Since late August 2010, the major stock market indexes have rallied sharply higher. The catalyst for the rally was the announcement of QE-2(quantitative easing) by the Ben Bernanke in Jackson Hole, Wyoming. The U.S. Dollar Index has been declining sharply ever since that announcement and the stock markets have inflated higher. Now the Bernank will start holding press conferences after their FOMC announcements. This is something new by the Federal Reserve as they try and become more transparent to investors and the public. Congressman Ron Paul(R-Texas), has been recently breathing down the back of the Federal Reserve in his new position as head of the subcommittee that oversees the central bank.

The big question that many traders and investors are asking, what will the Federal Reserve bank do for an encore to QE-2? How can the central bank keep the liquidity(money) flowing into the stock market after QE-2 expires? Many investors believe that the Federal Reserve will start QE-3 if the stock market starts to falter or is unable to stand on its own feet after the Fed no longer does quantitative easing.

The last Federal Reserve Chairman was Alan Greenspan. He was know for talking in circles to politicians. There were actually people hired by the financial media that would try and interpret what he said after a meeting with the U.S. Congress. We can only wonder if Ben Bernanke will take a page out of Greenspan’s book.

Gold and silver have told the world that the Federal Reserve and other central banks have continued to simply create money in order to keep the markets floating higher. In my humble opinion, gold and silver are the central bank’s worst nightmare because it simply tells us that money is being created on a daily basis. Eventually, the Federal Reserve Bank will be forced to strengthen the U.S. Dollar. The big question that traders must ask, is when that will happen?

In the meantime, the Federal Reserve seems to be one step ahead of all the investors in the world at this time. High oil, unemployment, and overall inflation, have not stopped this market from advancing. The U.S. Dollar Index is now trading at a new two year low. The U.S. Dollar Index has declined by nearly 17.0 percent since June 7, 2010. Commodities and commodity stocks have surged higher since the Federal Reserve began its QE-2 program. Stocks such as AK Steel Holdings Corp.(NYSE:AKS), Caterpillar Inc.(NYSE:CAT), and Newmont Mining Corp.(NYSE:NEM) have all benefited from the action by the Federal Reserve. If the Fed decides to stop inflating the markets these leading stocks and others could be in for a sharp correction.

It will be interesting to see what the Federal Reserve Chairman, Ben Bernanke, will have to say in this press conference on Wednesday. Will he defend the U.S. Dollar or just push any questions aside like his predecessor Alan Greenspan did? Get the popcorn ready we shall soon enough.



Nicholas Santiago