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Financial Stocks Ripped Again As Foreclosure Fear Jumps

We all know that this recent stock market rally that began on August 25th, 2010 has been manufactured by the Federal Reserve Bank and the prospect of QE2(quantitative easing). Since that time the stock market has rallied higher by nearly 13 percent. However, the U.S. Dollar Index has declined by nearly 13.0 percent since it's June 7th, 2010 high. This tell us that quantitative easing has already been going on. If the U.S. Dollar has lost 13 percent and the stock indexes have rallied 13.0 percent what have investors really gained as stocks are denominated in dollar terms? It has really been a zero sum game and many people are hopefully realizing that.

There are several negatives to the 'kill the dollar' policy that the Fed has adopted. The first is that all goods and products that people need will become more expensive. Just look at the price of gasoline, or food? These prices have increased and will continue to increase. Most commodities besides gold and silver are now at all time highs. How can this be a positive for society? What about the retirees or those that are living on fixed incomes? What happens to these people as they see their purchasing power evaporate before their eyes?

Most investors are under the impression that quantitative easing is coming soon. They believe that it has not occurred yet. Are you kidding me? How many bubbles can the United States handle? The last time we saw quantitative easing of this magnitude was in 2001-2007 which caused the greatest credit bubble since the great depression. What is this more powerful artificial prop job going to cause this time? The Fed funds rate(overnight lending rate to the large major banks) has been at zero percent since 2008 and the banks still can't get out of their own way. Bank of America(NYSE:BAC) just hit a new 52 week low today for crying out loud.

Don't people see the damage that is going on? Where did all of the toxic assets go that the banks had on their books? The phony accounting can only work so long before the real problems emerge. Lets not even talk about the government debt and spending that is going on. Who is going to lend a nickel to this country at this rate. America talks about the European debt, meanwhile, we have fifty Greek states of our own. This Fed better come to their senses soon.

Nicholas Santiago
Chief Market Strategist