CGTS: TWO PICTURES THAT SHOW WHY YOU SHOULD BE SELLING COMMODITIES AND STOCKS NOW
Theme: A Strong US Dollar Means Weak Stocks and Commodities
Every picture tells a story -- yes.
Just when we were all ready to sell the US Dollar from here to eternity, something happened. 1) European debt imploded -- the US has the same problem that Europe, England, and Japan has with debt -- and the artificial construct, the European Union, shook and rattled. And the Euro, the currency unifying the EU, threatened to collapse, revealed huge cracks in the EU foundation. North vs South; East vs West: the EU suddenly needed a divorce as the only way to save it. So much for the end of the US Dollar reign as the fiat currency of the world.
2) The era of Ben Bernanke's savaging of the US Dollar also seemed to come to an end. Ben's reign has been highlighted by lower and lower interest rates -- anti-US Dollar -- and by covert and overt bank bailouts, funneling free and/or almost free tax-payer money to the banks and guaranteeing their US TBond carry-trade buy buying every TBond the market count not suggest, keeping TBonds rising to enhance this 'socialism for the rich' carry trade.
Quantatative Easing is a fancy name for stealing from the poor and giving to the rich, adding to the Public Debt, subtracting from the Private Debt, having American citizens pay for the excesses and the thefts of the Wall Street banks (while the banks keep paying their obscene salaries and bonues to the very men who destroyed the global economy with their greed). Call it QE instead of the greatest theft of public moneys in the history of the universe -- it is what it is.
The other side of QE, of course, was the trashing of the US Dollar. The intent behind this was to force people out of the US Dollar, into risk assets: stocks, commodities, housing. This almost worked. What happened?
Well, the FED balance sheet swelled to such dangerous levels that other members of the Fed Board began to resist Ben Bernanke's plan. To do another round of QE (the Third), Ben would have to battle publicly with his own officers. Ben is not a fighter. So, instead of QE3 Ben agreed with his officers that he would not grow the Fed balance sheet, he would merely juggle long debt with short-term debt, re-shuffle his deck.
I promised only two charts, and I'm breaking that promise, offering, instead, a third and a fourth chart. Here's a chart of the increase in the Fed balance sheet, which he wound up and more than doubled in a couple years -- and which he will also have to unwind eventually, with all the inflationary pressures inherent in such a process.
Operation Twist was also supposed to be US Dollar negative. But it was not nearly as effective in this as was QE. The Dollar started to rise unexpectedly, suddenly. And stocks started to fall. Uncle Ben's face betrayed that old gnawing angst that seemed to shout: "I don't know what else to do! Nothing is working!"
What about the American housing sector? Trillions of dollars were spent to re-inflate the US Housing market. Did it work? Not really. It did stop the sharp decline in housing prices, moved the decline sideways. But the Case-Shiller home-price index seems to suggest that housing prices will begin to slide down again. This is especially true is the US Dollar continues to rise.
Here, finally, are the two charts we promised. USDollar Bullish ETF (NYSEARCA:UUP) vs US Oil ETF (NYSEARCA:USO). USDollar Bullish ETF (UUP) vs. Dow Jones Industrial Average. The two move contrary to one another. And the US Dollar seems to be strengthening. And the DJIA and USO seem to be weakening.
Why did Ben Bernanke not ride to the rescue of the stock markets and commodities markets this week? He loves to be the hero, loves to be admired as the 'savior of the world'. Take a look at this balance sheet growth. He spent a lot of money already...and the entire world in sinking back into the second leg of this Great Depression.
The truth is not what Ben thought it was. He thought that the Great Depression in 1929-1947 could have been avoided by more spending. But spending isn't the answer. During the Growing Season of the economic expansion, cheaper money, lower interest rates, fuels the growth of the economy. But when the Growth Season ends (as it did in 1929, 1965, 2001), more eheap money does not fuel growth in the economy but growths, cancers, bubbles, tumors.
Nothing stops the Great Depression from coming and deconstructing the world. It is the other side of the expansion. It is the 'going down the mountain' as the heroic amassing of wealth during the expansion of the 'going up the mountain'. Deflation is the second side of the Biblical equation: "The Lord gives, and the Lord takes away."
The Deconstruction of the World is essential for the next cycle of construction, which is scheduled to begin 2019 -- if we don't turn our economy into a perpetual debt accumulation machine, as the Japanese have done to their economy. Hiding bad private debt inside of public debt. We need to destroy bad debt (and bad debtors) -- not hide bad debt through governmental bailouts.
There is no such thing as perpetual growth in nature. Perpetual growth in cellular tissue is cancer. So it is in economic tissue. Growths are pockets of inorganic turbulence that eventually implode, threatening the life of the host oganism.
This is the lesson we need to learn: growth; rest. Day; night. Lower interest rates and cheap money; higher interest rates and expensive money. These two ALWAYS go together. Debt is inflationary by definition. Debt + income + profit from asset sales equals total current income for the sake of CPI calculation. Debt is money spent today. And merely substituting debt for salary growth does not save us from the ravages of inflation. What saves us from the ravages of inflation? More expensive credit.
As long as the US Dollar is rising, asset prices are going down.
MICHAEL J CLARK
CGTS - Hanoi, Vietnam