The collision of global markets and social mood

Tuesday, June 11, 2013

The Confusion Of Kool-Aid

Sometimes markets just roll over when they want to, not when they're pushed by news. Last night the yen and the Nikkei had strong reversals on the heels of a no-volume, weak bounce in the S&P that hinted something wasn't right.

Seeing S&P futures down hard this morning along with a sea of red in foreign markets, commodities, bonds, energy, metals, and forex makes perfect sense. Markets ain't simple.

One thing is simple: the Fed. If you can just tune out all the "Fed's got your back" and "Don't fight the Fed" nonsense, the Fed is just another large bureaucracy fighting for its life behind a large curtain.

Last night as I checked in on CNBC Asia, the talk was about the Fed's Bullard saying low inflation means QE can continue. This morning I noticed the Fed's Plosser quote scrolling by -- from June 7th -- that the Fed should end QE early.

Remember that Bernanke has plainly admitted that "communication tools" are 50% of his remaining arsenal. So it must be understood that deliberate obfuscation is part of the plan at this moment, in order to keep you and I confused (or try to).

Here's another large institution fighting for its life: Citi. No matter how many times Dick Bove comes on TV to tell us that Citi is a strong buy, it doesn't change the fact that it isn't. This morning's latest news pours fuel on the fire: Citi just blew between $3 and 7 billion betting the wrong way in the FX market. The bet? They drank the same doomed-dollar Kool Aid that everyone else does on a daily basis. So they bet against the dollar and lost.

Yes, I do see a triangle scenario that could see the dollar below 70 in a few years if it decides to play out. But the entire Dollar Doomsday fantasy is based on a 1970s-era Gold Bug inflation paradigm that is dead wrong in today's credit-fueled liquidity dream. Few understand why the dollar went STRAIGHT UP in 2008 while gold went STRAIGHT DOWN during the heat of the Lehman collapse. Study it.

Few probably care, either . . . for right now, at this moment, all that matters is what is likely to happen in the S&P. I don't think it's gotten as high as it's going to go, so I'm bullish about the current slapdown in the futures.

The S&P can come all the way down to 1610 today and still be in a position to rally. Even the bearish alternate scenario projects a higher price than yesterday's. Notice also that 1646.53 was finally exceeded. That ended the succession of lower highs and lower lows.

Today may be about shaking out the latecomers and filling the gap at 1622.56. Obviously, a new low would signal it's about something else. But for now, my plan is to pick up where I left off last week.

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