While technical (server overload) snags have slowed the G7 Carry Trade Index its movements have continued basically uninterrupted (northward) past 30K and making a mockery of the forex trading market. All dips are bought and major central banks of the world continue to print money to keep pace with their competitors. Meanwhile the living standards of those counting on the purchasing power of these dollars, Yen, Euros, and god knows what else remain teetering between just-getting-by and household-collapse.
Stock Market Drop Still Meeting Resistance
Although it has long been our opinion that in a rational market with real price discovery we would find a dearth of bids for most securities – our opinion really doesn’t matter. We do not have a rational market with real participants. We have a computer-algo driven market that reacts instantly (and with multiple sigmas of volatility) to whatever news clip hits the wire and leveraged to the max bankers and financial institutions trying to push ever percentage smaller gains out of this rising market. Add in the near daily infusion of 1 to $5billion dollars from just the Fed alone and corporate low-debt financed corporate buybacks and equities continue to have no place to go but up… until they don’t.
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Taper Talk Still Dominating Stock Market Expectations
Long-time readers are well aware of my typical trading strategy – ie. try to figure out where the biggest opportunity is and swing for the fences. To that end I think most would agree that so long as Quantitative Easing (globally) continues there is a great deal of resistance to price drops. Face it, whenever there is a dip in market prices institutions can effectively borrow infinite amounts of capital at zero interest rates. It is therefore hard to expect or predict a sharp (and much needed) correction in global equities prices when there is such a powerful hand resisting it. Long-term, however, we ultimately see the need for prices to return to rational levels and true price discovery. When that will actually occur all depends on when tapering of QE3 finally becomes reality. Most are coming to the conclusion that September will be the beginning but in truth we won’t really know until the POMO schedule comes out, will we?