“No QE3″, Retracement Level Stalls Financials
Since financial stocks make up 14% of the S&P 500 Index, it is difficult to sustain a rally without strength in banks and financial services firms. With the Fed and ECB opening up the liquidity fire hydrant in late December 2011, bank stocks experienced another in a series of monster bailout rallies. As outlined below, the Financials Select Sector ETF (XLF) may be poised to give back some gains over the coming sessions based on numerous factors including reduced odds of QE3.
Unfortunately in the debt-saddled world we live in, central banks may be the most important driver of asset prices. Dallas Fed President Richard Fisher told reporters after a speech Wednesday:
There will be no QE3. I will support no QE3, no additional mortgage-backed securities, no additional Treasuries. Wall Street keeps dangling QE3 out there – I think it’s a fantasy of Wall Street – it’s not going to happen, it’s not necessary.
As we outlined in a January 16 video, the Fed, via currency swaps, and the ECB, via unlimited three-year loans, are already keeping the money printers busy. While there is no formal QE, the Fed is still injecting new money into the global financial system in a “QE-like” fashion (see How QE Boosts Stocks).
It is not unusual for markets to hesitate at key Fibonacci retracement levels, such as 61.8%. Therefore, the comments below will take on more meaning if the financials ETF shows signs of a reversal. A close below 14.42 would increase the odds of more sustained weakness. The 61.8% retracement of the losses from the spring high to October low sits at 14.61 (see right side of chart below). One more push toward 14.91 would fit well into an intermediate-term topping process; the same can be said for an S&P 500 move toward 1,363. Continue reading
Preparing Your Finances for 2012
Looking ahead to a new year and planning for the future
It’s hard to believe that 2011 has passed so quickly and that 2012 will soon be here. Now is a good time to look back over the past year and assess your finances. Did your choices this year put you in better or worse circumstances? Do you have the information needed to make wise decisions in the next year? Are you prepared to protect your financial future?
The following excerpt from Conquer the Crash explains the importance of preparing and taking action now so that you’ll be ready for what’s ahead. You can read 8 more chapters from Conquer the Crash — 42 pages of critical information, including a list of imperative “dos and don’ts” — Free. Find out how below.
Chapter 14: Making Preparations and Taking Action
The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you. Continue reading
A Not-So-Funny Thing Happened on the Way to the Economic Recovery
By Bob Stokes
“Darkest Days” for the Economy: Behind Us, or Just Ahead?
Economic skies forecast: slowly clearing, heavy rain returning, or cyclone?
Many people still talk about a “recovery,” or at worst only see a possible double-dip recession. But what if the mistake was to think the economy was only in a recession in the first place? It can’t “double-dip” when it never truly recovered:
“The respite following the 2009 stock market low is not a new expansion. It has failed to improve housing sales, barely caused employment to budge, and hasn’t managed — despite the unprecedented manufacture of new Fed money — to get the total supply of credit back above its 2008 high.”
Elliott Wave Theorist, Sept. 2011
Indeed, the Federal Reserve’s quantitative easing measures have failed. Continue reading
Adam Fergusson: “Inflating your economy means playing with fire”
GoldMoney founder James Turk interviews When Money Dies author Adam Fergusson, who discusses the parallels and differences between the Weimar inflation and the situation in the US and Europe today. “I don’t see how any of these [Western] economies can grow their way out of the extraordinary debts that they have.” Continue reading
Michael Maloney: “We pay tax for the privilege to have currency”
In this video excerpt from the Casey Summit When Money Dies, Rich Dad advisor Mike Maloney explains how currency is created, “fractional reserve banking,” and why our banking system is a pyramid scam of epic proportions.
How Does Inflation Affect You?
When people go the the grocery store and see ever higher prices they know how inflation affects them. But when they are feeling more philosophical they might reason that if all wages and prices increased at the same rate it would all balance out in the end right?
