Can Money Supply Tell Us How the Funny Money Rally Will End?
by ilene - September 27th, 2009 4:11 pm
Can Money Supply Tell Us How the Funny Money Rally Will End?
Courtesy of Damien at Wall Street Cheat Sheet
This is a guest post by Precision Capital Management.
While much has been made of the expiration of the Federal Reserve’s $300 Billion quantitative easing program, there are still many more ways in which the Fed can pump the markets with liquidity that need never be paid back to the recipients. In this article, we take a look at the ramifications of some recent developments with regard to the Treasury and Federal Reserve that will again provide fodder to the equities markets, as well as revisiting our previous work on how money supply has impacted the economy and what it tells us of the potential correction down the road.
As we wrote two days ago, Treasury is effectively winding down its Supplemental Financing Program, the stated intention of which on its inception in September 2008 was to, “drain reserves from the banking system, and therefore offset the reserve impact of recent Federal Reserve lending and liquidity initiatives.” Delving into the mechanics of it, here is what happened:
Treasury announced special auctions for cash management bills, the proceeds of which were placed on deposit with the Federal Reserve in a special account (as opposed to the proceeds being kept by Treasury to fund the government). This allowed the Federal Reserve to use these funds (which topped out at $558.9 Billion in November 2008) to borrow or buy securities primarily from banks and broker dealers to help “unfreeze the credit markets.” The Fed could have simply borrowed or bought securities with money it printed, but this would have expanded its balance sheet by creating excess reserves in the accounts that banks are required to keep with the Fed. These reserves can be multiplied by at least ten times and used by banks for lending. At the time, the Fed was rightfully concerned about inflation becoming unmanageable once the credit markets thawed, and about being able to keep the Fed overnight lending rate (fed funds target rate) above zero. Accordingly, Treasury’s SFP helped to keep the Fed balance sheet under control (if you can call a multiple hundred percentage increase “under control”). The amount of money that flowed into the financial markets from the SFP was the same as it would have been had the Fed printed the money; however, SFP…
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DiggChart Junkie: Gold from Several Perspectives and Unemployment
by Chart School - September 4th, 2009 2:31 pm
Chart Junkie: Gold from Several Perspectives and Unemployment
Courtesy of Damien Hoffman at Wall St. Cheat Sheet
“The Professor” Corey Rosenbloom at Afraid to Trade offers us a longer term look at Gold. Although it’s breaking out on the shorter-term charts, the chart above clearly indicates there exists resistance above which must be cleared for the next bull rally to run. (Source: Afraid to Trade)
Gold Priced in Multiple Currencies
Precision Capital Management offers a very interesting look at Gold priced in multiple currencies. They state: “Gold is one of the leading indicators we follow at our website. Everyone seems to have noticed the spike up this week in gold, but how do we determine if the move is real, or merely a fakeout? To confirm that gold is advancing on its own merits as part of a longer term move, which is not the result solely of US Dollar weakness, we want to see confirmation of an up move in gold priced in other currencies. Above shows gold priced in the Canadian Dollar (CAD), Australian Dollar (AUD), Japanese Yen (JPY), and the Euro (EUR). When gold began its last advance in November 2008, the move was confirmed by higher lows in the commodity currencies of the CAD and AUD, as well as the EUR (even though there were lower lows in the JPY and USD gold). Eventually, there were higher lows in the JPY and USD gold at the beginning of December 2008. Accordingly, for the gold bull case, early confirmation would be to see current lows in AUD, CAD and EUR gold respected on the first pullback (especially in the former two as they are commodity currencies), preferably accompanied with a break through overhead resistance.” (Source: Precision Capital Management)
Gold with Fibonacci Indicators
Our partners over at RatioTrading bring us yet our third and final perspective on Gold: “As demonstrated in this chart, Gold has historically respected key Fibonacci Ratio levels and with Gold retesting all time highs, where could it be headed? Well as we look historically over the past year or so we see that in many instances when the GLD broke out and made a new low, it went right to either a 1.272 Fibonacci extension ($73)…
Are Markets Being Manipulated?
by ilene - August 24th, 2009 10:00 pm
Are Markets Being Manipulated?
Courtesy of Damien Hoffman at Wall St. Cheat Sheet
Federal Reserve
Conspiracy theories are nearly as old as the first human thought. However, there is a valid demarcation between presenting a collection of compicated facts as opposed to connecting stars from across the Universe.
Bob English and his team at Precision Capital Management recently distributed a buzz-worthy report entitled, “A Grand Unified Theory of Market Manipulation.” With a healthy dose of skepticism and understanding that the “Invisible Hand” is actually semi-transparent, I asked Bob to put his theory on the anvil so we could see which quality sword emerges …
Damien Hoffman: Bob, your team recently released an interesting report entitled, “A Grand Unified Theory of Market Manipulation.” Could you summarize this report for us?
Bob English: There’s an episode of an American sit-com I remember seeing years ago that featured a kid played by Ricky Schroeder and a grandfather played by the inestimable John Houseman — who, interestingly was a grain speculator until the 1929 crash wiped him out. They decided to corner the baseball card market for Tommy Lasorda cards by buying all they could, then planted rumors that he was a shoe-in for the Baseball Hall of Fame. The scheme worked at first as they were able to sell the cards for high prices that they could set. They owned the supply and created artificial demand. However, in the end, Tommy Lasorda dumped a carton of his own cards on the market, collapsing their prices. As a side point, there never was a good explanation given why Lasorda did this.
Anyway, in the current situation, instead of baseball cards we have US Dollars, and the US government controls the supply. If the government increases supply slowly and encourages demand, the Dollar’s price erodes over time but most people don’t notice. The real threat is a Tommy Lasorda in the form of China or Japan coming in and dumping the cards (i.e., Dollars) onto the market at once. Those Lasorda’s don’t want to do this, but there is a point that can be reached at which they would — for example, if they saw their investment in US Dollars about to become worthless and thus had little to lose.
At the same time, everyone has a vested interest in a rising stock market. It…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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