"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, April 12, 2012

A Little Dab will Do Ya

Years ago there was a men's hair care product (okay - let's call it what it really was and do away with the euphemisms - GREASE) by the name of Brylcreem. Boys and men slathered this stuff between the palms of their hands and then rubbed it into their hair. The result was that you could make that hair so stiff it would stay there all day no matter rain, fog, or gloom of night. Problem hair? No problem! Grease it into obedience!

In watching the price action in the S&P 500 this morning I am reminded of that commercial (Yeah I know - my brain thinks in weird terms!). The index had the audacity to become like a problem hair - uncooperative, unruly and generally out of place in the minds of the monetary authorities idea of what is supposed to be a beautiful head of hair.

So what to do about this? Why send the boyz out to the microphone and "grease" this thing back into compliance.

Note the price chart and you will see what I am talking about. For the first time this year the S&P had fallen BELOW the techically significant 50 day moving average. That is a gigantic "NO-NO", as it signifies a market moving toward a bearish posture.

Why, miracle of miracles, out trots New York Fed President Dudley with his comments fanning the hopes of those wishing for more QE, and "Voila!", back goes the S&P 500 through the 50 day moving average! Problem solved; hair greased back into place; now let's go play Dodge Ball!

The "Dudley" Rally

New York Fed President William Dudley apparently supplied both the gasoline and the match to the "risk asset" fire this morning as his comments sparked a strong rally in both equities and in commodities. Interestingly enough, the markets were relatively flat after the gain in unemployment claims as traders began fearing that the pop in the payrolls numbers of late was about to become a thing of the past.

Dudley reversed all of that when he stated that it was too soon to say the US economy was out of the woods. That was all that traders needed as their brains are already preprogrammed into interpreting all such comments as: "HERE COMES THE NEXT ROUND OF QE".

It was fascinating to watch copper in particular go from treading water following its 5 day collapse in price to shooting sharply higher when the Dudley comments hit the wire. It is now over 2% higher on the day; as is silver which is nearly 3% higher.

Forgotten are the woes about Spain, Italy and the rest of the other "problem" nations of the Euro zone; woes which I might add had been responsible for knocking the stuffing out of both equities and commodities recently when the risk aversion trades came back on in full force.

The lesson from all this is simple - in the minds of today's modern trading community, especially the monolithic thinking hedge fund managers, Quantitative Easing will fix anything that gets in the way of rising markets.

Those of us who have a bit more sense understand that this is not true but like any drug addict, another fix does do away with the withdrawal symptoms for at least a little while. It never cures the patient but makes him or her feel better which is now the name of the game among the monetary authorities.

The problem is that the worse the addiction, the more resistant the patient becomes to getting high as his system begins to develop a type of resistance to the effects of the drug. What this means is that each successive dose of QE will have shorter and shorter lasting effects before it wears off once again.

For the time being however, the result has led to US Dollar selling which is fueling a rush of hot money flows back into the commodity sector today. That is leading gold higher and has put it back within striking distance of tough resistance at the $1680 level once again. This is the top of the recent tighter trading range that has contained the metal for some time now. Bulls must take the price up and through this level and KEEP IT ABOVE $1680 if this thing is going to have any additional legs to it.