WATCH THE DOLLAR!!!

There are a lot of asset classes, sectors and stocks sitting at key levels. Normally, this has led to fast moves in either direction. He is my list of what to watch. I will do more than watch.

Here is a chart of the ETFs for Emerging Markets (EEM), High Yield (Junk) Bonds (HYG) and The US Dollar (UUP). This chart covers the bottoming process of Late 2008 – Early 2009. I use Emerging Markets, because they are the high-growth and commodity-based economies. I use High Yield Bonds, because they are the worst of the worst, on the brink of defaulting. These are the riskiest asset classes.

As you can see, risk benefits when the Dollar falls. That is the game plan – Crash the Dollar to drive the Prices of risky assets higher. The tops in the Dollar and the bottoms in EEM and HYG are within a day or two of each other (Green Vertical Lines). The final low in EEM and HYG was also the final high for the US Dollar.

The Dollar is now testing its downtrend line (Black Line and Arrow) from its March highs. EEM is testing its uptrend line and HYG has actually broken below its uptrend line. You can also see that these three securities have been consolidating for six to eight weeks. Something needs to give. It probably will give soon and the move will probably be very violent. And then may quickly reverse with equal violence…

I want in on the move – regardless of which way things break. If the relationship holds, then a break lower in the Dollar drives risky assets to new highs. It also drives Foreign Currencies to new highs. My guess is that a break of the trendlines leads to all hell breaking loose in risky assets and probably a major short squeeze in the US Dollar.

Commodities
Here is a chart comparing the ETF for the Metals & Mining Index (XME), Crude Oil ($WTIC) and the Baltic Dry Shipping Index ($BDI). You could substitute a number of commodities for XME (MOO for example). They have all peaked at about the same time and have been basing for over three months. $BDI is down 50% from recent highs! You’d better buy right in this market.

See how Crude and Metals bottomed at the same time the Dollar topped in March? Crude Oil ($WTIC) is now hugging the uptrend line. Something has to give soon. WATCH THE DOLLAR!!!!!!!

Oil Stocks (XLE) continue to hang out in a now eleven-month base. Remember, the bigger the base, the more fuel there is for the next breakout/breakdown. XLE has been lagging the other risky asset classes, but I am assuming that if it breaks out, then it will lead.

China
Here is the chart of the China “A Shares” Closed End Fund (CAF). It has broken support and now sits below its 5-month trading range. It seems to be an ideal short, but there have been so many of these false breakdowns lately that have led to massive short squeezes. I would not short anything until the markets top and roll over. Watch what happens if CAF trades above $32.50 over the next few days. I will be watching it closely!

South Korea (EWY) is closely tied to China. Look at how EWY is sitting tight here in a 6-week base. Note the big volume the last 2 days. I have seen a lot of breakouts preceded by big volume days like that.

Gold
Everybody is talking about Gold. Gold is the anti-paper Currency. Here is a chart of the Swiss Franc ($XSF), Gold ($GOLD) and the US Dollar ($USD). The Franc (and other currencies like the Euro, Loonie, Aussie) and Gold have the potential to break out of major trading ranges. The US Dollar has the potential of failing miserably.

Failure by the Dollar and a major breakout in Gold to new highs causes some significant policy problems for the USA, so I would not be surprised if some strange things happen to Gold and currencies on breakouts.

Stop Kicking the Trillion Dollar Can - per Bloomberg

My kingdom for a stiff, cool breeze… The sky has been orange for the better part of a week. Yuck.

Bloomberg fired the broadside this morning. The headline –

“Banks Need to End $1 Trillion Kick the Can Game”

http://www.bloomberg.com/apps/news?pid=20601039&sid=acPs3f5Wlny0

Read the Op Ed.

“Banks have known for a while that they would eventually have to face up to some of the assets they had stashed in off-balance-sheet vehicles. Now that day is looming, and regulators are concerned that lenders might need even more time to deal with such items.

Enough already. It’s time for banks, and their regulators, to stop playing kick the can. Either banks have -- or can get -- the capital they need to support assets on their books, or government watchdogs should take action.”

Extend and Pretend…
Basically what has been going on is that the Banks have been allowed to take their bad assets and move them into Limited Partnerships that can be hidden from their Balance Sheets – “off Balance Sheet Accounting”. This is what Enron did and Skilling is still in jail for doing it. Now the FASB, The Fed, The FRBNY and the SEC have given their blessings to using this accounting trick. It only took Sarbanes-Oxley six years to die…

The goal of Team Obama is to let the banks lie about the value of their assets and use the earnings power of the banks to gradually write off their bad assets. Or they are going to just outright sell these toxic assets to the US Taxpayer (PPIP, GSE, TARP, TALF…).

