will turn into confetti; it holds no value.

After losing World War I, Germany had to pay war reparations to the allies. Annual installments of 2,000,000,000 (2 billion) goldmarks plus 26% of the value of Germany's exports. The total reparations demanded? 132,000,000,000 (132 billion) goldmarks. More than what Germany owned in gold and foreign exchange. To meet the demands of the allies Germany simply ran their printing press and severely devalued the Mark. The cost of living in Germany grew by 16 times in less than a year.


Hyperinflation was so rampant in Germany that people would buy bread with a barrel Marks



Fiat Money=Confetti

The US is headed down the same path and is why this election is crucial. We need to send the right politicians to Capitol Hill, Democrat or Republican, it doesn't matter. You can't argue FDR's Liberal, "New Deal," policy didn't work, and you can't argue Reagan's Conservative, "Reaganomics" didn't work.

I am neither Democrat nor Republican. Some issues I'm very liberal on and some issues I'm very conservative on. But altogether, I have no faith in politicians, I think some elected officials go to Washington with the intention to do the right thing but all turn corrupt half-way through their terms.

Cutting back on spending will have dire consequences of course. Like the Greece debacle, a lot of public services that people have grown accustomed to and have taken for granted will be cut and this will lead to civil unrest.

Civil Unrest or Stagflation? Stagflation EVERYONE loses and civil unrest will come soon after anyway.

"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."
--Thomas Jefferson

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Marc Faber Interview with Margaret Brennan

Marc Faber talks about QE2 and how it will affect stocks.
(Source: Bloomberg)

$118.55 is a magnet

SPY $118.55, we can go above it, but we can never deviate too far from it.

It seems that each time the market gaps higher on the day and looks poised for a rally, it sells off toward the $118.55 by the end of the day.

And as expected, a sell-off today would be met with the Fed. The Fed comes in, buys up the market during the last hour of the trading session to close the market green. In time for elections.

If the market sells intraday, they might spike this market going into elections tomorrow.