No useful analysis today folks. We're just going to rant a little bit... have a little fun with numbers, to investigate what's in store for the equities markets in the event that the Fed gets their way. Which begs the question "When was the last time they didn't?" It has become abundantly clear that Chairman Bizarro intends to destroy the dollar. In fact that is what he said. The last Fed statement on Dec. 12th, read as follows, "In particular, the Committee decided to keep the target range for the federal funds rate at zero to one-quarter % and currently anticipated that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 and a half percent, inflation between one and two years ahead is projected to be no more than a half percentage points above the Committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy."
"At least as long as the unemployment rate remains above 6 and a half percent." Did you read that part? "At least as long as..."! That's what he said! So since we won't be seeing unemployment under 6 and half percent for another 20 years, Bernanke plans to print essentially forever. There is less than a snowball's chance in hell that unemployment is going to drop below 6 and a half percent until the entire world has fallen into the abyss and emerged out the other side... years, perhaps a decade or more from now. It's not particularly difficult to wrap one’s head around the reality that the world's economies are not going to get all fired up again with oil at $200-$300 per barrel and $47 for a loaf of bread. In case the good Chairman didn't realize it... that's what happens when inflation runs at the rates he's in the process of imposing. So you ask "And what rate is that Dan? What evidence do you have that inflation is about to run amuck?"
Well how about this little tidbit: Since the November 15th low in the S&P 500, the market had risen fairly steadily until December 18th when it closed at 1446. That was quite the stellar little rally, yes? But on the 19th of Dec., Santa arrived and took a great big dump on Wall Street. And down the market came... falling 3.12% during the Christmas week. You know... just to make Christmas real cheery for American investors far and wide. But then a miracle happened. On the last trading day of the year the market gained footing on the promise that perhaps the fiscal cliff might be averted. All the wannabe actors in Washington took
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To put the latest Wall Street rally into perspective, since the November 15th low, the average daily rate of inflation as measured by the S&P 500 has been 1.001431% per calendar day, compounded. Do you realize what that rate of inflation for a full calendar year is? Exactly 68.5465% per year. True, that’s not quite at the rates that Zimbabwe encountered a few years ago but still, it’s a rate that is not overly comforting.
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And in case you doubt that Chairman
And while we're on that topic... in the past we have read arguments that some day the price of gold and the value of the Dow Jones Industrial Average would reach parity. The most common number thrown around back then was $4,000. 4,000 on the Dow and $4,000 gold. I think we can safely toss that one out the window. If the Fed thinks they're going to inflate America out of its debt problems without seriously dangerous social consequences they had better lay off the crack they're smokin' over there. Because if they continue with the program they're currently running, if their goals are achieved, we're going to see gold and the Dow reach parity all right... at $20,000. And $35 for a 5 lb. bag of rice. The unwashed masses are ‘already’ sharpening the tines on the old pitchforks Ben. If I were you I’d knock it off already. But then again… you have friends to protect.
But let’s take a closer look at exactly what effect the Fed is having on equities. If we apply the rate of inflation as detailed above to the Dow (using the lower 69% rate), it would hit 20,000 exactly 270 calendar days from now. October 15th, 2013. And let there be no misunderstanding here, the stock markets are not going parabolic because of any fantastic economic performance. They are going parabolic because the Fed is literally buying the stock markets... bidding them up in order to create the most bizarre illusion ever seen in the history of mankind... trying to make the stupids believe that all is well. They must be thinking that as long as the equities markets are soaring, the guillotines might be delayed by a year or two... just enough time for the economy to catch some traction and America will be saved. Is it even possible that they are even remotely close to being that daft? I don't think so... they know "exactly" what they're doing. And by the way Mr. Chairman, where is Germany’s gold?