by Doctrader
The Bernanke Boggle concerns the stealth inflation factors which the Federal Reserve has largely ignored during it’s calculation of inflation, excising hydrocarbons and carbohydrates. As with the early 70’s, the Federal Reserve is behind the inflation curve and will only exacerbate the inflation curve by painting themselves into a liquidity trap.
Bernanke will have a “Halo” for the stock market by not raising rates higher, despite the inflation warning signs. The temporary Bernanke Halo will turn to “Horns” when the market’s irrational exuberance begins to fade. The Federal Reserve’s charter is to prevent runaway inflation, such as “hyper inflation” that Germany experienced after World War II. You could not buy a loaf of bread with a wheelbarrow of money in post World War II Germany. There are many countries today who are suffering from hyperinflation, but you will not hear the Market Media Matrix talking about those countries. The Market Media Matrix’s job is to only spout endless stories of “happy days are here again”. The sad fact is that the more this lie is told, the easier it is to convince more people that it is true. I see the polarization of America in my travels across the country. The rich are getting richer and the middle class are getting poorer. The un-skilled laborers are slowly being moved into the poverty line by inflation.
The immigration inflation factor is also an unknown factor. In my last post, Profit, Politics, and Protection, the protest marchers have learned very quickly to market themselves as peaceful protestors. If we see the protestors marching with American Flags and singing the National Anthem with the words they wrote to the song, their stealth infiltration into the American economy will be complete. Make no mistake by believe these are just un-organized peaceful protesters; they have a highly organized structure and financial backing. Their financial backing is based in the communist party. Hence the march on May 1, the "world workers party”
The classic Federal Reserve incompetence, gambling with the world’s future economy, in their arrogance of trying to “fine tune” the free market. They will create the largest loss of market capitalization in the history of the world. The new Federal Reserve Chairman, Ben Bernanke, will undoubtedly try to institute his historical understanding of the Great Depression’ of the 1930’s. According to Dr. Bernanke, he would to flood the economy with dollars spurring economic activity to “grow out of a depressed economy“.
The correct way to end a depression, however, we are entering into an inflationary period of time as China, India, and other developing country compete for resources.
The Ben Bernanke Boogle has begun with the market media matrix spouting its everlasting bullish attitude to the average investor. Ben Bernanke failure to recognize the inevitable harmonic stock market cycle will create the greatest challenges for long term investors, which are the “baby boomers”.
The Federal Reserve goal is to fight inflation, not spur the stock market to irrational exuberant highs. The market media matrix drum beat of high corporate profits doesn’t mean a thing to the average investors. “Earnings up 14% on the S&P 500 stocks” shout the financial headlines. When company xyz make spectacular earnings, how much are they paying to the shareholders?
High earnings mean nothing if the investor doesn’t make dime in dividends.
The average investor who watches the news sees the Dow Jones Industrials are marching toward a new historic high and he will want to jump on the bandwagon. My target for the Dow Jones Industrial average is 12,454 points, based on historical repeating market cycle of human behavior in 1973. In 1973 the Dow Jones Index did indeed break to new highs, above the 1000 level, but the index spent the next two years in a bear market correction as inflation swept through the economy. The average investor must be fully invested before the inflation bubble collapses the market. Once most of the individual investors are fully invested, the lack of buying interest will fade and prices will collapse. The “greater fool” theory will have been completed and without the support of new foolish money prices will collapse. Today’s investors may no remember the 70’s “misery index”, but they will!
Inflation is not something that can be measured quantitatively and does not move in measured increments. The “data” the Federal Reserve uses only looks backwards in time, just as corporate earnings reflect the past. There are many factors which could cause inflation to erupt like a “back draft” which will incinerate long term capital gains in a matter of days. The inflation “back draft” list is growing longer each day. These include geopolitical events, oil production disruption, oil production nationalization, illegal immigrant inflation factor, bird flu, interest rates increases, natural disasters, political, social and racial riots, and celestial events.
The same scenario happened in 1973 with the same geopolitical problems. Unlike the 1970’s however, most Americans were not invested heavily in the stock market. The geopolitical events will be the driving force that precipitates the market’s decline. The geopolitical forces are not quantifiable by the Federal Reserves calculations on inflation. Congress has been complacently incompetent by incumbency trying the same old tired solutions of the 70’s. Until we have new leaders in Congress, the same mistakes will be repeated just as the 70’s gasoline lines begin to form during Memorial Day Weekend. The oil company’s profits are a hyped by the Market Media Matrix knowing that most American’s are ignorant of how the stock market works. The deliberate dumbing down of America through the public education guarantees an easily manipulated labor force by the Market Media Matrix. Due to the lack of public education on the capitalist system and free markets, Generation X er’s have been taught more communism and socialism in their educational institutions instead of capitalism.
Every generation has a need to become the dominating generation. However, the members of “Generation X” are deficient in critical thinking to create a rational and logical solution to the problems we face today. The Members of Generation X are today’s money managers. They will be culpable for the high levels of programmed trading in the stock market. The fact that 6 out of ever 10 trades are being manipulated by computerized programmed trading will lead to huge market collapse in the stock market over the next year. In 1999, the average volume of programmed trading was around 20%, compared to today of 60%! The Russell 2000 Index is largely a proxy for programmed trading with over 1200 stocks out of the 2000 stocks controlled by institutional money managers. The Standards and Poors 500 Index has 458 stocks which have more than 50% of their shares controlled by institutional programmed trading!
The stage is set, for most Americans the collapse will be felt in their retirement accounts and 401(k). The next level of pain will be their home valuations, and lastly the cost of food and energy. It will be up to you to take the necessary steps to preserver your wealth by using protective stops and put options if you own individual stocks.
However, for most Americans who are passive investors through their pension plans and 401 (k) plans, they should systematically begin to move money into money market accounts and 10-20% of their account value into a precious metals and commodities. Remember, these spectacular earnings are not being paid to you, but are kept by the company. Your only profit in most of these stocks are “un-realized gains”, it will be up to you to take your profits before you have long term capital losses.
Meanwhile the short term and nimble traders will make huge profitable trades shorting the stock market and leveraging put options with my chicken straddle spread strategy.
Some prime examples of why you need the chicken straddle strategy are demonstrated in the following charts. (ESRX, ISRG, EXPD and GOOG . It does not matter if the stocks go up or down, you can be profitable with the chicken straddle strategy.
God Bless
Doc
Monday, March 27, 2006
Bernanke: Batter UP!
Bernanke: Batter UP!
Bernanke: Batter UP!The market anticipates the next two Federal Reserves meetings with the new Federal Reserve Chairman, Ben Bernanke to end raising interest rates.
Friday, February 24, 2006
The Feds Liquidity Trap Part II, Inflation or Deflation?
Thursday, December 22, 2005
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