Rector,I think you hit the nail on the head. I was scratching my head over some puzzling data on the Baltic Dry Index (BDI), which is a global index of the price of shipping goods in freighters. When the index drops down, that means that the price of shipping goes down and one can then infer that the demand for shipping goods is dropping, which in turn means that economic activity around the world is dropping. The index has lost 75% of its value since June 2010, but yet the stock and commodity markets are all going up. Below you can see a chart of the ratio SP500/BDI. It shows two distinct spikes. The first one happened during the October crash of 2008 when the BDI crashed faster than the SP500 and caused a high ratio. Today, we are again seeing that another spike is forming with the SP500 rising while the BDI is crashing. How could markets be going up while the demand for shipping goods around the world be going down. I couldn’t understand why this was happening until I read this article.
And your comments put the whole story together. Stock and commodity markets are rising because of QE. Speculation and manipulative trading by the big banks, flush with QE money are driving the prices up while the real economic demand for stocks and commodities is going down (based on the BDI). The FED is doing this on purpose, because they are smart enough to see what you and I see. As you say, the game plan is to use QE to drive markets up, create inflation, devalue the $US, increase the cost of Chinese goods, decrease the trade imbalance with China, devalue the US debt owned by China and the rest of the world. The monetary war on China is in full swing. As you said, they are devaluing debt through inflation. And of course, they are favoring the banks, because the FED is composed entirely of banks. They aren’t even a U.S. government agency, and the $US dollar is not a government issued dollar. It is a FEDERAL RESERVE note. The FED controls more things in this world than most people can even dream of.
Clearly the FED knows that QE is an all-in gamble. What do they hope to accomplish?
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Keeping the economy from freezing up into the mother of all ice ages
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Fight back with China that stubbornly refuse to let the free market value their currency
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Hope that the free money will jump start true economic growth in the US
We all know and talked about the risk of this strategy. My opinion is that this plan has a decent change of working if the government get out of the way and allow small business to become the incubators of the US economic recovery.
the party in stocks bewildered me also. i think the explanation is twofold. investors are beginning to recognize that bonds particularly municipal bonds are risky. commodities, gold and silver are not large asset classes exciting as they have been of late. that leaves stocks as the major beneficiaries of QE2. don’t forget corporations have lots of cash and small business are having trouble borrowing (greedy banks, new regs and increased taxes.) maybe its this simple.
taraH
One of the best "Marriages of Convenience" I have witnessed in a long time. It will not be long before the wedding cake paralyses the country from the neck down. The golden handcuff will be thrown across the room along with the cutlery and the bags will be packed and thrown out on the lawn. The minors sitting on the cross benches will have their santa sack full of goodies to stuff down their collective electorates throats and the country will suffer under this melting pot of political idealism.