Bloomberg begs the regulators to put an end to these games and do their job to protect bank account holders. His pleas will fall upon deaf ears. Geithner runs the show and he is Wall Street to the core. The rally in Bank Stocks has been a matter of Public Policy and it will end when its purpose (allowing banks to sell shares at artificially high prices and use the proceeds to write off bad loans) has been served. I get the feeling this Bull will die when there is another massive round of Secondary offerings by the Banks and REITs.

Why the Need to Lie?
The rumor this week was that a major US Bank was in major trouble. The rumor I heard most was Wells Fargo. It is a rumor, not a fake – take it for what it is. The facts about Wells Fargo are scary enough without the rumor.

28% of Wells Fargo’s holdings are in 1-4 Unit Family Residences
These units in their loan Portfolio have a delinquency rate of 14.23%!
And these are the assets they are being forced to tell you about! How bad is the junk in the Limited Partnerships performing?

57.09% of Bank of America’s (BAC) listed assets have an average delinquency rate of 6.1%
BAC admits to having $972 billion has assets, but the SEC website EDGAR shows their assets at $2.321 trillion
Where is the other $1.2 trillion of their loan portfolio?

Citigroup also has over $1 trillion hidden “off the books”

If the FASB had not changed the rules and the SEC had not turned their back, these Banks would have been insolvent long ago. Now, they are simply wards of the State. They are parasites who suck in huge volumes of Capital and produce nothing in return. But at least we got a rally in stocks, right? Who says Faust is fiction…

They have been granted $800+ billion in free capital from the Fed and all they do is park it at the Fed to collect their 0.25% in Fed Funds Interest. They take even more risk now, leveraging up all over again, writing naked put options (CDS) against anything that moves and front running the trades of their clients. They got away with crimes that made themselves rich and stuck the US Taxpayer with what will probably be a $12 trillion bill.

“Extend and pretend” becomes “shut up and take your bonus and go bribe a few Congressmen and then hire them as lobbyists”

Do you wonder why Gold is starting to rally?

Not all banks are upside down in bad loans. Guess where my accounts are…

The Bottom Line
I looked at some yields yesterday and here is what I saw –

Bank of America Bond without FDIC Guarantee maturing 4/15/2012 is yielding 3.327%
Bank of America Bond with FDIC Guarantee maturing 4/20/2012 is yielding 1.223%
An FDIC Insured CD maturing 4/12/2012 is yielding 2.451%

Who in their right mind would be buying bonds in Banks, when you know what the Banks are doing with their “Accounting”, when you are only getting paid an extra 0.875%? It takes all kinds…

QE2? (not the boat)

Mortgages
When the crisis was in full swing last year, I kept mentioning that the goal was to offload all the bad mortgage debt from banks and the Central Banks of Foreign Governments and onto the books of the US Taxpayer, via the Fed and the Federal Reserve Bank of New York (FRBNY). I think I wrote something to the effect of “the only entity stupid enough to buy this garbage at these yields is the US Taxpayer and they are doing so because the Government has a literal gun to their collective heads.”

The Federal Reserve Bank of New York and GSE (Government-Sponsored Enterprises) Paper
In November 2008, the FRBNY set up a plan to buy lots of Mortgages issued by Freddie Mac, Fannie Mae and Ginnie Mae. The goal was simply to buy enough GSE Debt to keep prices high and by definition keep Mortgage Rates artificially low.

This would hopefully allow for a refinance wave out of Adjustable Rate Mortgages that were set to “recast” to substantially higher Interest Rates in 2009 and 2010. I think a secondary goal was to allow people to draw Equity out of their houses as they refinanced, ala 2003, where the new money would be used to increase consumption. Again, the only entity irresponsible enough to buy this junk at 50-year low yields, junk that is backed by assets at artificially high prices, is the US Government.

The program was designed to purchase $200 billion of GSE mortgages. The initial goal was to purchase old mortgages that could not find other buyers and thus provide “liquidity” to the markets – or prop up prices, depending on how jaded your view may be…

Oh yeah, and remember, the $200 billion that the FRBNY has to buy this GSE paper is not real cash, it is created by the FRBNY borrowing $20 billion from the TARP and levering it up 10 to 1. Borrowed, Levered Money buying Mortgages (which are by definition Borrowed, Levered Money), all designed to artificially prop up housing prices to levels that are otherwise impossible to sustain! Good stuff. Let’s re-nominate Bernanke!

