US Dollar and Great Bernanke Experiment are both doomed

Market is not paying much attention to S&P warning shot on US debt rating and as usual politicians are still busy playing this news to their own political advantage. In fact, the zero rates, massive debt increases and wilful destruction of US dollar is not to benefit general public at all rather it shows the incompetency and hunger to stay in power or come to power at the expense of public at large. However, putting it bluntly, current administration and central bank officials are doing worse for the public of USA than dictators in the middle-east. In order to win the public votes, administration and central bank is solely focused on unemployment numbers and is running a devastating experiment to destroy the legacy that was hard earned by this nation's forefathers through the investment of their enormous labor, time and money over generations.

And here comes an ignorant and obviously stupid scholar named Ben Bernanke who wants to run a research experiment to corroborate his own faulty research on the Great Depression era even though that experiment is going awfully wrong.

What Bernanke is trying to do is playing a self-defeating game of trying to make the US economy competitive by competing on the grounds of devalued currency. I call it a self-defeating game because:

1) If Bernanke thinks that the only advantage that emerging economies have is their lower currencies then he is awfully wrong. China and India have immense population overall (3 times that of USA) and now more technical and educated population than USA as well.

2) Jobs are not created by devaluing the currency. Companies will keep their operations where cost of raw materials and other inputs is low and more importantly right inputs (like trained man power) are available. Also, inherently, companies tried to produce where their customers are to keep overhead costs low. In the long run, with devalued US Dollar, more profitable customers will be elsewhere and not in USA.

3) Lower dollar will force people to move their assets outside and in more profitable countries where interest rates and investment returns are higher. This will become a self-sustaining cycle putting immense pressure of US dollar which will be nearly impossible to break once it sets in.

4) Even if unemployment goes down due to these misplaced policies in the country, general public will not be better off in any way. In fact, it will have the negative effect of hitting the consumers most thus defeating the purpose in itself.

The best approach now is to start normalizing the rates and restore some credibility for the US economy and US Dollar so that local companies can maintain their buying power and make better investment in future technologies and ideas that have traditionally been the source of strength for the economy.

US Dollar and Treasuries are primed for a tailspin downwards

The US government is adding to debt like a vociferous elephant and relying on its central bank to fund the huge appetite. The problem is that Fed is trying to jump start the economy that is practically dead sans the government debt by trying to stimulate employment for a generation addicted to Facebooking and Tweeting their time away in following Charlie Sheen (an infamous US TV star addicted to drugs) and Snooky (that's not her real name and she is another hugely stupid famous TV star of an idiotic TV show called "Jersey Shore"). Of course, with every central bank printing money and insanely focused on promoting growth, partying is catching up in every country but some countries still have the balance of education and partying maintained. US has to first find this balance before it can try to find balance in its economy and monetary policy.

First of all, I don't believe that central banks have the intelligence or know-how of running the business but suddenly they have become all the more powerful with the "Fiat-currency" policy which makes them falsely believe that they control the fundamental economics of the country by following policies of printing money or draining money through various operations of quantitative easing, discount window, repo and reverse-repo. All these believes rely on one fundamental thesis that money that these central banks are trying to print in a race to outsmart each other by getting to the bottom first is, in the end, considered a storage of value. To create the notion of money as a store of value, it has to be in controlled supply in the first place. With US alone having $3 trillion on Fed's balance sheet so far and an intention of taking on more debt (the liability of social security, medicaid and other government operations ballooning to $500 trillion in medium term), I don't think US dollar has any storage value left for any practical purposes whatsoever.

Now Fed has slowly started washing these dirty linens of the debt-infatuated country in public by embarking on a series of quantitative easing with QE3 being promoted by some financial institution intellectuals who stand to gain again in the short-term by creating an irreversible and irrevocable damage for the whole nation in the longer term. Of course, White House being the political body and focused on next elections also cares about next 2 years only and as long as all these false and misplaced policies can create a false short-term feeling in the voter to persuade them to vote again the current administration for the next four years, President and his staff will be very happy.

Nobody, including me, really cares if US goes into a situation like Greece or Libya after 5 years. As an investor, I can move my money and business around very quickly to the next profit making opportunity in a different country. Even though this idea might seem laughable at the moment, we are approaching it at the speed of light and 5 years is all that is needed in this wired world to abandon the darling country of the present. I am sure that Mr. Bernanke does not have any intelligence to be the Chairman of Federal Reserve Board and he also belongs to the crowd in this nation having brains of Snooky but who are enjoying the limelight because others don't have any clue either. Federal reserve board member Mr. Thomas Hoening seems to have some reason but other members are timid to always fall in line with Mr. Bernanke during the policy meetings perhaps because they don't want to play the party spoiler thinking that this time around outcome will be different. Fed is again focused, more than ever on short-term fixes by keeping the funds rate arbitrarily zero. This time around party is going on with more liquid assets like stocks, commodities and bonds rather than LBOs and housing loans.

