Tuesday, November 14, 2013 Hitchhiker's VUE

General Information and Analysis

US

Is it just me, or are traders and investors unsure of themselves.  Stocks exploded out of the blocks yesterday (as you know). I warned that the down move overnight would cause confusion in the market.  I suggested the market would go up from the opening and then chop.  Obviously, the market went up, did not chop, and ended the setting a new high in every stock market index.  Why? The set of all stock market investors appear to be irrational at the moment, speculating that with Janet Yellen coming on board, there is nothing but good news for stimulus into forever rich-gaga land.

The global economy and all the markets are just weird it seems.  Bonds, currencies, commodities (including gold and silver) cannot find any direction (up or down).  The news is so mixed: one day the sky is falling, the next day the markets are zooming up and bonds recover.

Overnight, the global markets seem to be in an up mode, with gold recovering.  However, the dollar is up. 

Janet Yellen - couldn't wait, and released news early:

Today is Janet Yellen's moment in the sun as her confirmation hearings take place.  Yellen: "the U.S. economy and labor market are performing far below potential and the central bank has more work to do to support the economy."

That does not sound like tapering is in the works any time soon, and the stock market traders (not investors) are just giddy - which since this news was leaked before any retail traders had it, her pre-pre-release (pre release to bankers before pre release to retailer) explains some of yesterday's exuberance. 

" Former Fed Gov. Kevin Warsh told the Wall Street Journal yesterday that he has doubts about Janet Yellen's courage and conviction to tighten monetary policy when the markets are opposed to it. Warsh said that, "the Fed has been handing out candy to spur markets higher, so consider the challenge when a steady diet of spinach is on offer."  (From the MarketWatch)

This was really weird, but worth posting. 

The man was Andrew Huzar, who helped manage the Fed's QE from 2009 to 2010.  http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

" I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time."  and then this:

"It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash"

Well, I've not articulated it as well as Mr. Huszar, but I've been saying this almost since the inception of QE.  Now, the Federal Reserve is TBTF, and if it  ever tapers that will be surprising, but as far as ever reducing that debt, I don't see how it is possible, as dumping that much debt on the market would take years (as it has to accumulate it). Dumping would be extremely risky to the world's economies.

Canada

Eurozone

Euro was positive, but at 6:00 AM PST it was moving down again.  Go figure, since the Eurozone 3rd QTR GDP printed positive exceeding expectations.  Wait, maybe that is bad news, as Super Mario won't cut the interest rates.   

Readers, that is really good news; not bad news.  The Eurozone could have collapsed, and no one should really want that.  Instead while limping back into the game, they are continuing to recover. 

And the Euro is now down?  weird market, driven by speculation on what Central Banks are going to do; not fundamentals.

Australia:

China

China is accumulating gold on a massive scale, and has been hiding the fact from the IMF reporting.

Chinese have gone about their central bank gold bullion accumulation program very quietly. One cannot be sure of "truth" when dealing with anything from the Chinese.  More than likely, we are witnessing Chinese central bank accumulating gold such that at some point they can back a freely traded Renminbi.  The Chinese will tell when that will be, and they do not have to tell.  They don't even have to report to the IMF, as there are no ways to force them to do so.

Well, I said yesterday that Gold probably has further to fall in price, and will not make a good investment in the near term. 

Ha, that depends...  If one is a value investor (in it for the very long term - decades), then gold is buy right now.  Everything about gold (or nearly any other investment) is dependent on the time frame in which one is invested.  China is moving to be "the super power" and destroy its perceived enemies - specifically the USA.  That says there is long term opportunity; not short or medium turn (although that can turn on a dime as well). 

Gold is technically weak on all fronts, and a one-year investment time frame would suggest that gold is not a good investment. 

Would you at all agree, that most analysts on gold are wrong, and that matters neither whether they are bulls or bears.  The whole western world has no "truth" about China, why it is accumulating gold, nor anything.  

What we do have is footprints to suggest they are stockpiling gold.  In the very long term it will mean they can dictate to the world economy. (It is like a poker game with very large stakes for people's lives.)  

Japan

Abeonomics is looking like a disaster for Japan.  As we know, the Japanese have suffered stagnation for 2 decades.  Lost wealth for two decades.  Their government debt is the largest in the world (in terms of GDP and other economic indicators).  Their trade surpluses turned negative. 

The country's fundamentals grow worse, and the nuclear spill is not helping their situation.  To me this is sad to watch one of the great powers slide like this.  But that is just me.  I don't enjoy at all watching people suffer. 

There is a misconception I believe about money printing and inflation.  But I've written about this several times.  I learn more about the relation of inflation to money daily, and more and more I'm convinced money printing in and of itself does not drive hyperinflation; no matter what we've been taught. 

Generally: It appears to me that printing money devalues the currency, and might cause hyper-inflation if every other country in the world is trying to let the free market decide. (A very big IF indeed.) But when almost every other country is also trying to devalue in order to increase exports, it is an ugly race to see whose currency causes default first.