Yesterday, the FRBNY announced that they will be focusing their purchases on newly created GSE paper. So, you have one “Government-Sponsored Entity” class (Ginnie Mae, Fannie Mae and Freddie Mac) directly selling newly created paper to another arm of the US Government, the FRBNY, that is buying the newly created paper with newly printed Dollars. That is the definition of “Debt Monetization”, I’m sorry, I mean “Quantitative Easing”…

http://www.newyorkfed.org/markets/gses_faq.html

I think the first wave of GSE paper was purchased directly from the Foreign Central Banks and was part of a deal cut last year when the US Government refused to back Freddie Mac and Fannie Mae with an “explicit guarantee” from the US Government. Now the Fed is onto simply flat out printing money and Foreign Central Banks are happily swapping their GSE paper for US Treasuries.

I told you all along that if the Government did not force the risk takers to eat the losses, then the US Taxpayer would get stuck with them. As of right now, the US Taxpayer has over $1 trillion of these mortgages directly owned by the Fed or the FRBNY. Expect this number to keep climbing.

Treasury Repurchases
The FRBNY stated early this year that it would buy $300 billion in US Treasuries. Again, the FRBNY funded this program by borrowing TARP money and levering it 10 to 1. It has bought over $277 billion so far and will have completed its purchases in another 2 weeks or so. The FRBNY announced this plan in Mid March and started buy Treasuries on March 25th.

When did the Stock Market put in its low for the year? Early March. Do you think the $300 billion in newly printed money has found its way into the Stock Market? Do you think there may be a reason why the markets hit some indigestion yesterday and have seen multiple Distribution Days (Institutional Selling) the last few weeks?

Why is the Fed Doing All of This?
The Taylor Rule
The Taylor Rule is a Nobel Prize winning economic theory that tells the Fed where it should keep Interest Rates to maximize Economic Growth and Employment and minimize long term Inflation. Per Zerohedge, the Taylor Rule currently states that the Fed should keep the Fed Funds Rate at -6.55%!

What does that mean in English?
It means that prospects on returns on loans are so bad, that the Fed would have to penalize Banks -6.55% on their deposits before these Banks would actually take risks and start to lend the money. I think that implies that Banks figure they would lose 6.55 cents on every dollar they loaned over the next 12 months. That’s bad… How are you liking those Corporate Bond accounts?

Of course it is unrealistic for a Central bank to charge Negative Interest Rates, right? The Central bank of Sweden currently has their Fed Funds Rate at -0.25%! Holy cr*p. They have to jam so much free cash into the economy, that they actually push Interest Rates negative! How bad do things have to be in Sweden? If Economics is a study of profitability at the margins, then they are telling you that the Cost of Capital has to be negative before people are willing to make a “risk free investment”.

The Bank of England thinks it’s a swell idea and may follow suit…

The Fed has chosen another avenue to fill the Economy with excess cash. Rather than make short-term rates negative, they artificially cap long term rates by buying bonds in the open market – the so called “Bernanke Put”. Sell us your clunkers and we’ll issue you newly printed dollars and Treasuries… The actual practical manifestation of this is “Quantitative Easing (QE)”.

But the Fed is running out of ammo in QE round 1 ($300 billion cited above). So they will need to either reload at the feet of the FRBNY or cut rates to negative levels. The consequences of QE2 would be a falling US Dollar and rising Gold.

Look at how Gold traded today!
Gold is the anti-Dollar, so there could be intervention by the IMF (via an announcement to sell Gold), but in my opinion, the long term path for Gold is higher as more Dollars are printed. The only way out of this debt overhang is to inflate it away, because clearly the Government does not want any investor to ever lose a penny in a bad bond or derivative investment…

Gold (GLD) broke out of a 7-month trading range today on big volume (Red Arrow). On the monthly chart, you can see that Gold is sitting near the top of a 24-month trading range. Let’s see if the buyers are ready to break Gold above $1,000 on this move.

Real Selling Today

The S&P 500 ($SPX) broke its uptrend line from is July low. It did so on volume with abandon today! Stocks were up decently early and then got punk’d. They did so on what would be considered good economic news.

Today the selling felt real. I mean it was as if the big boys were selling with the intention of getting out of positions and not with the intentions of triggering stop losses before ramping prices higher. This was the 6th recent Distribution Day for the Dow – that is potentially meaningfully Bearish.

