The FIX Is In

Or How the Bulls have Rigged the Stock Market

On the surface its simple and been covered in past Investors411. The Fed prints & dumps money into the economy. Yesterday’s dump was 8.309 billion More money  = more wealth in USA. This drives the dollar down relative to other currenies and US companies sell more goods abroad because they are cheaper.

But the devil is in the details – The FIX is being run by US shadow banks, our opaque central bank/The Fed & The Treasury. Here’s how

• You buy Treasury bonds from the US Treasury
• But our Fed buys bonds from from its 21 Primary Dealers

Aside – Primary Dealers is basically a synonym for giant opaque shadow banks. “Somethings Rotten in the State of Denmark” Let’s use Goldman Sachs as an example. The Fed buys these bonds from GS through its NY Fed office. William Dudley, runs the NY Fed and is also Vice Chair to Bernanke. Oh. by the way, Dudley was also chief economist for Goldman Sachs for over 20 years. Ya think, GS is getting a good deal or front running the bonds it sells to the Fed? Take a look at the recent rise in yield of the 10 year Treasury bond. (Link to chart on right side of blog)

Never forget there are puppet masters who pull the strings of the puppets we call democrat and republican politicians. But let’s get back to the bulls rigging the stock market.

• Remember we allow our shadow banks to be giant investment brokers
• The giant investment houses run Black Box/High Frequency Trading units.
• Follow the money. – Is the $$$ these primary dealers are making going to finance mortgages or is it going into the stock market?

Aside – Now if you are a greedy investor, like me, scroll down to “Reading The Tea Leaves” which maps the course of the money as it flows into stocks and how to make $$$ from it.

• So,  for investors. shadow banks, globalized US companies, most stocks the fix is in.
• Good economic news – No worries thing are getting better for the economy and stocks should go higher. But shadow banks could loose a major source of revenue.
• Bad Economic news - No worries Shadow banks, investors, globalized companies will all prosper.

You betcha, This short term fix is another bubble building. We are still the world’s economic Big Kahuna and we’re getting away with this market manipulation because we can and it works.  What were doing now should work for months. However once you turn on the steroids its hard to stop injecting. What’s really needed is fiscal reality – raising taxes/cutting social security/stop building an unsustainable military empire/cutting medicare.

Europe is taking a different road –  The Black Swan (great name) Nassim Taleb who predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.  If your looking years into the future their austerity measures will work much better than what we are doing.

START Treaty (Haven’t forgot about it – Monday)

STOCKS

Investors411 tries to keep it basic.

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

Index	Percentage	Volume
Dow	+0.95%	up
NASDQ	+1.17%	down
S&P	+1.28%	up
Russell 2000	+1.08%	-

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Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

World Stocks -.

USA – Rally was confirmed yesterday and volume was relatively high,  and there’s a chance just a few people may be reentering stocks.

Job’s number for October = Rate Up to -9.8% Gain of +39,000 jobs Far Worse than expected.

Europe – Most major European markets did better than USA. The Black Swan (great name) Nassim Taleb predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.

Emerging Markets – EEM (ETF for emerging markets) again outperformed US stocks. Up +1.96

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Chart Pattern for benchmark S&P 500 has formed a classic 8 month long cup and handle trading pattern. Stocks are accelerating to the breakout point now @ 0.50% higher (SPX at 1121 & breakout 1127) The acceleration into the breakout resistance point is OMG news for stock analysts.

When you break out to a new high and an 8 month major chart pattern is involved, it often is like adding  jet fuel to the breakout.

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Reading The Tea Leaves -

Bulls Rule – Today the employment numbers will probably show solid improvement. This will probably rally the dollar, and the dollar moving higher might hurt stocks. If it show an unexpected rise – the same thing will happen.

It’s the dollar/stock relationship that is key. One mantra of Investors411 has been a reminder that High Frequency Traders dominate/make 50% to 80% of all trades. They trade in both the larger currency markets and smaller stock markets.  Dollar up = Stocks down and visa versa. Here’s why the bulls are in control

• For 8 trading days the dollar went up (one was flat) Most of these days were significant moves higher.
• For those same 8 trading days stocks did NOT move down but sideways
• For two days the dollar have now fallen significantly and stocks have rallied significantly

Basically, the trend is stocks move sideways on bad dollar news and rally on good news.  There are some fundamentals behind this that have been mentioned in the past and will go over on weekend or Monday. But the important part is that bulls sure look like they are in charge.

Additional points – BDI seems to be showing early indications of a reversal in trend and that’s good news.  MO at +5 gives us lots of room to move higher. Rough interday gauge for MO is 100 Dow points are worth about 20 points. So Dow goes down 100 points MO would interday be at about -15. Reality the McClellan Oscillator has little to do with the Dow

Positions

• EEM - (Emerging Markets ETF)
• UWM – (2x small cap stocks ETF) As mentioned yesterday sold 1/2 of UWM at 39.11 for +9% gain
• UCO – (2X oil ETF) Bought at 11.37

Plan to  buy the dip today starting with UWM and on a huge dip TYH.

