Why Does The Market Keep Rising?

By: Gordon Long | Sun, Feb 12, 2012
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This gigantic flood of extremely inexpensive high-powered money does have a major impact, not in the real economy, but in the liquid investment markets.

Free money sets a very low hurdle for a short-term investment and as long as the transaction has decent liquidity, why not do the trade. As a result, almost every equity, commodity, and credit market is moving higher.

High beta currencies are moving higher as well, as risk is clearly on the front foot. This positive mood began at the start of October, a bit more than a week after Bernanke announced the start of 'Operation Twist,' a subtle way to improve the profits of the banks and increase the risk of the Fed without expanding its balance sheet.

Daily SPY Key Dates
Larger Image

Global equity markets began to climb.

 

FOLKS, WE ARE JUST GETTING STARTED HERE!
$10 Trillion increase in Central Bank Balance Sheets

The Eight Central Banks Balance Sheets

This is a rate of $5 Trillion in 3 years since the fall of 2008 or 1.67 Trillion per year.

This means in the last 90 days of market lift there has been $420 Billion of 'hot money'.

This is nearly the size of the US $700 Billion TARP program which took 18 months to implement.

As the markets always respond to monetary stimulus when the trend is already positive, prices will be forced even higher. Although we can't be positive about the real economy, this expanding liquidity will keep us happy until a political accident intervenes.

Europe offers some candidates: Greece in March, followed by France in April.

CANARIES IN THE COAL MINE
Here is the real shocker and what is most alarming.

THE MONEY IS NOT FLOWING INTO THE US STOCK MARKET!!!!

Rising markets do not demonstrate the following characteristics which are highlighted with charts in this month's Market Analytics & Technical Analysis report.

  1. No Volume & contracting,
  2. Low Volatility & shrinking,
  3. Contracting Margin,
  4. Contracting Short Positions,
  5. Historically elevated Overbought readings.

So how could the market rise then? Below is our initial chart with a different perspective.

EUR/USD

The red area of the S&P 500 (SPY Spyder ETF) chart above reflects an approximate 6% rise. The chart to the right, of the US$:Euro cross, shows a 6% rebound in precisely the same time frame.

Clearly, the move in US equities has been a US dollar devaluation move.

The real queston is where is the money flowing to? The answer is back to Central Banks custodial accounts and acceleratingly to Asia as a risk-off interest swap derivatives hedge. An exploding $88 Trillion increase in SWAPS must be hedged.


Market In Real Terms

Another way to consider the move is to denominate the US stock market in something other than 'moving' US dollars. Below we have used Gold to represent a consistent 'store of purchasing power'. It illustrates the Trigger$ point we were expecting in late January.

Projected Triggers


Beware of a "Flash Crash"!

If the following two charts don't frighten you, then nothing from a technical analysis perspective likely will.

MARGIN HAS COLLAPSED - TRIGGER$ POINT

SHORT INTEREST HAS BEEN CRUSHED - TRIGGER$ POINT

According to the latest data, short interest has plummeted from a multi-year high in September of 16 billion shorts, which coincided with the market lows, to essentially the lowest print seen in the past 4 years at 12.5 billion shares. Players who look at short interest and covering as a market inflection point, see this as the signal for a market rolling over.

Something big is about to happen.

The EU is not even close to being fixed! It has been only temporarily 'medicated' with LTRO and Ponzi Bonds. Remember, when currency markets shift, the equity markets get crushed or go ballistic.

Good luck and good trading!

 


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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/