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A Tide of Funny Money Denies Europe’s Drift

By Rick Ackerman Posted on January 17, 2012, 2:28 am EST Last Updated January 18, 2012, 2:52 pm EST

Fighting the Fed is one thing. But fighting a global monetary blowout? Forget it. The financial system is so glutted with virtual dollars these days that U.S. stocks would probably hold their ground even if nuclear war were to erupt. Although Friday’s news admittedly fell shy of that threshold, we might have expected a little more deference on Wall Street toward news that Standard & Poor’s had downgraded the credit of France and Austria. Granted, this could have shocked no one, since France had all but begged its comeuppance by pretending to be Germany’s co-equal in the ongoing eurobailout dog-and-pony show. Still, we had come to expect share prices to at least defer perfunctorily to such news, since prop-desk traders typically knee-jerk in whichever direction they expect their algorithm-driven, bipolar colleagues’ knees to jerk. Thus, when the news is ostensibly bad, as was the case on Friday, it’s supposed to cause institutional money to flow out of stocks, much as it flowed out of Carnival shares after one of its liners ran disastrously aground Friday off Italy’s coast.

Not this time, though. With Europe once again inching toward a supranational bankruptcy, the Dow fell a ho-hummy 49 points. This seemed especially unusual, if not to say unseemly, given that U.S. markets would be closed on Monday for the Martin Luther King holiday. Under the circumstances, we might have expected traders to take the precaution of fully discounting the scary euroheadlines that were certain to come over the weekend. As indeed they did. Even the Wall Street Journal, a reliable cheerleader for the pathetic, crackpot idea that massive new sums of ginned-up money can “save” Europe, weighed in with some uncharacteristically grim assessments. Gold, for its part, rose moderately, perhaps because the bullion bankers and their friends in very high places had gone home early Friday, the better to milk the long weekend for an extra half-day of idleness. Those guys live to suppress bullion quotes, as we know.  But with hot money flowing into dollars, they took a relaxed attitude, allowing Comex quotes to drift lower as the investment world shrugged off Europe’s latest financial relapse.

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  • mava January 18, 2012, 4:42 am

    JJ,

    “happy to get 1% on a CD”. Yep, strange creepy times. One must be a fool to be happy with 1% nominated in fiat that is being devalued at about 20% a year. And yet, they are happy.

    Which could mean only one thing: this is a setup for a slaughter.. Their happiness is no different than a happiness of a victim, temporarily let wandering in his cell, – at least a minute before an execution will commence. They are paralyzed, because all they really know about investing is what their licensed financial adviser was telling them. I fully expect these fools to sit tight, even in 0.01% “investments” until their name will be called on the galleys.

    LOL, what a fun time we live in.

  • bc January 17, 2012, 10:13 pm

    Fellationist charms…does that make me an infellationist?
    Baltic dry index is plunging. Smells like 2009 to me. If you look at a chart of historical P/E through big crisis like now, they are very symmetric. We are headed for P/E of five over the next few years. Two ways to get there (from 12 or so now), bigger E or smaller P. Actually, smaller E and much smaller P is another way now that I think of it.

  • Rich January 17, 2012, 4:29 pm

    Great market calls, Rick, Mario and Gary…

    • gary leibowitz January 17, 2012, 10:23 pm

      Spoke too soon. No traction.

  • John Jay January 17, 2012, 3:30 pm

    We all now live in a strange new world, where those lucky enough to have something to lose are happy to get 1% on a CD as long as it doesn’t all vaporize some morning. Just like a pilot whose instruments all say he is flying straight and level, we are looking at that tennis ball on a string in the cockpit that says we are headed down, steeply. In our case those flight attitude instruments are the Fed and the MSM, that tennis ball on a string is our common sense.

  • Mark Uzick January 17, 2012, 10:29 am

    We don’t need conspiracy theories to explain what’s happening; the reason why gold and stocks are rising along with the dollar is because people understand that the dollar’s strength isn’t related to monetary or price deflation, (The reality is clearly the opposite of that!) but is a reflection of a panicked flight to the mirage of safety they see in the world’s reserve currency.

    Those who know it’s a mirage are desperate to unload fiat money – even the temporarily stronger FRN’s – and are bidding up the price of things representing tangible value, including stocks.

    • mario cavolo January 17, 2012, 12:02 pm

      Hi Mark, I’m confused by what you just said, can’t get my head around it….seriously, I want to understand. If money is flowing “into” stocks, equities, PM’s AND USD, where is it all flowing “out of” ? Its easy to understand that this all just spells “inflation” which is exactly what adding to the money supply is doing, hundreds of billions of injected money sloshing around looking for a home, yes? And so everything pretty much goes up, this doesn’t surprise me at all….again, our dollars/assets buying less and less and less of the items we use them to purchase….that’s inflation! Thanks and cheers, Mario

    • Mark Uzick January 17, 2012, 2:57 pm

      mario: You partially answered your own question, but the part that I think you’re looking for are people who hold currencies and assets denominated in those currencies, e.g. the Euro, in which they are losing confidence, using them to exchange for stocks, metals and FRN’s. They push the Dollar as well as tangible assets higher; at the same time, not all Dollar holders have confidence in the Dollar and, while I doubt many are seeking safety in Euros, I don’t doubt that they are looking to preserve their wealth with assets that are or are representing things of tangible value.

    • gary leibowitz January 17, 2012, 4:31 pm

      I agree to a point as to why stocks in the United States are holding up along with the dollar. What I don’t grasp is the notion that the trillions of investable money will at some point awaken to the notion that there will be no “safe” haven except for gold.

