Points For Friday

A couple of things before we get to the charts.

A) Keep in mind that today is option expiration for equities and ETFs. Always lots of weird price action on these days. Don’t get all freaked out if your favorite miner has some strange price movements.

B) Just to address this “ending of QE” issue again. By some estimates, the U.S. Federal Reserve and their primary dealers (the PDs are the agents from which they buy back recently issued bonds via POMO) make up as much as 70% of the bidders in the overall treasury market. If they were to now exit this market, even in part, interest rates will rise dramatically as prices of bonds will fall due to lack of demand. The latest $600B QE/POMO schedule lasted 6 months. What was the U.S. federal deficit over those same six months? A little more than $600B. Even Stevie freaking Wonder can see the direct connection.
If the Fed halts QE:
1) Rates skyrocket
2) U.S. economic activity grinds to a halt
3) Tax revenues plummet
4) Even more deficit spending is then required
5) Rates go even higher
6) Interest on national debt component becomes an even larger % of federal budget
7) Even more deficit spending is required
8) Rates go higher still
9) Tax revenues fall further
10) The Great Keynesian Ponzi finally ends
DO NOT believe this silly notion that QE is about economic growth. QE is about funding the deficits of the U.S. government. Every other effect is ancillary. The only thing that would allow the Fed to end QE would be a dramatic reduction in the annual federal deficit. This would lead to a deficit spending level that the “market” in treasuries could absorb. Until then, the presses will run. Period.

C) I’m very intrigued by the current plot to defame and discredit Meredith Whitney. First of all, she’s kind of hot, in a slightly-chubby, sorority-girl kind of way so I can’t help but take her side. But, as you know, Meredith is one of just a handful of “analysts” who correctly saw the entire CDO/CDS fiasco coming over the horizon in 2008. To this day, she still correctly points out that many large, TBTF banks would be, in fact, insolvent were in not for the changes to the FASB rules in 2009. Because of this, she must be considered a very sharp thorn in the side of the Fed/TBTF/MSM/Govt complex. They’ve been waiting to pounce on any weakness or any slip-up so that they can begin their efforts to discredit her and her ongoing message. Read this:
http://washpost.bloomberg.com/story?docId=1376-LLGTH31A1I4H01-
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Now I don’t know if we’re going to have “50 sizable defaults” over the next 7 months but I do know that there are still 7 months on the clock. (And I know a little something about having critics jump all over your predictions well before the clock has expired.)
While I was working out yesterday afternoon, I also saw this:
http://video.cnbc.com/gallery/?video=3000023035
Imagine that. “Dumb Money” on CNBS rolls out some chick (got to be a woman because Meredith is a woman. Can’t let it seem like the boys are ganging up on her.) muni manager to claim that all is well in the muni market. Really? No! A muni manager who runs a muni fund for a living is claiming that the muni market is great! I’m stunned.  All must really be well. Unbelievable.
The point is: Meredith Whitney doesn’t fit the narrative that the banks are all great (they’re even increasing dividends!), government spending levels are just fine and that QE can end at any time. She is an enemy of MOPE and SPIN and, therefore, must be discredited/destroyed.

Onto the charts. First of all, the daily euro chart should look vaguely familiar to most of you. DO NOT make the sophomoric mistake of confusing euro weakness with dollar strength. They currencies are simply inverses of each other. In this case, prospects for the dollar are not improving. The euro had simply run up too far, too fast and into resistance near 1.50. The resulting correction has created the illusion of a dollar rally. It is nothing more complicated than that.

And here are 30-minute charts of gold and silver which conveniently take us back to the lows of Tuesday which convinced me that the beatdown was finally over and behind us. Both metals are now consolidating above their lows and looking for an opportunity to trade higher. I would suspect that you’ll see that move either later today or Monday. Silver will make a run toward next resistance around 36.50 and gold will jump toward 1515.

OK, that’s it for now.
Have a great day and a relaxing weekend. Can Animal Kingdom take The Preakness?
TF

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