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Markets Defy Gravity And Here Is The Reason

Apr. 05, 2011 3:51 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

 This afternoon the major stock market indexes are holding on to some small minor gains. Nothing seems to stop this market from moving higher. WTI oil is trading over $108.00 a barrel. The United States Gasoline Fund(NYSE:UGA) is trading higher again by 0.43 to $51.75 a share which is a new 52 week high. When will the high energy prices effect the major stock indexes? Leading stocks such as Google Inc.(NASDAQ:GOOG), Apple Inc.(NASDAQ:AAPL), and BIDU Inc.(NASDAQ:BIDU) are all trading lower this afternoon and the Nasdaq Composite is basically flat to slightly higher this afternoon. What could ever bring these markets down again?

Ah, we can only look to one other factor that is keeping the markets from even having a simple pullback and that is the weak U.S. Dollar Index. The U.S. Dollar Index has declined lower by 15.0 percent since its June 2010 pivot high when it traded at $88.70. Today the U.S. Dollar Index is trading lower by 0.02 cents to $75.88. Here is the reason for the rally in a nut shell. When the U.S. Dollar declines the asset prices in the market will inflate higher. Traders and investors can simply watch gold and silver as the real barometer of inflation. Gold and silver are a central banks worst nightmare. They tell the investing public exactly how much the currency is being devalued and deflated.

This afternoon the iShares Silver Trust(NYSE:SLV) is trading higher by 0.64 cents which is new 52 week high. The SPDR Gold Shares are rallying higher by $1.94 to 141.79 which is a new all time high. As long as central banks continue to print money at alarming rates to prop up asset prices precious metals can trade higher.

Since December 2008, the Federal Reserve has had the key bank lending rate(fed funds) at zero percent. This means that banks such as J.P. Morgan Chase & Co.(NYSEJPM), Wells Fargo & Co.(NYSE:WFC), Citigroup Inc.(NYSE:C), and Bank of America Corp.(NYSE:BAC), are able to borrow money at zero percent. Therefore, these banks that are too big to fail can borrow money for free and invest as they see fit to make capital. These banks pump money into stocks, operate a lucrative credit card business which they charge and average of 17.00 percent, and pay you nothing for keeping your money in their bank. What a racket?

So there you have it. That is the reason for the stock market rally. When this bubble pops it could just be the mother of all bubbles. In the meantime, just follow the charts and ride the wave while it lasts because it wont last forever.

Nicholas Santiago

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