S&P 500
You can see how there have been two multi-day trading ranges in the month of August. The most recent one was 6 trading days and had every possibility of breaking out to the upside. Instead, it broke down. Moreover, it broke down after breaking out in mid-August and sucking in money. My fear when stuff breaks out is that it is a headfake and the boys will pull the plug after all the buy orders are triggered and that appears to be what occurred the last two weeks. I had a lot of things stop out today. Lots of these tight trading ranges failed today on big volume!

On this chart, I can see that the Market Internals appear to be rolling over (Bullish Percent $BPNYA and Summation Index $NYSI). I also can see that the breakout point was at 950 (Red Line) and that a pullback to 950 would be a 50% retracement of the July/August rally.

Leadership
China
China has been the leader since it bottomed in late 2008. It bottomed when the Chinese Central Bank set up their version of a “stimulus package” and more than half of the money ended up being leveraged and used to purchase speculative holdings in stocks and commodities.

Now the Chinese Government is trying to slow down the creation of new money via leverage and the ultimate investment of that money into stocks, commodities and derivatives. If the Chinese market led on the way up, then what does this chart of the Chinese markets ($SSEC) tell us is coming for our stock markets?

China had managed to retrace about 40% of its crash. It has retraced over 50% of the recent rally.

Financials
Today was a bad day for the Financials. They have been the strongest sector over the last 6 months. You have recently seen gigantic rallies in some of the truly pathetic Financials (AIG, Freddie Mac, Fannie Mae, CIT, Citigroup). They appear to have had a speculative blowoff and these stocks got torched today (AIG -20%, FRE -17%, FNM -17%, C -9%)! These are all dogsh*t companies effectively owned by the US Government.

CIT was -15% today on the revelation that it cannot issue new stock at the current price. There are simply no buyers for the new shares. The price is extraordinarily high, relative to fundaments and will need to fall before it is bought by investors. CIT closed today at $1.47…

Morgan Stanley (MS) broke its uptrend from its December 2008 bottom today on big volume. So did Northern Trust (NTRS). Goldman Sacks (GS) has been a leader and is on the verge of breaking down.

Technology
Intel has supposedly good news last week, as did Dell. They both got trashed today. Semiconductors (SMH) and Microsoft (MSFT) may be putting in Double tops. Amazon (AMZN), Cypress Semi (CY), BIDU, Juniper (JNPR) either broke down or on the verge of breaking support or moving averages. Growth outperformed Value today. More may follow in the near term.

Rotation
I expect rotation in leadership. Here is what rotation looks like over the course of a Business Cycle. I am going to use the Marsico 21st Century Investment mutual fund. During the first stage few years of the last Bull Market, the Marsico Fund closely tracked the S&P 600 Small Cap Index.

On the Second Chart, there was a significant correction during the first half of 2006. During this period, the Marsico Fund switched their holdings and the Fund closely tracked the NASDAQ 100 during that last big move of the Bull Market from mid-2006 through late 2007.

On the third chart, you can see that while the markets were topping out during the first half of 2008, the Marsico Fund was switching its holdings into Large Cap Value.

Now you may be asking yourself why I am bringing this up, but I wanted to illustrate a couple of key points. First, Mutual Funds cheat. They don’t stick to their stated investment objectives, but instead chase returns in hopes of marginally beating the Index they are supposed to tract. This is called “Style Drift”.

The big consequence of “Style Drift” is that when stuff stops going up and starts to roll over, there are a lot of fund managers all in the same holdings who all need to sell at the same time. This is revered to as a “crowded Trade”.

In chart 2, when all of those managers try and sell the same stuff at the same time, they can get away with (like early 2006) because there is still appetite for new risk. This period of time is a choppy trading range, where prices will fall some and recover some and ultimately the markets work their way to higher highs, but the old leaders lag and the new leaders out-perform.

But in a true market top (like Chart 3), there is nobody left to buy stuff and the markets crash under all of the selling – as occurred in the Q1 2008. The markets then churn sideways as Mutual Funds buy “safe” stocks like Utilities and Healthcare, as they try and ride out the oncoming Bear Market. You see, most mutual funds have to remain at least 95% invested at all times. This forces them to own stocks, even when they may not want to own them. I don’t have to be fully invested and can get out of stocks when the markets tell me to run for the hills, as I did in 2008 and a lot of 2009.

I will be watching the markets to see what holds up and what cracks. I like pullbacks when I raise cash, because I then can buy strength when it breaks out again. I will be watching things closely and see how things shape up going forward. A pullback will let me buy Market-based ETF and maybe some sectors if they look good enough.

