It seems that I’m not the only one casting a wary glance towards the activities of the US central bank.

China is too, and perhaps they are beginning to stave off their investments in the US:

The fund directors behind China’s $200 billion sovereign wealth fund said they have no intention of channeling more funds into Western financial companies at this time, because of limited insight into what kind of shape they are in, and the effect of government bailouts, according to a media report.

which makes sense when one considers how burned they are:

CIC purchased stakes in two New York-based financial institutions last year. In May 2007 the fund invested $3 billion in Blackstone Group LP  and in December of that year it invested $5.6 billion for a 9.9% stake in Morgan Stanley. The stakes are now worth about a quarter of their original value.

and on the lunancy front the suggestion that the Central Bank just pony up and invest raw dollars on Wall Street just like any other OTB playa:

By purchasing outstanding debt directly from GSEs and commercial banks, the Fed is injecting liquidity into the coffers of select financial institutions, such as commercial banks. Unfortunately, these measures fall short of helping the consumer directly and efficiently. It is time for the Fed to focus on purchasing stock index futures to help stabilize the other financial markets (i.e., equities).

Purchasing futures contracts on the US equity market would immediately squeeze the short-sellers who are running recklessly through the stock market because of the abandonment of the up-tick rule.

Stabilizing US equities would certainly end the hemorrhaging of corporate and public pension funds and at the same time act to stabilize declining 401(k) and IRA savings plans. If quantitative easing is to stabilize financial markets, then the Fed should act with all haste to begin the implementation process.

You think the market is volatile now? Just you wait until that happens.

US Peso Disaster Imminent

It appears that my prediction of the decline of the USD as a reserves tool may be taking form as the Financial Times presents new information about the decline of the USD:

Russia is liquidating accumulated reserve holdings (almost $150bn since August) to support its domestic economic/financial system while South Korean reserves have fallen by $50bn in a similar effort. China has pledged a massive fiscal stimulus (accounting details aside) in an effort to rejuvenate its domestic economy, reducing its level of aggregate savings that can flow into foreign markets. Even Brazil announced this week that it will potentially use part of its small sovereign wealth fund (SWF) to support its domestic economy.

This will of course probably lead to a market rally (the USD and the market are in inverse correlation to each other) in normal times but these days, it will probably keep the market float long enough to starve both the bears and the bulls by going sideways.

No time machine here but it looks like it’s going to be another down day for the DOW.

Props to Danny for this quote which nearly made me spray coffee on my laptop:

Having a price-weighted index with thirty stocks is like mixing barbecue sauce with your motor oil to get better gas mileage or the wife drunk faster — you can tell me about it all afternoon and I’ll enjoy the discussion, but it just doesn’t make any sense.

I’ll tell you this Danny - most commentary is about bbq sauce and motor oil. One just needs a deconstructionalist to point out the holes in the hull.

Takeaway

The usual, shiny metals, Japanese Yen, short the USD via UDN and a BOTH  QQQQ/DXD - with a pointer to sell which ever one makes a profit and use the capital to average down on the other.

Theme Song