Well theoretically yes but in reality it never works that way. Prices of various items all increase at different rates so some people are benefiting while others suffer. Those on fixed incomes suffer the most because the cost of things they are buying increases but their income stays the same.
This is where COLA or “Cost Of Living Allowance” comes in it is an adjustment that is made to compensate for the increase in prices due to inflation. Continue reading
The Way Out of Our Economic Mess
By Terry Coxon, Casey Research
“A rock and a hard place” is a long-running theme of Casey Research publications. It refers to the dilemma the US government has wandered into with its continued policy of rescue inflation. The “rock” is what will happen if the Fed pauses for long in printing still more money – the collapse of an economy burdened by an accumulation of mistakes that rescue inflation has been keeping at bay. The “hard place” is the disruptive price inflation that becomes more likely (and likely more severe) with every new dollar the Fed prints to keep the effects of those mistakes suppressed.
When the dollar was cut loose from the gold standard in 1971, the Federal Reserve was freed to create as much new money as it saw fit, whenever it saw fit. Enabled, it turned with enthusiasm to doing what central bankers imagine they are supposed to do – eliminate downturns in the economy. The Fed fancied itself as being on the answering end of a 911 system: whenever the financial markets signaled distress, whenever the economy came down with the flutters, the Federal Reserve would dispatch a van, an ambulance, a fire engine or even an assault vehicle, whatever seemed right but in every case full of cash.
To most people, rescue inflation was entirely agreeable. It made their world more comfortable and seemed to make it safer. Comfortable, yes. Safer, no. The pernicious but entirely welcome effect of rescue inflation was to cover up mistakes and keep them going. It allowed people – especially people handling other people’s money – to make progressively bigger mistakes. Lending on implausible mortgages and buying securities tied to those mortgages are the most recent examples, follies that required decades of training. Continue reading
Money Multiplier
What is the Money Multiplier?
In a fractional reserve system like we have here in the United States money is loaned out by banks and by law they are only required to have a fraction of the amount they loan out. For example they might be required to keep 10% in reserves. In other words, they may have $10 million dollars in deposits but because not everyone will come in to claim their dollars at once the bank may loan out $9 million dollars. But the multiplication doesn’t end there the $9 million will be deposited at another bank and that bank can loan out 90% of that or $8.1 million and that will be deposited in another bank who can loan out another 90% and so on.
In our article, How Wealth Can Simply Evaporate Bob Stokes gives the following example: “…a lender starts with a million dollars and the borrower starts with zero. Upon extending the loan, the borrower possesses the million dollars, yet the lender feels that he still owns the million dollars that he lent out. If anyone asks the lender what he is worth, he says, ‘a million dollars,’ and shows the note to prove it. Because of this conviction, there is, in the minds of the debtor and the creditor combined, two million dollars worth of value where before there was only one.” This is the perfect example of Continue reading
Velocity of Money
What is the velocity of money?
Simply defined the velocity of money is the turnover in the money supply. A shop owner can measure how fast his inventory is selling by calculating “inventory turnover.” To do that he simply calculates Total Sales ÷ Average Inventory for the period in question. See: Inventory TurnOver for more information.
But if you expand the idea of turnover to the entire country you get the “Velocity of Money”.
Strictly speaking all the velocity of money tells us is how long people hold onto their money. But from that we can infer their motives and perceptions of the economy in general…
Velocity of Money Calculation
To Calculate the Velocity of Money you simply divide Gross Domestic Product (GDP) which is the total of everything sold in the country by the Money Supply. Thus Velocity of Money= GDP ÷ Money Supply. Now there is some debate about the proper measurement of the money supply. The most most restrictive measure of money supply is M1 which basically includes short term money i.e. money that is available immediately. So that would be cash and checking accounts, NOW accounts and demand deposits i.e. money you can get your hands on immediately.
There is a good argument that this is the best measure of velocity of money because you want to look for an increase in the cash people are looking to hold. If people are Continue reading
