Gene Inger Checks In With His Daily Briefing……….

Posted By on November 9, 2009

Gene Inger’s Daily Briefing . . . for Tuesday November 10, 2009:

Good evening;

Bears are caving-in . . . increasingly, as they become convinced that so long as the ‘untouchable’ Fed engages in cover-up’s of the problems, and stimulates massively it is impossible to break the stock market for more than 3-6% corrections (which we’ve had a few of). While we called for upside continuation early this week (and then what comes next), what you have is a light-volume thrust to the upside, while concurrently, the bond markets are once again ignoring the shallow equity melt-up as orchestrated.

Will this melt-up become a blow-off? Perhaps; but first it needed to deny a ‘head-and-shoulders’ topping possibility, that many technicians saw, but I didn’t really embrace, having seen such patterns decimated (and look like that until they simply aren’t). This is by far an unusual market movement (sure it’s periodically rewarding or frustrating, depending on the trading session); but what it is not is an immortal indestructible or perrinial advance, such as we rightly forecast from 2002-2006. It looks like that, but if it were to be, you’d need a lot more growth from the reflation than seems feasible. No doubt we’ve been too conservative about parts of our own forecast rebound; but let’s be candid; outside of a handful of big-caps (with the volume to get in as well as out if it becomes necessary for the big boys), there is less going on than meets the eye. In a sense that’s a narrowing rather than an expansion of participation, and a warning.

There’s no disputing the Dollar-destructive collusion between the Fed or major banks overseas. There’s no disputing the inability of this Nation to stand-up for what’s right in relations with large trading partners who are also potential adversaries (hope that if able you saw ’60 Minutes’ Sunday night; with respect to cyber terrorism with oblique references to Communist China in particular and the danger to our infrastructure); at the same time as there’s no disputing that Iran (now buying mini-submarines from it’s reported the North Koreans) is hell-bent on destabilizing the region and raising risks. I will touch on the economic aspects a bit more in the video; but this is a high-risk time.

The FX pitch about shorting the Dollar’s way out-of-line at this point even to debasing it as has obviously transpired. Be real careful about believing the idea that currency is about to be overtaken by physical gold; as there’s not enough to diversify thusly if the powers-that-be actually desired that, which they don’t. There is shadow currency in a sense; and an awareness that fiat currency (paper) has value because of confidence; which cannot be offset by a hard asset; hence the break of the Dollar either ‘crashes’ a lot of things fairly soon, or the stabilization we suspect (after this washout) actually materializes. Concurrently, those traders ‘cleaning up’ on this trade will experience, if that occurs, a fair amount of drama; while the Greenback rallies and stocks decline.

Absolutely I’m not defending what this Government has done to ordinary Americans; in fact we’ve railed against it through two Administrations, of both parties. We base a lot of it on benign neglect, a moratorium on sensible trade policies, and no oversight. The rest (which popped the bubble) was creative financial engineering both by banks and urged-on by Congress, which rarely owns-up to their role in setting the stage. As traders perceive that the Fed has given the ‘green light’ not to worry (ie: no rate hikes soon); all other aspects as could intervene are cast aside (though they ought not be).

True, as we wrote before the crash last year; the only way out of financial insolvency is to debase the currency and pay back creditors with depreciated Dollars. That’s the basis of the Dollar decline we forecast then; more recently we’ve allowed for it to end, or to be near an end (we’re often early; but then eventually the pattern proceeds later as it should). It’s so obvious that they are reflating the asset side of the ledger while a debt side deflating occurs, that it obviously drains massive liquidity, and carries with it a willingness to pummel the currency, which has occurred (and may in a climactic bit of a way yet). What we need is to repatriate capital to these United States, and then a bit of ‘farming it out’, which the banks have been reticent to do, as investments in us.

That would be naturally stimulative, but require higher rates; a stronger Dollar; sound fiscal policies (oh my); transparent accounting (the opposite of letting banks bury their toxic asset holdings); and an environment for public policy friendly to repatriating our capital. Up to now (and this better change); Government acts hostile to U.S. growth in this sense, and has actually contributed to worsening certain problems, which may be part of why the market’s persisted (because there’s no where else for money to go). It is simplified by saying that’s a chasm between Wall Street and Main Street; but it is.

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