On Thursday we began looking at "What’s Our Money Worth?"
Of course I have been saying for some time that the Dollar is worth more than its basket index price of 73, a level we were clearly heading to test since we broke below support at 76 (another 5% down) back in mid-March. At the time, we were consolidating around 76 for the third time since 2009 but then there was an earthquake in Japan and a nuclear disaster and this of course, made the dollar much weaker.
No, not of course. Actually, that’s kind of ridiculous, isn’t it? Japan’s economy suffers a sudden, traumatic shock ("Monday Markets – Japan Moves 8 Feet Over and 633 Points Down") that shuts down commerce for at least a week (1/52nd or 2% of the year) entirely and threatens to slow it considerably long-term and that makes the Yen STRONGER against the Dollar?
The theory was that there would be a need to repatriate Trillions of Yen (demand for Yen) as Japanese corporations rebuilt from quake damage (estimated at over $300Bn) but if they were selling US assets or liquidating gold or silver, THAT sure didn’t show up in the markets did it? Clearly they weren’t selling PCLN or NFLX or OPEN – the MoMo stocks were flying. Of course the whole thing was manipulated BS – that looks kind of obvious now that we have our sell-off in silver and oil.
We were lucky to be bearish going into the Japan quake as it was our "Crashiversary" Week, one year after the March 9th bottom and I had warned it would be "1,333 or Bust" in my March 1st post. OK, let’s backtrack a minute so we can skip ahead. If you are a new Member, you should read the archives – it says to do so in the New Members Guide but a lot of people don’t. I even learn stuff from going back and reading them and the point I want to make quickly here is that the markets are fixed.
How do I know they are fixed? Well either they are fixed or I’m psychic because a large part of my own fundamental analysis is based on the fact that they are fixed and I am right much more often than I’m wrong so, quite possibly, the markets are fixed. "Fixed" doesn’t mean there is one guy fixing it – it means there are very powerful people who can and do CHEAT and are able to move the markets up or down. Sometimes those forces line up and sometimes they work against each other but to pretend "THEY" don’t exist or, even worse, that "THEY" don’t matter – is ignoring one of the market’s largest underlying fundamentals.
People don’t like to think the market is fixed. It makes ordinary investors feel small, powerless, insignificant… Well get over yourselves, you are. Even I am in the grand scheme of things – and I have a very healthy ego! In The Hitchhiker’s Guide to the Galaxy there is a torture device called the Total Perspective Vortex which destroys people’s wills by giving them just one momentary glimpse of the entire unimaginable infinity of creation and, somewhere in it, is a tiny little mark – a microscopic dot on a microscopic dot, which says, "You are here." As Einstein would say, "it’s all relative." Monty Python made a happier song about it and the bottom line is, as Bill Murry reminds us "it just doesn’t matter."
So, where were we? Oh yes – we are just simple investors trying to understand the cosmic forces that move the markets and it’s important that we recognize that one of those underlying forces is "THEM". "THEY" are governments, the Fed, IBanks, Fund managers and others in the top 0.01% who are powerful enough to make a difference in the markets through their own actions or through coordinated actions.
Fundamentals are why, on the morning of February 21st, while the Markets were rocketing higher, I was able to warn Members in "Monday Market Movement – Equities Rising on "Rivers of Blood"" that a combination of Egypt, Libya and Republican budget cutting was going to tank the markets and send oil flying higher (because many of the cuts were aimed at programs to help reduce our energy dependence – coincidentally, I’m sure…). Meanwhile, at the same time, Glenn Beck was on TV illustrating how the entire US could dissolve into chaos in just 15 days in order to drive viewers into the gold his sponsors were pushing.
The Dow had closed at 12,391 that Friday, after touching 12,417 as a high and opened that morning at 12,389 but my morning Alert to Members was:
If you think you are too long (and I REALLY hope no one who subscribes here is) this morning, then the Dow futures can be shorted at 12,350 or lower as that’s about where we got that moronic stick on Friday so we can assume the action above that level was fake, Fake, FAKE.
