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Geithner, Bernanke Want to Pump You Up: Dave's Daily

 



Geithner suggests the economy is getting stronger. Bernanke says the economic recovery is fragile. He elects to print more money to reinvest maturing Treasury bonds into more mortgage-backed securities. These securities will then mature and the Treasury indirectly will have to redeem them. This is a Ponzi-Scheme. And, while the Fed prints money, Bernanke states the U.S. should be reducing our fiscal debt. (He didn't even blush.) Basically what he and his comrades want are higher prices for stocks and everything we buy in order to avoid the Japanese experience of deflation. The Fed pays close attention to the results of their actions by watching the stock market and particularly high-beta small caps.

The Fed has also given a green light for gold to rally, which it did. People aren't stupid. They know if you're going to inflate the dollar, it will fall causing prices to rise overall. Current CPI calculations are a manipulated fraud so gold investor's laugh when Bernanke & Co suggests inflation is "stable" as they did Wednesday.

Bernanke also stated that housing was not improving. (Pending Home Sales -3.6% vs expected -.1 and previous at +7%.) The low interest rate policy for two more years and beyond also has the odd effect for potential home buyers that there's no rush to buy versus renting. After all, if rates stay low through 2014 and beyond, there's little incentive to buy a home now--just wait things out.

Further the low interest policy may hurt banks and their ability to earn a profit--as if you cared.

Overall the Fed reduced its economic growth rates to 2.2-2.7% for 2012. Once again, the low GDP estimates match the low interest rate policy--they think. That's hardly encouraging and not mentioned much. This is only a slight reduction and also acknowledges problems in the eurozone. But let's remember their forecasts are just as good as most forecasters and go along with the theme: "If you must forecast, forecast often".

Gold prices took off higher as did just about everything else including stocks, commodities, currencies and even bonds which shouldn't be a surprise. Ben is getting what he asked for.

Apple's (AAPL) stunningly positive earnings continued to push it and the tech sector higher. Remember, in both QQQ and XLK ETFs, the linked index is weighted nearly 15% by Apple. We saw the same effect last week with IBM's good report as its high stock price affected the price-weighted DJIA.

Elsewhere the eurozone was dealing with a report that the UK was heading into recession and Greek debt negotiations were becoming even more controversial. So markets there were lower overall. But these issues remain episodic as the EU overall seeks to copy Fed bailout and money printing policies. It's very clear authorities globally are hand-in-hand kicking the can as far down the road as possible.

  

Volume on Wednesday was higher as bulls rejoiced in easy money policies which will trickle down to hedge funds and trading desks globally. Breadth per the WSJ was positive as we move back to overbought levels.

You can follow our pithy comments on twitter and join the banter with me on facebook.

SPY - The SPDR® S&P 500® ETF is a fund that, before expenses, generally corresponds to the price and yield performance of the S&P 500 Index. Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
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IWM - The iShares Russell 2000 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the small capitalization sector of the U.S. equity market as represented by the Russell 2000 Index. The index represents the approximately 2,000 smallest companies in the Russell 3000 Index.
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QQQ - PowerShares Capital Management LLC is passionate about our goal of delivering the highest quality investment management available through one of the more benefit-rich investment vehicles ever created, the exchange-traded fund.
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