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including “YOUR Stock List.” -

I’d add to positions on YOUR Stock List too. Unfortunately many stocks are overbought (or close to it) right now. Paul R has a good grasp on individual stock positions.

Why Are Stocks Rising?

• China – The Chinese stimulus package was directly aimed at infrastructure and was well over twice as large as ours (relative to GDP). China went on a buying spree of natural resources (they were cheap) and the BDI (see below) exploded higher over 600% in the first 1/2 of the year. China still has a large net surplus and can offer another similar stimulus package without going into debt. India and Brazil have helped, but China is the driver.
• The USA - The USA was at the epicenter of the financial meltdown. We built phony wealth (phony GDP) by trading Credit Default Swaps and it all exploded when housing prices fell. The consumer, and our government was in significant debt before the financial/economic meltdown. The consumer and banks (especially the larger shadow banks/institutions) have benefited from our stimulus package, bailouts, and printing money by Fed and government.
• Stocks  Moving Higher – The consumer is saving more and the government borrowing more. Robert Reich has a similar view LINK ( scroll down-thanks to one of you for referencing this) Problem here is we were already in significant government debt and had been running an unregulated financial market that created “Financial Weapons of Mass Destruction.” (Warren Buffett’s term for CDS’s) This unregulated capitalism is GROWING – up 14% from last year. LINK There has been almost no regulation or transparency imposed by government to solve the problem. In fact, we removed mark to market accounting, making less transparency.

So US financials (everyone who traded or still trades CDS’a from AIG to GE) have had (directly or indirectly* ) wheelbarrows of money thrown at them – their profits/stock prices have grown.  China and other emerging markets have maintained a positive GDP and helped move US markets higher. Its great that consumers are saving more. However, we do need consumers (70% of the GDP) to spend to get the US economy moving again.  US stocks can move higher on a falling dollar and selling more abroad.

Bottom Line – It’s the US economy or Main Street that is in deep trouble, not Wall Street.

* AIG was bailed out by US government. They in turned paid obligations to shadow banks & hedge funds, who paid GE Financial and/or big banks, who paid Fannie, Freddie, & smaller banks, who paid mortgage companies etc..  This order is not 100% accurate, but it shows how by paying money to AIG  others “indirectly” got money. Every TARP bailout recipient had its own domino chain of debtors.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	+1.28%	down
NASDQ	+1.90%	down
S&P500	+1.78%	down
Russell2000	+2.38%	-

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals and Fundamentals

Volume exploded lower and stocks exploded higher.  Volume is the #1, confirmation factor of a market rally and in no way did volume confirmed yesterday’s rally. The excuse given by talking heads was it was the a major Jewish holiday. Jews are less than 1% of the US population and they don’t control 50+% of US equities.

Long term – Even more significant is the fact that as this rally gets extended volume has declined. Check out the 4 key US stock indexes (listed above) longer term charts and what you will see is an overall drop in volume as the markets move higher. You’d think it might be due to seasonality – summers are usually slower, but after Labor Day volume historically rises. It has NOT this year.

This does not mean that markets will not move higher, at least temporarily, but it is reason for caution. When the #1 conformation factor of any price move decreases while prices flow in one direction (higher) you have to be skeptical.

A bubble is building. This is why you see me almost begging for a market correction of 5 to 10% sooner rather than later.  You combine this with the fact that the BDI (measurement of world trade) has fallen almost 50% since the summer began and this adds fuel to the fact a price bubble is building. If volume was building you could say new money was coming into the stock market. It’s NOT .

Big news for week is the jobs number fro the month of Sept. coming out Friday.

BDI seems to be temporarily turning higher = Bullish

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Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) .

2388 is support now resistance level/number to watch – two days ago the BDI reversed direction and  BDI was up +20 . Yesterday the BDI gained +9 closing at 2192 . These are very small moves, but in the right direction.

The BDI is almost 50% off its high (early June) Before that it gained almost over 630% from its all time low of 663 in Dec. of 2008 (April 2009 high of 4291 ) A 50% retracement from highs is a major support level. Therefore some stabilization is understandable.

What this means – World trade is in trouble – lots of ships are sitting in ports empty.  To some degree, China has stopped buying raw materials and/or the US consumer is not buying as rapidly as earlier in the year. Braking a support level is significant, but 2192 (current level) is still a long way from the Dec. 2008 663 low. = Storm clouds gathering

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$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

Mantra – Dollar up = US stocks down & Dollar down = US stocks up

The dollar rose +0.27% yesterday.  Somethings up that raises caution flags. Both the dollar was up and stocks exploded higher. Usually there has been an inverse relationship.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

The  Positions Section (top of blog) to see all the latest buys and sells

revised to reflect recent trades last weekend

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!