Despite the fact that the market fell 247 points that day (making $5 per point per contract on Dow futures!), it was quiet in Member Chat because we were all already short from the prior week – so all there was to do was sit back and enjoy the ride. The next morning I titled the post "Testy Tuesday – Drop ‘Till They Prop" in which we discussed "how low can we go?"
I pointed out that the National Association of Realtors was lying to us about the home sales statistics and that the Government was lying to us about inflation (oil was $96 that day, gold was $1,400) and that the Libyan situation was getting out of control but "THEY" were keeping it quite. It’s good to read my rants in retrospect as they sound more mainstream. That morning I said about news that Libya called air strikes on protesters:
Wow, you would think that would be a big headline, right? Well no, as it’s an inconvenient truth that is being swept under the rug by the MSM as US big-money oil interests are closely tied to the Gaddafi regime. Perhaps you remember last year when the US issued a formal apology to Colonel Gaddafi after one of our State Department spokesmen had the poor taste to criticize the Colonel for calling for a Jihad against Switzerland? It’s not just the US that bends over backwards to appease the man who ordered the bombing of Pan Am 103 over Lockerbie in 1988 – the British just released the actual bomber to Gaddafi’s son Saif last year, after the Libyan leader threatened British trade interests.
But, no. We are all slaves to oil and, as I mentioned yesterday, there are those in our government who are working as hard as they can to keep us that way as the following attempts at energy independence are slated for elimination under the Republican’s spending cut program, which doesn’t eliminate one penny of military funding – with two wars that are burning of 1 Million barrels a day of oil. (I went on to list them and put up this chart showing who Big Oil sends their PAC money to)
Wow! Go Republicans! That’s going to save us $8.8Bn or $1 per barrel of oil that the US consumes every year in order to make sure oil prices remain elevated by $20 per barrel ($176Bn ANNUAL cost to US consumers) as the United States not only continues to have no energy policy at all, but these idiots remove what few things we actually do to try to become a little more energy independent. Actually, I am selling the Republican idiocy short here – they are much stupider than that.
I know it makes my Conservative readers upset if I say anything bad about Republicans but they are "THEY", as are many of the Democrats – just a bit less than Republicans and how much did oil go up since then? That’s right, $20. So I can pretend magical fairies are pulling the strings so as not to offend anyone or I can tell you what I really see happening. In that morning’s Alert to Members I called for Russell 800 to be the bottom and we covered our shorts – very pleased we got the drop we expected and setting up for a run in oil and gas with long energy plays – I even called for a bullish trade on oil futures above the $95 line! This is what I mean by accepting the fact that the markets are manipulated – it allows you to make better decisions – even if other indicators point to the contrary (don’t forget the market was crashing that day but my above case for manipulation drove the bet). We even shorted the VIX at 21 – again expecting intervention on that Russell 800 line to keep up appearances. By 3:21 that day, the markets had dropped 2.5% for the day and we had made over a dozen bullish picks on the way down (we like to shop when things are on sale).
On Tuesday morning, the 15th, I titled the morning post "Terrible Tuesday – Duck this Fip," saying, "Now THIS is a panic!" Of course we once again went on a shopping spree – flipping out of our index hedges (DXD up 135%, SQQQ up 100%, TZA up 50%, EDZ up 25%) and picking up bullish plays on FAS, HOV, GE, AAPL, CCL, ADBE, TIF, CHK, VLO, HIT, SVU, FXI, FMCN and TBT. Once again, when the market throws a sale – we go shopping!
If you want a summary of my market view that day, I happened to be on TV that evening so I won’t get into it here but there were good, solid, fundamental reasons for us to head back up (and Barron’s agreed with me that weekend) but then, as often is the case, "THEY" took things too far and, once again, we gained too much, too fast and found ourselves at an unsustainable level. The Dollar has become the manipulator’s tool of choice – most likely because "THEY" no longer have enough money to continue to pump up the market (the bigger it gets, the more money you need to put in to get the same move).
