The stock market rallied on news that the Federal Reserve reduced interest rates by 0.75%.
One big step the Fed took this weekend to alleviate stress on the financial system was to open its lending window directly to the 20 primary dealers, via the Primary Dealer Credit Facility, The PDCF, which includes all the Wall Street investment banks. Borrowing from the discount window had been a privilege previously reserved for deposit banks.
Having direct access to the Fed's trove of government securities gives the brokerages a significant advantage in raising cash that they didn't have until Monday. And it shows the Fed's willingness to step in, even at the risk of a moral hazard, to prevent systemic failure in the financial markets.
"We believe the Fed's initiatives have substantially reduced the risk of another liquidity crunch on a bank or a primary dealer," said Goldman banking analyst William Tanona.
As Elaine Meinel Supkis and David Litterick write, between the PDCF and the 0.75 rate reduction, the Fed is continuing a "helicopter drop of money" to avoid stock market deflation; this continues the Fed's policy of monetization; the chart of the money supply MZM has gone parabolically higher since January 2007.
The stocks having been monetized by the rally, are reset as a short selling opportunity.
Charts from two that sectors that rose the most today are investment banking and emerging markets: KCE, trades the capital market sector and EEV, is 200% inverse of the emerging markets.
EEV is forming an cup and handle pattern portending a breakout for the bears.
Many are fleeing to safety of gold and away from the Financial Armageddon that is coming from the unraveling of derivatives and the deleveraging of investments globally; despite the fact that gold in the futures market fell from its recent burst high of $1030 to settle at $980.
The derivatives beast places at counter party risk all those who have thought they were wise by investing in a credit default swaps, CDS.
There has been a fear of investing in corporate debt; this is seen in the parabolic rise of ratio of the 7 to 10 year government bond relative to investment grade corporate debt, IEQ:LQD.
The yield curve measured in ETFs and the yield curve measured in rates continuing steepening to an all time high: this is inflationary and will eventually be destructive to bond wealth.
The Risk of Loss Of Cash As Well As Investment Capital Is Unparalleled In History
Eddy Elfenbein provides the chart of borrowing from the Federal Reserve. This when combined with the one day fall of the investment bankers and their next day recovery as seen in the chart of their ETF, KCE above, suggests that the banks are insolvent; and suggests that cash accounts such as money market accounts, money funds, checking accounts, and dollar denominated short selling accounts at brokerages cannot and will not be honored at face value in the event of a "financial emergency".
Capitalism was wiped out this week by the capital market providers 6% fall in value on Monday of this week; but was but resuscitated as can bee seen in the chart of KCE.
The United States has been a capitalistic society, and the world for a large part has been one also; a capitalistic society cannot exist without functional capital market providers; being that they were wiped out yesterday by stock market trading, capitalism is dead, dead and dead; it's just that capitalism is on 'temporary emergency life support'.
A "financial emergency is coming" as a lightning strike: it can be the only outcome of this week's volatility in the capital market, investment banking sector.
The Leaders' Joint Statement that came forth from the March 31, 2006, Cancun Summit provides a framework agreement for North American emergency management to handle a disaster, whether natural or man-made; and most definitely an economic disaster is coming.
Given this week's failure of capitalism, the SPP, will ease the transition from capitalism to state corporate rule of the resources and people of the North American continent: the coming enforcement of the SPP places one's capital at great financial risk.
Corporations and individuals should not be invested in stocks of any kind, even precious metal or natural resource stocks, as well as not having any money in any U.S. dollar cash position such as a savings account, a checking account, a money market account, a short term bond fund, a TIP bond ETF or TIP bond fund, US Treasury Bills, an ETF, a mutual fund variant thereof, or a $1 money fund; and even a dollar denominated short selling account.
A Wealth Preservation Strategy Is Recommended
The investor's wealth should be at Bullionvault.com, acquired via 'dollar cost averaging' purchases of gold.
Currency traders view the Federal Reserve lowering of the interest rates charged to banks as debasing to the currency; the US Dollar although rising today, will fall again soon; corporate finance will continue experience a terrific loss of value as 'the run on the dollar' continues: it behooves a corporation and individuals not to have a dollar denominated balance sheet and investment portfolio.
A corporation's resources, and an individual's retirement wealth will preserved by investing in the gold ETF, GLD, and by investing in the currency Euro ETF, FXE, and the Yen ETF, FXY; and with these margin credit obtained for short selling:
1) to sell the emerging markets; as now the Yen Carry Trades will finally start to unwind as there will be disinvestment from the BRICS, Brazil, Russia, India and China as well as the US Stock Market; we will soon see EUR/JPY that is FXE:FXY, fall from it's recent sky high 160 level.
buy EEV and EUM> 10%.
2) to sell the financial sector
sell IYG and UYG> 10%.
3) to sell the reits and real estate sector
sell REM, RWR and URE> 10%.
4) to sell the banking sector and insurance
sell KCE and KBE and AIG> 10%.
5) to sell municipal bonds and closed end municipal bond funds
sell BTA, VGM and CXE> 10%.
6) and at some future point in time to sell the 30 Year US Treasury Bond,
buy RYJUX> 50%.
Companies Worthy Of Short Selling Because Of Their Huge Derivatives Positions
Companies Worthy Of Short Selling Because Of Their Mortgage Exposure
Insurance Companies Worthy of Short Selling Because Of The Credit Default Swap, CDS Positions
Companies Worthy Of Short Selling
1) Investment Bankers
2) Mortgage Companies
5) Basic Materials
10) Real Estate and REITS
11) Real Estate Developers
13) Lumber and Building Materials
16) Natural Resources
17) Consumer Discretionary
20) Credit Services
Here is the 5 day Yahoo Finance chart of the gold ETF, GLD, compared to the investment banking ETF, KCE, showing awesome five day volatility in both gold and the investment banking sector: had one been long gold and short the capital market providers, one would, over the five days still be ahead at the end of the current five day period.
Those who have gold based portfolios used for short selling should be aware that gold could easily fall to its 50 day moving average at $920 as is seen in this chart provided courtesy of Mike Mish Sheldon who relates: "Lehman may not be Bear Stearns but it is still leveraged 30.7 to 1. Citigroup and many financials are hugely leveraged as well. Eventually the market will have to face a deleveraging of those assets. Huge additional writeoffs are coming. Furthermore, many homebuilders are going to go bankrupt and today does not change that. But that is not today's business."