The poor Old Gringo is just 'bout squozen out. Yesterday, the President of all 57 States talks and a bad market becomes worse. Then to-day, a dumbo who heads the Fed, speaks. He is the one who, while testifying before some forum not so long ago, said that he really did not understand the reason for the stagnation of economic activity in America. For that unique accomplishment he was probably earmarked for a pay raise in the near future.
A couple of fairly disturbing developments come out the Federal Reserve Chairman's talk with the investing class, to-day. One is that he is going to commit to essentially a zero interest rate and he is determined to try to hold at that level for two years into the future. The stock market fell sharply for awhile after the Fed Chairman's talk, and then it made a run-up when traders figured out that the Federal Reserve Chairman had essentially created a new form of "quantitative easing". That is the procedure that essentially prints free money without using ink.
This did cause a run-up, essentially ending the day with about two-thirds recovery of the 630 point loss by the DOW Industrials yesterday. This is good, save for the fact that tomorrow, news about the messes in China and Europe, coupled with the realization that this assurance of a low Fed Rate will ensure a return to 100 - 120 dollar per barrel oil, and essentially a badly devalued dollar.
When the market went into almost full collapse yesterday, the dollar gained considerable strength in the world market. It gained almost 90 centavos against the Mexican Peso, and the price of a barrel of oil had fallen all the way down to 78.50 dollars. All of those tendencies went into a sharp turnabout late in the trading day.
While it looked for a moment like there might be even the slightest effort to address the profligacy of the Washington D.C. establishment, the dollar had been gaining strength in world markets, while the Euro and the European economies are literally teetering over the abyss. So the dollar strengthened, as usual, as a "safe harbour" for world investors. For a bit, even gold and silver were under selling pressure. Everything happened very quickly and left analysts leaning up against the wall, breathing heavily, and looking disheveled. The O'bama-to-the-Rescue Teleprompter Reading that resulted in exacerbating the sell-off yesterday did not occur to-day, so things behaved irrationally to the up-side.
It is the Old Gringo's opinion...which is sold for a very fair price....that tomorrow, early in the morning, the traders and even the more long-term investors, will say "But wait, with the return of easy money, we're still in the same mess. Four dollar gasoline, stagnation, risk of inflation, and since the dollar will be no refuge, we're back into the 20,000 dollar/ounce gold madness. Couple that with a mess in Europe that defies explanation as to cause, and development of a plan for extrication, and we may be looking at the perfect storm. That will be the Perfect Storm of Fabian Socialists and Keynesian Socialists being in charge of everything for the last 50 years in Europe, and more or less in charge here for the last 90 years.
Europe had to suffer through National Socialism for a while, along with various manifestations of the Progressive movement until allowing the real Reds, Pinkoes, and other people who really care about taking care of the poor to have the reins to the horses. Now, even the strongest horse in the stable, Germany, is going to crack under the weight of trying to pull every other country in the European Economic Community. France, number two, is wobbling. Italy, Spain, Portugal, and Ireland are essentially ready to be annexed by Libya and colonized by pioneers from Zimbabwe. (not quite)
All of this is prelude to tomorrow's opening which will be presided over by a bunch of people who are exhausted from irrational exuberance from to-day and fear, phobia, and anxiety from yesterday, and receiving fresh information about Euro-wobble in the morning.
More information will be dribbling out during the next few months about the labour disorders in Red China along with "peculiar" accounting practices and great projects falling apart before the ribbon-cuttings. This will have some good, but mainly bad effect oddly enough, upon the United States.
Enough of my grumblings. The pesos went...in one week, from 11.35/1 to 12.50/1 mid-day to-day, to the present hour's 12.20/1 exchange rate. That is the greatest loss for the peso in three years, and the fastest recuperation ever. So, until the morning. Thanks for the time and interest.
El Gringo Viejo