Since the beginning of QE2 in November (the actual QE2, not the September announcement of it), the Dollar was dropping steadily from 81.44 after Thanksgiving to our expected 76 line in March. That 6.66% drop (the mark of the Blankfein!) in the Dollar seemed like the "right" value following the Fed printing $600Bn of new money and diluting the World’s $14Tn supply of US currency by 4.2% (taking into account also our additional debt obligations).
So there was our justification for the Dollar sinking to 76 but, as I said at the top of this post, after Japan had a melt-down and after the Mid-East went up in flames and after the yields on 10-year notes in Greece and Portugal broke over 20% – the Dollar went lower still? This is where we have to start wondering whether outside forces may be at work. Sherlock Holmes said: "Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth" which is a counterpoint to Occam’s Razor, which dictates one should selecting the competing hypothesis that makes the fewest new assumptions, when the hypotheses are equal in other respects.
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Was it POSSIBLE that the repatriation of Yen from overseas was having an immediate detrimental effect on the dollar in the days following the earthquake? Possible, but not PROBABLE as the country was practically closed and it’s doubtful the the few people who came to work that week were running to the phones to liquidate dollar-based assets and transfer the funds back to Japan. It was a rumor and, like all good rumors, it had just enough of a kernel of truth in it to be believable but to boost the Worlds 3rd largest currency (you guessed it) 6.66% in 5 days (83 to 77.5) was, as Holmes would point out, IMPOSSIBLE.
As I predicted earlier that week – on Friday, March 18th, the BOJ had to step in and the G7 joined them in what I called "Free Money Friday – Yentervention – G7 Style!" I had first coined the phrase Yentervention back in September of last year, when I had also predicted the BOJ would have no stomach for letting the Yen pop 120 on it’s own index (also Dollar at 76 at the time). The strong Yen is bad for exports and Japan’s annual trade surplus is 5.4Tn Yen ($66.6Bn at 81 Yen to the Dollar!) so the strength of the Yen can have a huge detrimental effect on their export-driven economy as well as Satanic significance.
The US, on the other hand, has a trade DEFICIT of roughly $40Bn PER MONTH – but that’s a tragedy to discuss on another day… So here’s one of those cases where "THEY" (the G7 in this case) come right out and tell you they are going to manipulate the currency. Why? Because another group of "THEY" (commodity speculators, IBanks) were pushing the currency too far in a direction the G7 didn’t want to see it going. But the G7 was not all on the same page. The US WANTED the Dollar to be weaker to help ease our own trade deficit and, other than offering verbal support, even the BOJ has not been terribly interested in supporting the Dollar so far – because they don’t have any goods to sell!
That’s right – logically, the BOJ wants a weaker Yen to ease deflation (year 20 for them) and to help Japanese manufacturing but Japanese manufacturing was shut down for weeks and there are SHORTAGES of goods to export. When there are shortages, you can raise prices and letting the Yen float back over 120 in the past month is like handing out a 5% bonus check to those manufacturers who were able to get goods out the door. Now that Japan is back from this week’s planned holiday and manufacturers are getting back up to speed, the BOJ will once again be looking for ways to cool off their currency to help get the goods flowing out the door.
Nobody wants a strong currency, well, nobody in debt, anyway – and those nations that are operating debt-free are few and far between. The environment was ripe, with the Fed trying to stay "loose" so they could continue to drop Billions of Dollars on their Bankster buddies, for the Dollar to be taken lower, especially as the Japanese themselves, who are responsible for 25% of the Planet’s FOREX trading, were sidelined. The dollar was shoved all the way down to a low of 72.79 – which is, of course, 6.66% below the 78 line we fell from on the Japan quake! We’ll try not to read anything into that – and concentrate instead on trying to figure out what the Dollar SHOULD be worth:
IN PROGRESS