But economics and finance have one very fundamental tenet and it is that it's a zero sum game, always. It does not matter whether we have Fiat money, Gold standard or some other measure of money. So there will be some one holding the bag in the end when the song stops again. And this time it will be the administration and central banks given the idiots leading them. Believing that these idiots have enough power and willingness to stay the course, it's certain that US Dollar and Treasuries will not have any intrinsic value soon. The only thing left to be seen will be that how long Mr. Bernanke's thesis survives.

Beginning of a bull market, really!!

We are seeing some selling in the stocks today though any selling is not going to be pronounced. According to Jim Cramer, stocks have nowhere else but to go up. Not that I rely on his analysis or his thesis even for a second, but I have to agree with him. The reason is that there are too many players in the market and it's very easy to control a herd because of "herd mentality". I call it that because with so many investors out there, who really has the education, intelligence or even inclination to waste time in going through the financial statements of all the companies whose stock they want to buy. It's so easy just to follow the herd. We even have a dignified term for this on the Wall Street and it's called "momentum play". In simple terms it means that you don't have to do any homework just follow what others are doing assuming they have already done the homework for you. May be Jim Cramer does some of that for you!! There were so many Jim Cramers in 2005-2007 in the real estate market disguised in the form of real estate brokers/agents. They told every one that house prices only tend to go up if you chose the location and house properly (this was the homework part btw that they brought to the table). Combine that with low interest rates and glut of money pouring into the mortgages from US as well as foreign investors searching for extra yield and you had the recipe of straight-line increase in house prices.
The difference is just that this time around it is in the stock market. All other ingredients are same. Interest rates are near zero, Federal Reserve is fully committed to print money (i.e. provide liquidity), Jim Cramer is there and pretty much every one on the Wall Street is a bull now. We can ignore the low earnings estimates otherwise we can't justify the stock prices. In fact, it's very good for retail investors that earnings estimates are low because it provides each company an opportunity to beat them by 1 or 2 cents and thus provide a same day upside of at least 5-10% in the respective stock.
Under this scenario I am very comfortable in recommending any stock on earth as a good or great buy. So investors should not waste time in trying to look through the financials. There is no meaningful information there. Just invest based on "momentum". And I have full faith in Ben Bernanke that he will not let us down. As long as he is providing liquidity ("printing money" in layman's term), we should buy stocks. Keep in mind that Federal Reserve and Congress keep a close eye on the market and do not like it very much if market goes down 100-200 points in a day. So we are fully assured that they will not do any thing to roil this rally and in fact will provide more liquidity if the market conditions warrant (i.e. market drops 100 points in a day). Also money will now be moving into the stocks after saturating the commodities and bond markets. You can also follow Jim Cramer to get an extra 2-3% upside because he controls quite a few herds out there.
In this post I am deliberately not mentioning any particular stocks because as I said before "Any" stock is good. Investors should worry about picking and choosing at a later date.
Remember that many people made a lot of money during the housing boom as long as you know when to get out. So it is the time to make similar kind of money from the stock market now. Dive-in ;-)

Market currents for New Year

On the first days of trading in 2011 market is up significantly with Dow Jones avergae at 11704 and S&P 500 at 1274. Both of these avergaes are up sharply since August 2010 with no downward pressure at all since Ben Bernanke confirmed that he has all the intentions of creating next asset bubble even though it means destroying the currency and consequently the power center position of the whole country. In Ben Bernanke, we have one person who will successfully diminish and destroy the country, pretty much single handedly, even though he is not a political figure elected by the democratic system in place in USA. Stock markets are up becuase fundamentally stocks do not have any value in today's market. It's driven by those investors who are hungry for yield to benefit at the expense of devaluing the whole country. Any prominent financial institution with access to Fed's lending can access short-term loans at 0-0.25% and can generate a better return by investing elsewhere. So people started with investing in junk bonds (less risky than other investments). As they pretty much exhausted bond market, investors slowly moved into commodities (riskier than bonds but still less risky than stocks). Now copper is hitting all-time highs, gold is up significantly and silver is also making all time highs. Now as commodities look slightly more expensive, investors are turning to stocks with full faith in the stupidity and incapability of Federal Reserve in USA and especially its chairman Ben Bernanke. As long as he is leading the Federal Reserve, I am very bullish on stocks.
The good thing about stocks is that they don't have any fundamental value unlike some of the other asset classes mentioned before. So people might or might not pat what they want for the stock. This is clearly reflected in many high-profile stocks which are trading at all-time P/E multiple of 60-100 (which is enormous by any historical standards) but who cares. As long as I can generate a yield of more than 0-0.25% from my investments, my investors and I are all very happy. I am also advising to move all the profits made in USA to overseas markets becuase its better for the health of investors to stay away from US dollar.
This is pretty much the fundamental investment thesis at every big financial institution in USA. I, on my own part think that sooner or later people in the country will realize the folly of this chairman and put pressure on the government to oust him. I just hope this happens sooner before it's too late. Until then I'll be in the bull market camp and make profits on every day rally of the market. Buying the hot stocks is more rewarding if you have a target of 2-3 day investments. Some stocks in this bucket are: AAPL, NFLX, PCLN and CMG.