“It is pointless to argue with the market… (The Big Picture – IBD 8/21/2009)”

That pretty much sums up my world.

If Big Money is buying, then I need to be as well. I need to be looking for the best setups in the best companies, sectors, asset classes, commodities, currencies, countries. They took a pause for a few weeks and now appear hungry again.

I have not done a lot of posting recently, because I have been spending a lot of time studying and have had more meetings with new clients than I have ever had in my life. Throw a new company on top of that and I simply don’t have time to post much. People still seem to not believe that a recovery is possible, just as they seemed to not believe that The Crash was possible.

When I have posted, it has been a lot of charts of markets and stocks, because that is all that matters – what is working and what is not working. Stop Orders get me in and they get me out if I am wrong. This market has rewarded you for buying right and punished you for buying wrong.

Friday was Options Expiration, so today's move could have simply been designed to suck in money before rolling over again. We'll see. The computers are in control, so there are a lot of overshoots below support to shake you out and above resistance to suck you in. It is simply a part of the new Wall Street Machine…

Here is what I am seeing right now –

Indexes
The markets ran into key resistance (SPX 1,015) in late July and just around for a few weeks. They had every chance to fail, but there was minimal selling. Then the buyers showed up yesterday and broke the markets out of their multi-week trading ranges.

Large Growth (including the NASDAQ – QQQQ) is now at the top of its recent consolidation. Sometimes I have to buy based on chart patterns so that I can better measure my entry points. Small Cap Growth (IWO) has a similar chart.

Sectors
Metals and Mining (XME) are just hanging out. The bigger the consolidation, the more fuel for the ultimate breakout or breakdown.

Large Energy companies (XLE) are at the top of a now 11-month trading range. Oil Service (OIH) is also in a trading range, but has performed better than XLE.

Semiconductors (SMH) have been consolidating the last rally for about a month

Latin America (ILF) is also at the top of this consolidation.

Individual Companies
Red Hat (RHT), BIDU, SOHU and EMC are in Bullish Wedges

CCJ is at the top of a trading range.

Apache (APA) broke out of its 11-month range and has been sitting on top of the breakout for a month.

Teekay (TK) may be breaking out.

Commodities
Crude Oil ($WTIC) is sitting at the top of a trading range. If buyers show up, then that could light the fire under Energy Stocks.

Natural Gas is sitting at the low end of a multi-month trading range.

Gold is in a big consolidation, right below critical resistance at $1,000.

The US Dollar is the key to everything (I will post on this later). The falling Dollar has been the driver for all the risk-assets to move higher (stocks, commodities). This is the Dollar Carry Trade in action. A rise in the Dollar above 80 would most likely tank stocks and crash Emerging Market stock markets. A Dollar breakdown and then we most likely get another huge leg up in stocks and commodities. This is the goal Bernanke…

The Swiss Franc may be re-establishing itself as the non-Dollar Reserve Currency.

The Now 15-day Consolidation

The NASDAQ 100 (QQQQ) has spent the better part of the last 15 trading days in a narrow range. I mentioned a week ago that QQQQ had consolidated for 5 days after the mid-July moon shot. We are now is day 15 of this consolidation.

Here is how the consolidation looks on the hourly chart. The Blue lines define the first 5-day consolidation. The Black line is now significant resistance. QQQQ failed to break above it yet again today. You can see how this consolidation has allowed the 20-day average to catch up with price (Red Line). QQQQ hit the Red Line this morning and immediately bounced for over 1% in an hour. I would consider a break above the Black Line to be Bullish, with a stop below $39.


I want to show you a comparison of QQQQ and chart of the Large Cap Growth ETF. You can see that these are very much the same chart. Both are in the midst of some pretty meaningful consolidations. Note how price isn’t breaking down, as it seems that nobody wants to sell here, even with the markets overbought – flip the chart over and it is the crash of last year, where nobody wanted to buy when oversold.


Now here is the chart of the Large Cap Value ETF. This ETF seems to be due for a rest in the very near term. I have recently bought sectors in this Index and avoided much of the Technology exposure of the Growth ETF. These sectors are things like Retail, Financials, Real Estate and Transportation.

I really want to sell some of my holdings in the Transportation ETF (IYT) and roll the money into other areas of Transportation that have recently pulled back – like Fedex (FDX). I may or may not sell IYT, but FDX is catching my attention again.


