Featured below is an article from the VantagePoint Strategies Newsletter. The author Darrell Jobman is Editor-in-Chief of TraderPlanet.com. Darrell has been writing about the financial markets for over 35 years, and was an editor for Futures Magazine for over 15 years. He has also written and/or edited multiple books on trading, and has a passion for helping other traders succeed.
Everyone is probably familiar with such popular phrases as:
“Show me the money.”
“Money talks.”
“Follow the money trail.”
Those catchy quotes are especially relevant for traders today as they watch money pouring into the marketplace via the Federal Reserve and Treasury Department bailout and economic stimulus programs. The government just took over a big piece of bankrupt General Motors and now owns chunks of Chrysler, too-big-to-fail banks, AIG, other insurance companies and the list goes on.
We can argue the fairness of money going to companies with lousy managers who made poor business decisions while other companies that followed sound practices get shut out and now have to compete against the government-supported and subsidized companies. We can debate whether the governor of South Carolina should be forced to accept federal stimulus funds. We can question why the government should be able to dictate who runs an auto company or why it should force auto plants and dealers with U.S. employees to close while the subsidized companies build plants in Mexico, China or elsewhere.
Fairness and foresight probably are not high on the list of traits for a government that has turned to socialism and seems more intent on rescuing Wall Street than building and supporting the industrial base that produced the world’s best economy. The government is now the 800-pound gorilla in the room throwing its weight around and choosing favorites. Will it bail out this bank or insurance company or let it fail? Will it buy bonds or ignore the market today?
Like it or not, this is the environment with which traders must contend. The big question of the day is whether the government’s heavy-handed and free-spending ways will lead to higher inflation rates that might be harmful to many citizens. I have addressed inflation concerns in previous newsletter articles and am not trying to harp on the same theme again and again, but it is the key issue traders face today. Logically, inflation seems like the only way out of the credit mess and is the reality for which traders should prepare.
But when you follow the money – specifically, the amount of U.S. dollars being created – is there actual evidence that the rapid increase in money supply will lead to inflated prices? Well, let’s look at a few VantagePoint charts. You don’t need the red arrows to see the market trends, but they provide a big-picture view within which to make short-term trading decisions.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for currencies go here!
One result of a larger supply of money is diluting the value of the U.S. dollar, and the U.S. Dollar Index futures chart is certainly showing the effect of recent government actions, falling through the support areas mentioned in previous articles and now at last December’s lows. Treasury Secretary Tim Geithner is in China and elsewhere trying to convince investors the dollar will remain strong, but history is full of examples of officials talking up a paper currency before it collapses – remember the British pound and George Soros’ bet against it in the 1990s in one of the best-known trades in history.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for interest rates go here!
There is no question about the direction of bond futures. Lower bonds suggest traders anticipate higher inflation and higher interest rates ahead. How will the government “traders” react if interest rates continue to move up and potentially jeopardize the recovery of the housing market and the economy? This is a fine line to walk. Can you stay in tune with this volatile market or will you get caught under the gorilla’s big foot?
Three VantagePoint charts reflect what’s happening elsewhere. The price direction of “things” other than paper is clearly up.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for energies go here!
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for grains go here!
Each market has its own story and its own outlook, of course. For example, while crude oil futures and the S&P 500 Index are still well below their 50% retracement levels between previous highs and 2009 lows, soybean futures are at the 50% recovery mark from the $16.50 a bushel highs of July 2008 and $8 a bushel lows in December 2008. VantagePoint indicators still point higher, but this an important price test area, both technically and fundamentally with the crop still being planted.
Overall, however, upswings in prices of a number of markets suggest money is flowing into them at a brisk pace. Could it be the result of inflation in dollars?
