Bernanke has the Midas Touch

QE3 bigger, bolder, longer lasting than expected. Market soars. Today, anyway.

WASHINGTON, Sept. 13, 2012 – In our Morning Market Maven column this morning, we weren’t quite sure which direction the market would take today. Futures were down and the market itself opened down in a sort of wishy-washy fashion as employment numbers were lousy and the market was awaiting news from the Fed as to whether they’d try, for the third time now, to reflate the market with Round Three of “quantitative easing,” i.e., QE3.

As of 2 p.m. EDT today at least, the upshot of this has been to shift the market into a mighty rally mode, with the Dow up a robust 170 points at this hour with the S&P up a whopping 20 points and the tech-heavy NASDAQ soaring 21, also aided and abetted by lunatic trading in the Apple ecosystem after that company introduced its iPhone 5 yesterday.

Although we still await the Fed’s official pronouncement today as to precisely how they’re doing things, word is already out that they will move aggressively to do what it can to stimulate some growth in the U.S. by once again trying to pump up, in its fashion, dollars in circulation that might just create some new jobs—something Congress and the White House have failed to do a single thing about since January of 2009. That is, unless you call the $700B+ 2009 payoff to the Democrats’ public employee union supporters a “stimulus” and employment measure.

The Fed’s flavor of QE this time will be an effort to buy some $40B of mortgages per month for an indefinite period of time, apparently to take advantage of what appears to be a finally strengthening real estate market. The Fed, apparently, will continue to do this until the employment situation turns around in some kind of meaningful way. Whenever that is, and however the Fed defines it.

Of course, the Fed will be doing this with borrowed money again which won’t do a thing to start clearing the deficit. Indeed, this action will add to it. On the other hand, no one cares at this point, particularly Congress which, dominated by the most cowardly batch of Democrats ever elected to the Senate, has absolutely refused to pass a budget for three years running. That a Senate switchover to Republican control even at this point still remains a very big IF, is a tribute to the success of the Democrats in keeping the electorate completely confused as to that party’s guilt in holding the country hostage to their ongoing, tax-happy hissy fit.

What’s interesting, at this late date in the election cycle, is this: will the Fed’s move be too little and too late to move the needle decisively in the Democrats’ favor in time to influence the electoral results? Jury’s out.

In a vaguely similar circumstance late in the administration of Bush I, then-Fed Chair Greenspan moved to get some stimulus back into the economy a bit too late to save the re-election chances of George Herbert Walker Bush, under whose administration the U.S. suffered the effective collapse of the S&L industry along with several years’ damage to the commercial real estate market. The economy emerged from recession in October 1992—a month before the national elections—but its effects were not perceptible and thus didn’t help Bush I who was defeated—with a little help from his enemy, Ross Perot, who ran as an independent—by Bill Clinton that year.

Barack Obama, arguably, finds himself in the same pickle now. Whatever Uncle Ben does at this point will be far too late to show up in any meaningful way before the November elections. The move, we think, is clearly an attempt to get some tailwinds for whatever Congress and Administration are sworn in during the month of January 2013. Obama himself can only now win re-election if the electorate still believes in the hocus that caused them to vote for “The One” in 2008.

Only the Wall Street bankers, General Electric, Duke Power, Warren Buffett, and a select few others have benefited from 2008’s disastrous shift in power. If all the unemployed and underemployed people don’t recognize this fact at the polls in November, well, they’ll deserve exactly what they’ll get because this time they’ll be voting for it with deluded eyes wide open.

This is all in the future, though. The algos, HFTs, hedgies, and those few foolish individuals like the Prudent Man who remain in the market today are having some serious bullish fun at the moment. All of which, of course, could vanish about an hour from now, or maybe tomorrow in a market also fearful of the latest savagery erupting in the Middle East and its unpredictable effects on everything else. But right now, who cares?

If you’re in the market today, you’re probably feeling like King Midas.

Gold, in particular, is up, goosed by the potential for another round of inflation, which actually has yet to occur. Owning gold on a day like today is sort of like being King Midas, whose dubious superpowers are depicted in our header graphic today. Of course, as Midas discovered, what’s swell today may seriously suck tomorrow, so best to be cautious about what we wish for.

While we’re on the topic of precious metals, silver today is getting a nice kick, too, after being savaged by some kind of sneaky trading program yesterday and actually into this morning. Nice to see, at least for this moment, that the bearish gamesters and heavy short-sellers (who probably set this scenario up) are getting blown out this afternoon. Good for ‘em. Like Dean Wormer once said of Delta House, “I HATE those guys!”

Whatever the case, it’s good to have some of both these precious metals in one’s portfolio these days, preferably via ETFs (which is what we’re doing), although true gold bugs prefer to have their own stash of metal in their own lockboxes as their trust of the current system is somewhat less than that of John Galt. The way currencies are getting debased these days, gold is slowly becoming THE stable currency one again, it seems.

We’re going to get back to our portfolio now, and maybe schnitzel out of a few profitable positions we’ve been holding for quite some time. Profitable runs have rarely lasted very long in this weird market. Always best to take a little off the table on days like this.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

He currently holds positions in several gold and silver ETFs, including IAU, DGP, and ACQ.

Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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