Retail has broken out above $82 and I would like to see it pull back into the $82 range again. But look at how ARO (Areopostale) has been coiling for about a month, right below the breakout level of $37.50. If Big Money shows up to break ARO, then I am interested in going along for the ride.


There are a ton of areas consolidating and I am hoping to be there when they break out.

Leadership
Financials may be bouncing, but they look like Technology did in the initial bounce of 2003. Leadership this time around has been Technology and Emerging Markets.

There are lots of leaders that have taken a break for a number of days to a number of weeks and I am interested if Big Money shows up to buy them again.


Emerging Markets
Remember how these broke out a few weeks ago? They are now digesting the recent move and I am waiting for the buyers to come back.

Energy
Most of Energy has not yet broken out of its base or has broken out and is now sitting right on top of its base. If money is rotating from sector to sector, then at some point Energy should come into play.


Agriculture


Steel


Gold
Gold is in a 17-month consolidation. In my opinion, it is simply a matter of when Gold works, and not if.


I am overweighted in Gold and Energy. I intentionally avoided Technology after the S&P broke out, confirming the Bull Market. Now, Tech has either paused or pulled back and I am looking for Big Money to stop me in.

I am not recommending anyone buy or sell anything. I am simply going through my thought process. You need to remember that all setups do not work and many that trigger fail miserably. This is a very violent market, and with all of the predatory computers triggering limit orders in Dark Pools, via High Frequency Trading programs, the odds of getting whipsawed are increased to the benefit of the likes of Goldman – and to the detriment of the Average Investor.

Holy Credit Bubble Batman

The US Government added about $500 of debt per American in July.

http://thehill.com/leading-the-news/deficit-grew-by-181-billion-in-july-2009-08-09.html

Now Geithner wants Congress to approve raising the Federal Debt Limit, so that the Government can put the Average American still farther into debt.

http://online.wsj.com/article/SB124970470294516541.html

Here is a chart of the Total US Credit Market Debt as a Percent of US GDP. The chart only runs through March 2009. Notice the spike that drove the “Reagan Revolution”, the spike from 1994 – 2000 that drove the “Clinton Miracle”, the vertical ramp under Bush 42 and the vertical continuation under Team Obama.

Does anybody in their right mind think this is sustainable? You know how politicians think and that they won’t stop until the markets force them to. So the only issue is how big does this number get before it implodes?

Do you see the spike back in 1930 that followed “The Crash”? It is interesting how a vertical expansion of Credit did not cause that Crash. The Government reversed their loose money policies, the chart collapsed and the “Great Depression” extended into 1937-38.

I mention this, because the Fed and Bernanke keep telling us that they will not make the same mistake of tightening credit that was made in 1937. So how high will they launch this number?

If you believe Bernanke, he wants to grow “Aggregate Demand” (the denominator). So this ratio could fall as the economy expands. But we all know that the only thing keeping the economy from collapsing is that the Government printed $2.5 trillion of new money. I believe that the only ways the Government is going to get this ratio back in line is by increasing the GDP via inflation and a falling US Dollar.

If you look at this chart, you see that the real value of money has to be cut by 67%. **** me…

The Bond Market
The mechanism for controlling the idiocy of the Government is the markets. The market for controlling this idiocy is the Bond Market. The Fed decided that it would strategically purchase Bonds in an effort to manipulate this market. This practice is called Quantitative Easing.

Every couple weeks, the US Treasury raises money by selling newly created bonds, bills and notes. The sale of this paper effectively sets Interest Rates. The more bonds the Fed has to buy, the more the market is telling it that rates are too low. Rates should be higher to reflect either risk of default or inflation.

Here is an amazing piece from Chris Martenson. It is he shows that the Fed is rigging the Bond Auctions. We all know that the Fed is buying Treausries. However, what they are also doing is getting the major Brokerage Firms and Banks to buy the bonds at auction, to make it appear as if there is demand for them – so that rates don’t have to go higher. But then a few days after the auction, the Fed buys these newly created bonds from the banks! It is just blatant manipulation. But it allows the Fed to declare that the auctions were a "success".

http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880

It is just a matter of time until US Treasuries collapse and the US Taxpayer is left on the hook with Trillions of Dollars of newly-refinanced Mortgages and newly-created US Treasuries. The seeds have been sown. This is Indian Summer for the markets. This is the “heyidiot.com” rally on a broad market scale. It will go up and the creation of credit will go up until it doesn’t any more and then it will all implode. Or you believe that the same geniuses who got us into this mess (and got rich doing it) will be the same ones to get us out of it…