Hedge Funds continue drinking from the Bernanke Punch Bowl

Anyone who is still wondering why stocks had been rallying  nearly straight up since November of last year, prior to the drop over the oil price rise the last two days, has only to note this following blurb from an article posted at Bloomberg's web site today.

Hedge funds increased their net leverage in January to the highest level since October 2007, as they took advantage of record-low borrowing costs to bet that the U.S. equity rally will continue. Debt at margin accounts at the New York Stock Exchange minus cash and unused credit climbed to $46 billion, according to data released by NYSE yesterday.

I seem to recall a period of time in ancient history when the duty of the Central Bankers was to take away the punch bowl. This Fed not only refuses to take it away, they are offering Happy Hour specials.


Here is the full story....

http://www.bloomberg.com/news/2011-02-24/u-s-stock-index-futures-drop-as-oil-price-surges-bank-of-america-slides.html

If oil prices take a tumble any time soon, the equity markets will likely launch another big rally with bonds tanking hard. If oil stabilizes near current levels, the S&P will probably see two-sided trade as it pauses a bit to gauge how the economy is handling the higher gasoline and energy costs. If the events in Libya were to spread to Saudi Arabia, for any reason, all bets are off the table as the equity markets will get slammed by crude oil charging towards $120 for starters.

Gold is now caught up in this same waiting and watching game as is silver now to a certain extent, athough it has been moving higher for other reasons than what are moving gold.

If there is going to be any short squeeze or issues associated with potential delivery problems in silver, they are going to affect the March contract next week. Watching how that process unfolds and what becomes of the board structure for the various contract months in silver will tell us a great deal as to what is transpiring.