Ron Paul: Audit the Fed, Then End It!

I am in complete agreement with Ron Paul’s commentary.

The main argument seems to be that Congressional oversight over the Fed is government interference in the free market. This argument shows a misunderstanding of what a free market really is. Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money – the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, Constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.

You can read more here

Filed under: Economy, Financial Press, Finance, Global Finance | | No Comments »

Investment strategy to tackle inflation - Part 1

With all the recent Fed actions, is there any one who here believes that inflation will not go out of hand in the near future? While I don’t think that we will see double digit interest rates, I do expect rates to trend higher (8-9%) within a few years.

I recently came across this blog post that shows a historical chart of the Fed Funds Effective Rate between 1954 and 2008. Paul Volcker, the Fed President at that time had to raise interest rate all the way to 20% to fight off inflation. But that drove the economy into a deep recession.

I recommend reading The Bear Facts for a look back at the early 80’s.

As an investor you would naturally ask how do we tackle inflation? What is the best way to invest in the inflationary environment?

This article posted on Global Economic Trend blog gives some ideas

# In hyperinflation the last place one wants to be is in cash.
# Commodities in general are a standout.
# Gold is a standout.
# Precious metals are a standout.
# Property is a winner.
# Equities are a winner.
# Treasuries are distinct losers if not an outright short.
# Foreign currencies
# Energy

I recommend investors to consider the following stock investments

1) Vanguard Precious Metals and Mining (VGPMX)
It’s down 66% from peak. I think this is a great safe way to play precious metals. The fund recently added Newmont Mining (NYSE:NEM).

2) Double Gold Long (DGP)
DGP has been performing well recently since Fed’s announcement of backing Mortgage treasury bonds.

Also while you are there, take a look at this article.
Gold railles to near $960 an ounce on Fed’s announcement.

3) U.S Oil Fund (USO)
As Oil continues to perform well, USO is a great fund to be in. Fed’s recent action not only helped Gold, but also Oil and other commodities.

Filed under: Economy, Economy Statistics, Financial Statistics, Trading Strategy, Energy, Financial Press, Finance | | 1 Comment »

Fallen Mighty Banks

Filed under: Economy, Financial Markets, Financial Press, Finance, Global Finance | | No Comments »

Markets retest of Oct lows succeeded

We predicted this last month. We are seeing a W in the Candle charts. If this retest is successful today, we will aim higher. Otherwise lookout below.

Here is an excerpt from BigPicture blog.

Markets have come increasingly close to their October 10th lows. Contrary to what you may have read or heard on TV, this is precisely as it should be. Why? Major lows get retested. That is a basic tenet of market behavior, and crowd psychology. (This has been verified by a variety of studies by different technicians, economists and traders).

There are a variety of different ways to define the terms, yielding some variations, but the basic outline remains the same: All major sell offs hit a point where markets become so deeply oversold, that a rally ensues. Depending upon how deep the prior sell off is, this rally typically lasts anywhere from 3 to 6 weeks. Our work at FusionIQ shows that these snap-backs typically go for about 4 weeks and average ~24%.

http://www.ritholtz.com/blog/2008/11/retest-of-the-october-lows/

The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.

http://biz.yahoo.com/ap/081113/jobless_claims.html

Filed under: Economy, Trading Strategy, Financial Press, Finance | | 1 Comment »

Market crashed - what’s next?

$700 Billion Rejection = 777 points down in DOW
The picture says it all..

Some of the headlines that are rocking the Wall street today

• House Rejects $700B bailout in stunning defeat

• Congress Vows New Effort To Approve Bailout Plan

• Year-end redemption requests loom over Hedge Fund industry

• S&P puts Citigroup rating on review for possible downgrade

• Citigroup to buy Wachovia banking Ops

On the lighter side

• Jon Stewart: Awkward Loan Interview

• Jon Stewart:Clusterf#@k to the Poor House

Filed under: Economy, Financial Markets, Financial Statistics, Financial Press, Finance, Financial Bailouts | | No Comments »

Banks going back to “Bread and Butter” Deposit taking model

Finally WSJ nailed it.

Of the five major independent investment banks that existed a year ago, only two — Goldman Sachs Group Inc. and Morgan Stanley — remain standing. Two others, Merrill and Bear Stearns, have been acquired by big deposit-taking institutions, Bank of America Corp. and J.P. Morgan Chase & Co. Other giant commercial-banking players, such as Wells Fargo & Co. in the U.S., as well as Germany’s Deutsche Bank AG and Spain’s Banco Santander SA, have emerged as some of the most powerful players in an industry that is likely to be safer but less lucrative for shareholders.

Banks are heading “back to basics — to, if you like, the core purpose of the system with less bells and whistles,” says Douglas Flint, finance chief at HSBC Holdings PLC and co-chair of the Counterparty Risk Management Policy Group, a task force of finance executives working on a framework to prevent systemic financial shocks. “There is a recognition that when the dust settles…the construct of the industry will be different.”

http://online.wsj.com/article/SB122151242235938477.html?mod=yahoo_hs&ru=yahoo

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Roubini sounds off - Financial Systemic risk

I have been following Roubini since he predicted the housing & credit crisis 2 years ago. Here are some interesting interviews of him on Yahoo Finance Tech Ticker.

Filed under: Economy, GeoPolitics, Financial Press, Finance | | No Comments »

Stupid article of the month: WSJ - Lehman is not Bear Sterns

Read and laugh at this idiot

September 11, 2008, 3:18 pm
Why Lehman Brothers Is Not Bear Stearns
Posted by David Gaffen

Richard Fuld Rob Curran reports:

Despite similarities in equity and credit markets’ perceptions of Lehman Brothers Holdings this week with views of Bear Stearns in its crisis of confidence during the week ended March 14, there are some glimmers of hope for Lehman in the differences.

http://blogs.wsj.com/marketbeat/2008/09/11/why-lehman-brothers-is-not-bear-stearns/

Filed under: Financial Press | | No Comments »

Global market reaction to Freddie/Fannie Bailout

New York, 11:00 PM EST - Just a quick update before I sign-off for the night. Asian markets and U.S Market futures are responding very well to the Freddie and Fannie bailout news.
U.S Market Futures
S&P 500 +35.30

Nasdaq +40.50

Dow Jones up a whopping +271.00

USD gained against major currencies

Global Markets
Japan Nikkie up 3%, to 12572

Australia up 3.2% at 5034

South Korea Kospi surged 3.6% to  1455

Let’s see how the trading day ends.

Filed under: Financial Markets, Financial Press, Financial Bailouts | | 1 Comment »