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Bret Rosenthal is Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds. Bret Rosenthal is responsible for the day to day management of the Fund’s investment and business activities. Rosenthal Capital Management, LLC, is an independent investment management company... More
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  • Stock Market Strategy: China and Western Central Bank Intervention Rescues ‘Worst November Since 1932′ 0 comments
    Nov 30, 2011 12:55 PM
    ‘Worst November for markets since 1932′ Saved in the Last Three Days of the Month

    Markets rally hard on the last day of the month. How many times are we going to see this happen? Massive volatility during the month, big losses during the month all hidden by a big surge on the last day of the month. These month end surges all occur due to the heavy hand of central bank intervention as you will see by reading the stories below.

    This not so subtle central bank month end ‘painting of the tape’ led by Helicopter Ben and his trusty sidekick Timmy ‘The Elf’ Geithner succeeds in mollifying the unsuspecting investing public. The actions, however, do not fix the ongoing crumbling of financial system foundations. Instead, this leading of the investing public by the proverbial nose each month only serves to condition the lambs for the eventual slaughter.

    But, this is the brand new world the intelligent and aware investor is faced with so we must adapt. One way to do this is to be an opportunistic not fundamental short seller. Those of you following my tweets will recall I was advocating market shorts at the beginning of this month and suggested covering and booking gains during the week of Thanksgiving. The object is to take the ‘white meat’  and book gains when able while maintaining a healthy long exposure to Precious Metals.

    I have written before and I will write again: Any and all ‘fixes’, ‘resolutions’,'interventions’, result in paper currency devaluation and Gold / Silver appreciation. This isn’t rocket science and it is not really debatable, liquidity injections, debt forgiveness/restructuring, Euro treaty modification all lead to currency debasement in one form or another. In a world of never ending paper liquidity the best way to preserve and increase wealth over time is through the ownership of Gold and Silver….

    Early Floor Talk: Central banks provide a strong boost to markets(Briefing)

    U.S. futures and global equity markets are sharply higher after major central bank liquidity actions were announced this morning. The biggest of these was the coordinated action between the Fed and five other central banks to address pressures in global money markets. These major central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points to ease strains in financial markets and mitigate the effects of such strains on the supply of credit. Prior to this coordinated action, futures had moved up after China eased policy by lowering its Reserve Requirement Ratio by 50 bps to 21.00%. U.S. futures were slightly negative prior to the China news, and global markets had sold off overnight, following S&P’s downgrade of several major banks after the close yesterday and rumors of a weaker than expected PMI reading in China.

    In Asia, markets saw large declines overnight, with China’s Shanghai Comp falling 3.3%, closing before the reserve requirement cut was announced. The weakness may have been related to rumors that Thursday’s PMI figure could be weaker than expected. Hong Kong’s Hang Seng was -1.5% and Japan’s Nikkei was -0.5%.

    European markets have rallied sharply on the coordinated central bank action, after rebounding earlier on China’s reserve requirement cut. Major European markets are now trading just off session highs (DAX +3.9%, CAC +3.3%). Eurozone Unemployment Rate hit a EU-era high at 10.3%. Germany, however, saw a decline in the jobless rate, which provided an up tick to markets, perhaps reaffirming the stability of the nation with the EU on its back.

    Fed announces coordinated central bank action to address pressures in global money markets -Update-(Briefing)

    The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (NYSE:OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice. As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorized through February 1, 2013.

    Federal Reserve Actions: The Federal Open Market Committee has authorized an extension of the existing temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank through February 1, 2013. The rate on these swap arrangements has been reduced from the U.S. dollar OIS rate plus 100 basis points to the OIS rate plus 50 basis points. In addition, as a contingency measure, the Federal Open Market Committee has agreed to establish similar temporary swap arrangements with these five central banks to provide liquidity in any of their currencies if necessary. Further details on the revised arrangements will be available shortly. U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

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