Judging from today's trading signals (see below), interest rates are rising (yields are falling). What does this mean? FED apologists use this reality to argue that the FED did not 'fix' interest rates in the low position all these years; that the market wants lower rates. This is what used to be called 'sophism' by the Greeks, before all the thinking Greeks vanished and were replaced by the pragmatic Anglicans who substituted sophism (a justification of what is by hook and by crook) for thinking.
Falling interest rates tell us that investors do not believe in the economic recovery and are preparing for the Great Depression, which was delayed by FED sophism and 'quantative easing' -- a sophistry made technical-sounding for 'let's give free money to the rich so we can all make a killing before the world ends'.
Recovery? Where? In America? What recovery ever needed trillions of FED money-creation, ZIRP for ever, and the trumpeting of new part-time and minimum-wage jobs to make the administration running things claim success?
Europe? Is Europe recovering? China? Japan?
Actually, a recovery always includes the massive destruction of old debt so that dinosaur companies and individuals vanish, and allow good, new, stronger companies to rise in their place. How many corporations have cleaned out their desk-closets and are ready for a new run up the mountain with new products and with no debt? In fact, very few. Almost all companies have more debt today that they did in 2009; and almost all companies are furiously buying up their own shares to try to hide the dismal truth about this recovery, or non-recovery.
The fly in the FED soup is becoming more real every day now. The strong US Dollar is threatening to destroy the fragile facade of calm the FED has woven for the last thirteen years. QE and ZIRP are anti-Dollar ruses. The FED has been committed to the wounding of the Dollar in order to force up asset prices, stocks, commodities, and housing. A strong dollar cripples all those markets.
The FED flooded the world with dollars to weaken the Dollar and force up asset prices -- but, in the process, the world (especially the developing world) took out massive amounts of US-dollar-denominated debt. As QE ends, debtors in dollar-loans need to repay loan in dollars. This means there will be massive competition for dollars, to repay loans and to refinance, if possible.
The only thing that can keep the Dollar from rising is MORE QE. And the FED seems to have used up its political capital for QE, which people now understand, is nothing more than a transfer of trillions of dollars from America's future to the richest people in the world today, a grand theft casino operation. Yes, QE did save the banks, the very people who caused this crisis.
Remember Ben Bernanke's hero, Korekiyo Takahashi, the Finance Minister in 1930's Japan, who attacked Japanese (and world) deflation with QE and ZIRP and won? Well, Ben didn't tell us the whole story. Takahashi won the battle for a few years, until he tried to unwind the massive Japanese balance sheet that was suddenly threatening to swamp Japan with hideous inflation. Takahasi cut back on asset purchases, and cut back on domestic spending, and revived Japanese deflation, so much so that military leaders hacked him to death with swords, fearing he was destroying the Japanese military's ability to fight wars effectively.
If Ben would have been honest with himself, he would have studied the entire story.
But then we would all be in on the ugly truth, that monetization of debt through QE and ZIRP does not 'fix' deflationary problems, it merely postpones them, at most, for a few years.
More debt is NEVER the medicine needed for the deadly illness of too much debt, or insolvency. The doctor was/is either a liar or a fool; either way, America will not profit by following liars or fools.
A cynic would say that Bernanke DID know how the Takahashi ballad plays out, and chose to follow him anyway, and retire and run into a lucrative retirement from the FED before the unwind actually began. Someone is going to have to pay publicly for the Bernanke Put play; chances are that Bernanke won't be hacked to death for the crimes against logic and decency he committed, transferring exorbitant wealth to the men and woman for whom he worked, the Richest 1% of the world, including foreign banks and bankers.
So, interest rates are falling; bonds and the US Dollar are roaring higher. The FED does not want a stronger Dollar. The FED has been willfully weakening the Dollar for years, to fund globalization through American debt-slavery. But the FED is between a rock and a hard place. Russia is trying to destroy the Dollar's global hegemony as THE global currency. The US wants to destroy Russia, and Russia's currency. A strong dollar helps to do this; a strong Dollar drives down the price of oil and gas, which is the material basis of Russia's new-found wealth.
Foreign 'friends' want a strong dollar -- want weaker home currencies. If the FED were to reinstate another round of QE, trade partners would revolt, as they watch their own economies sink deeper and deeper into serial recessions. So the strong Dollar looks like a universally unwanted necessity now.
The strong dollar will sink all the assets the FED wants to appreciate: stocks, commodities, housing. The FED also knows how dangerous unwinding QE was for Japan and Takahashi in the 1930's; clearly Japan also knows this, judging from its insane lowering of interest rates this week, cheapening of the Yen, which invites more inflation into Japan.
We should also be aware of how war was the ultimate end of the money cheapening policies of the 1930's. War is the Biblical hell that awaits the Devil's mechanisms in the Old Testament and other spiritual writings.
From The Global Macro Investors' Raoul Paul writes about the end-times brought on by a stronger US Dollar:
"The meme of US economic strength and decoupling from the world has consequences...
At some point very soon the dollar is going to break out and EVERYTHING you know is going to change. Everything you've understood to be normal and stable in your investment portfolio is going to be as risky as hell. All of your core assumptions are going to be tested and thrown out as false assumptions. Yield trades, once the safe haven, are going to kill you. Anything that has any carry element or any exposure to currency moves will create huge losses.
Why am I so damned alarmist? Well because as ever, we've seen it all before.
The reason it is going to happen rapidly and maybe in a disorderly fashion is because if the dollar moves much higher, we will begin to see an unwind or THE unwind of the biggest carry trade in history. This is the flip side to all that QE. This is the flip side to the China miracle too. Multiple trillions of dollars are going to need to be bought or extinguished in this unwind, and that is going to create complete chaos.
Sadly, there is no such thing as free money in the real world. There is always a price to be paid. Self-reinforcing virtual circles eventually become the spiral of doom.
I think we find ourselves at the tipping point of the spiral of doom....
It seems like an order from God. This weekend's trading signals:
TBT, the Ultrashort 20+ TBonds.
IEF, 7-10 Year TBond Fund
TLH, 10-20 Year Lehman Bond
TLT, 20 Year TBond
All the issues on this list have given trading signals this week. So many signals are ending runs as short-sales or as long purchases. This system is a 'trading system', meaning that it does not last too long. We like this trading system best for the purchase of options.
The DJT 'flat' reading follows a gain of 7 1/2 % in 7 trading days:
Long 7 10/17/14 10/28/14 +611.46 +7.50 Exit Long Rule
Here are pictures of our two favorite trades today, based on the signals above:
Last week we recommended a short trade on ENZN, Enzon Pharmaceuticals. It is currently up 13%.
We also recommended a short on OCN, Ocwen Financial, which we aborted 2 days later, after OCN shot upward. We are still negative on OCN; but we are not trading it at the minute.
The beauty of the trading system we are introducing above is that it is based on our CGTS 112 indicator (see the orange indicator in the top pane above) one of our most accurate overbought-oversold indicators.
Michael J. Clark, CGTS