Aug 9, 2011

Wild market today again. Equities opened gap up 100 and stayed flat until the FOMC statement – immediately plunged 300 – and then reversed on a dime and up 600. Treasuries of all durations rose dramatically at the FOMC statement. So what happened?

FOMC announced that interest rates will be zero until June 2013 and that they will find ways to manipulate the entire yield curve. If you’re unemployed, you’re screwed. If you’re on a fixed income or regular paycheck work, you’re gonna get squeezed by food and energy prices. But if you’re rich and levered to the gills and have access to Uncle Ben’s casino, you just hit the jackpot. Ben just gave them two years to find the exit and corner the market in key resources.

In July 2013, with lots of additional debt – and most probably a different safe haven than the dollar; the US will experience the currency crisis of the millennium. Why was June 2013 picked? To take monetary policy beyond the 2012 election so that the election is not about monetary/debt policy but about jobs. IOW – with the debt ceiling and monetary policy the can has, presumably, been kicked far enough away so that the issues/impact fade from memory. People will be surprised and confused when 2013 hits – and will listen to the recommendations of the people who kicked the can there. Rather than hanging them from a tree. Unless Europe blows up.

The initial plunge was because the Fed stated the obvious – the economy sucks and it will for the remainder of our lives. The hopped up rocket ride after what is called a face-ripping rally. Some short-covering combined with bond money being reallocated to stocks now that Treasuries have the same yield as – oh – Apple. Or for that matter, a bar of gold.

Going forward, equity markets are probably good for a short-term ride. No one really cares that none of it works as publicly intended. The point is, it does work to keep those in control in control. As long as Toto is crippled, the Wizards can sell any old bucket of spit as the Fountain of Youth. I’m sure they will be able to blow up a stock bubble to get Joe Stupid into the market when it peaks. Or they think they can. Possibly saves the Facebook IPO – unless Facebook does a Super bowl ad with a sock puppet.

But the real action will be figuring out which assets are the targets of control in that early 2013 timeframe. Probably precious metals.

And Europe is still a huge disaster looming. I’m pretty sure they can’t kick the can until 2013. Their big “next crisis” is in two weeks – with a tranche of Greek debt due and the possibility that German taxpayers wake up to what they are being forced to fund.

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