      This is exactly my premise as to why the stock market will do better than the “human pain index” will indicate. Money will always find a home, in good or bad times. Cash, and possibly gold will see more inflow, but to suggest the stock market will be abandoned is hard to swallow.

      &&&&&&&

      There is no hoard of “investable money,” Gary. It exists only in the form of “unactualized” credit and leveraged financial instruments that are backed by…nothing. Every virtual dollar of this quadrillion-dollar will-o’-the-wisp is subject to the Catch-22 that it will vanish the day investors panic and try to move it into real assets. RA

    • Mark Uzick January 17, 2012, 5:59 pm

      The stock market will rise in nominal terms as long as the inherent worthlessness of FRN’s becomes increasingly obvious, eventually rising to infinity unless price controls are imposed by a supranational state. If it goes that far, (I don’t believe it will.) then there will be mass starvation, revolutions and wars.

      As the central banks try to paper over the reality of a world-wide ongoing deflationary credit implosion, while fiat moves toward its real value, the buying power of real money should continue to increase. Most things, including stocks, should continue to get cheaper in real terms until financial stability returns.

    • Mario cavolo January 17, 2012, 6:34 pm

      Gary, I’ll question your comment “no safe haven except gold”. Meaning that whike the equities may get quite nasty, real bluechip dividend paying public stocks are not going to crumble to hell, in fact those share values will inflate along with any real inflation that is in the system, so I can’t say I think gold is such a unique and singular safe haven… Perhaps 25% currencies, 25% equities, 25% gold.silver, 25% crude is a balanced safe portfolio…? ….clueless, Mario

    • Mark Uzick January 17, 2012, 7:06 pm

      So far, gold has been unique in its usefulness as money. Other things could be used as money, but they’re all much more problematic than gold.

      Investments are another matter, where money (gold & fiat) is but one component; your idea of 25-25-25-25 seems reasonably prudent. It’s similar to Harry Brown’s “Permanent Portfolio”, except oil is substituted for long term treasuries. (That’s probably a good idea.)

  • cam fitzgerald January 17, 2012, 9:43 am

    Can we please just talk about Kim Kardashian?

    • Rick Ackerman January 17, 2012, 8:48 pm

      Cam, when I last wrote about the famously callipygian Ms. Kardashian in early November, you averred that you knew nothing about her and that, moreover, you aimed to keep it that way. Are we now to infer that your high-mindedness — an inspiration to many in this forum, I am sure — has succumbed to her fellationist charms?

  • mava January 17, 2012, 4:44 am

    The degree to which the market is not reacting to the negative news is the degree to which normal market participants were replaced with front companies and individuals.

    If I had an interest in “helping” the market artificially, and at the same time the need to do it covertly, I would have companies and people fronting for me posing as normal participants. In doing so, the last thing I would want them to do is to react normally, – since that would result in a normal market and negate the whole goal of “helping in”.

    Thus, the conspiracy can be observed plainly, in its effect. In other words, imagine a whole giant field of cars that are left to roam around searching for an empty spot to park. As we look at them, we begin to notice that some cars seem to follow a particular pattern, they don’t simply roam looking for an empty spot, but instead form rows and columns to create empty spots by pushing others out. Would it be not immediately obvious, that these are the ones that get the directions and stop and go commands from someone?

  • Sean Geere January 17, 2012, 3:57 am

    Just curious if anyone still feels Rick’s prediction of gold and silver going down in Jan still holds water. Especially if we get sucked down the Euro toilet vortex (flushing sound now).

    • mario cavolo January 17, 2012, 6:51 am

      I might suggest the obvious which is that we will find out when gold hits the sloping resistance trendline above at around that 1680 target….quite easy to see on the 4 hour chart… if timing over the next week or two is such that gold hits that 1680, while SPY hits that 1325-50 range, while in the same time frame that the USD keeps rising, one might expect gold and stocks to then head back down…how nasty who knows?…

      Cheers, Mario

    • gary leibowitz January 17, 2012, 4:21 pm

      Good call Mario. I also expect SPX, gold, and the dollar to create a sharp move soon.

      Still hedging whether it will be a significant trend changer or not.

      The internal economic conditions are showing definite signs of improvement. Not sure if it can offset the global problems, nor if it is a temporary improvement.

      If the SPX hits 1350 or so before month end I will be playing off that target.

    • Rick Ackerman January 17, 2012, 5:46 pm

      Sean, my daily forecasts are much more finely nuanced than what you might infer from my commentaries. Because Rick’s Picks trading ‘Touts’ are updated ’round-the-clock as the picture changes, you should consider becoming a paid subscriber if you want to know exactly where I stand.

    • Mario cavolo January 17, 2012, 6:25 pm

      Sean, 100% agree w Rick,s point here, do NOT follow others more general comments such as what I had said… Intelligent perhaps, but I don’t have a clue and have never traded professionally, while Rick was in the options pits for years…

  • Rich January 17, 2012, 3:38 am

    Aloha All
    Pre-market Minis up and will not be surprised to see gap down today. Many people talking about currency devaluations. Time will tell all…

    • mario cavolo January 17, 2012, 6:54 am

      Shanghai perch….everything up strong…indexes, PM’s, crude, Euro, Aud…Mario

    • Rich January 17, 2012, 5:06 pm

      Thanks Mario.
      Seems you enjoy Dragon Fruit lenses.
      Still looks like a blowoff fade and sell to little ol’
      me, but what do I know?…

    • Rich January 17, 2012, 5:12 pm

      Is this the Costa Concordia Carnival Market,
      five more bodies found, 29 still missing and captain who abandoned ship and passengers after running it aground…?


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