Thursday, September 13, 2012

The Fed’s Wizard Behind the Curtain

– Posted in: Commentary for the Week of March 8 Free

[Our good  friend Doug Behnfield, easily the smartest financial advisor we know, thinks it’s possible the Fed will do nothing today even though the whole world is expecting QE3. America’s economic problems have grown considerably since Operation Twist was implemented, says Doug, and the Fed may be reluctant to risk revealing to the world that it has no more bullets. In the guest essay below, he explains why it may be better for the central bank to do little or nothing this time, especially with the stock market so strong, than to be perceived as powerless when the economy fails to respond to yet another dose of monetary voodoo. RA ] Much has been written about The Wonderful Wizard of Oz by L. Frank Baum as an allegory for monetary policy.  At the time it was written in the late 1890s, the country had been ravaged by deflation and William Jennings Bryan was running for President on a platform that, among other things, advocated “free silver” or bimetallism as a method of stimulating economic growth. Back then there was no Federal Reserve and we were on the gold standard. The Treasury could increase the amount of official silver coinage as a powerful and unconventional way to juice the money supply. How quaint.  According to the scholarly literary criticism, Dorothy represents the "America-honest everyman" , the Kingdom of Oz is Washington D.C. and the Wizard is the President. Dorothy must travel the Yellow Brick Road, signifying gold and have an audience with the Wiz who supposedly has the power to get her back to Kansas. Deflation was hardest on the farmers in the late 1900s. In the book, the slippers she snags from the Wicked Witch of the East in Munchkin Land are silver (they were replaced with ruby ones for

DJIA – Dow Industrial Average (Last:13557)

– Posted in: Current Touts Rick's Picks

During Wednesday's online tutorial session, we stumbled onto a potentially important rally target for the Dow with tradable implications.  Notice that the 13502 midpoint resistance does not conflict with any prior peaks and that the relevant price pattern has three sharp, single-bar coordinates. Bottom line, this is a compelling spot to look for a top of at least short- to-intermediate-term importance. Of course, if the Indoos should easily brush the resistance aside it could augur quite a bit more strength -- to as high as 14969!  More immediately, shorts can be initiated using the Diamonds, where the corresponding midpoint resistance lies at 134.84. A stop-loss no wider than 135.04 is suggested. If the order fills and survives for an hour, I'll provide further guidance via an update to this tout, a note in the chat room and an e-mail alert.  _______ UPDATE (September 14, 2:50 a.m. EDT): Thursday's strong rally not only exceeded 13502 by a whopping 71 points, it closed well above the 13502  pivot as well.  This is a shot across the bow of permabears who are skeptical that the broad averages could rally to new all-time highs with the global economy looking so punk. We're skeptical ourselves, but not so much so that we'll ignore clear technical signals that point higher.

ESU12 – September E-Mini S&P (Last:1437.50)

– Posted in: Current Touts Rick's Picks

Yesterday's price action may have felt like six hours of pooch-screwing, but from a Hidden Pivot perspective it strengthened the bullish case by impulsing above a series of 'internal' highs recorded over the last several days.  Two rally targets identified here earlier still beckon at, respectively, 1470.00 and 1480.50 (by all means, short either of these numbers via camouflage, then check here and in the chat room for further guidance), but we should allow for the possibility of even higher prices -- specifically, 1532.00, based on the pattern shown. That would equate to a Dow rally of about 800 points to above 14000, but as you'll see in the Dow chart itself (included today with a fresh DJIA tout), the actual, uninterpolated peak could be even higher.

QE3 and the Mental Illness of Crowds

– Posted in: Free Rick's Picks

I hold no stake in the QE3 betting pool, since it creeps me out just to think that something as transparently fraudulent as the Government buying its own bonds could be seen as a viable economic remedy by so many.  It takes someone with a PhD in economics -- Bernanke or Nobelist/quack Paul Krugman, to name names -- to religiously believe that further shell-game attempts at stimulus will somehow jump-start the economy and/or hold debt deflation indefinitely at bay. Betting aside, those who think QE3 is a sure thing ought to be asking themselves on the eve of the announcement what is to be gained stimulus-wise if the Fed does exactly what everyone has been expecting it to do?  Wouldn't that imply that the outcome has already been priced into stocks and bonds? QE3 or not, I doubt the stock market will get much mileage out of whatever is announced today. As for the economy, even the village idiot no longer believes that credit stimulus of any kind will achieve a purposeful end.