By Gregory Mannarino, TradersChoice.net
Last week the Federal Reserve began a new phase of currency and debt manipulation on an unprecedented scale. And as a result, the U.S. stock market had its best week in terms of gains for the year.
Last week the Federal Reserve went on a debt buying spree of monumental proportions, which caused the U.S. 10-year yield to drop from just over 5 percent, to 4.51 percent. On top of that, the Federal Reserve very effectively weakened the dollar on a relative basis by selling dollars and buying foreign currencies.
This mechanism of buying debt and currency manipulation caused the stock market to vault higher (the exact effect that the Federal Reserve was seeking to achieve). Moreover, this mechanism also caused market risk to drop substantially.
*What the Federal Reserve is likely to achieve by this new phase of currency and debt market manipulation, is a stock market which will likely rally into the end of the year.
*Corporate management year-end bonuses, which are in the multiple MILLIONS of dollars, are based on year-end stock price. Understanding that, the Federal Reserve is undoubtedly going to make certain that the CEO’s of these corporations, along with upper management, all walk away with big fat year end bonuses.
What the Federal Reserve will accomplish here, along with other central banks who will also indisputably be buying more debt and continue to manipulate their own currencies as well, is vastly exacerbate the already monumental price action distortions which already exist across the entire spectrum of asset classes. The game will remain RISK ON.
“Risk on,” alludes to the situation where suppressed rates opens a doorway where then cash flows into risk assets, THE STOCK MARKET.
“Risk on” in turn inflates an even larger stock market bubble.
“Risk on” also causes the price action of other assets, like commodities, to remain low—which presents an opportunity to attain these “risk off” assets at fire sale prices.
It appears obvious to me that the manipulation/market rigging by the Federal Reserve, along with other central banks, will continue until it doesn’t… in the meantime, we look for every opportunity to capitalize on the situation they are creating.
With the stock market. I personally will continue to remain net long AND look for opportunities to buy more. With commodities, I will also add to my current holdings, (MORE SPECIFICALLY GOLD AND SILVER), seeking to take advantage of what will likely be even greater price action distortions.
We should also expect that the current global HYPERBUBBLE in debt will grow exponentially larger, FASTER—setting the stage for an eventual and complete wipeout of world stock markets around the world—AND THE GREATEST TRANSFER OF WEALTH IN HISTORY.