Planet Yelnick

Dollar Points the Way

The US peso has solidified, particularly against the Yen and Euro.  As the Euro went up parabolically, as expected it is now quickly retracing back towards $1.42 and lower.  I explained in a prior post that the Euro went up disproportionately since Japan and other Asian currencies were held stable to the Dollar, but the global accounts must balance, so the excess ran into the Euro.  Recently the Yen has strengthened against the Dollar, the Yen carry trade has dropped, and now the imbalance has begun to come out of the Euro.  What does a higher Dollar portend?

Yves Last Call: Free Liquidity Shots!

Our favorite guestblogger weighs in on the central banks seeming to lose control over the credit crisis.  Notice how commercial rates have not dropped with the Fed Funds rate - the spreads are widening.  If central banks drop rates but commercial lenders stay high, the crisis continues.

Fed May Be Losing Control Of Events

Helicopter Ben believes he can always stop the deflation that follows a credit crunch by dropping in money (liquidity, credit). His recent attempts to do so are not working, as indicated by spreads between Fed Fund rates and commercial rates like LIBOR. This is the endgame of the Greenspan Put. The toxic waste of junk debt is spreading. Worse, there are now hints of lawsuits by aggrieved mortgage holders who got sold those subprime loans even when lower rates were available - the risk may now fall on the lenders for overselling. It is becoming more difficult for the credit markets to stabilize when their exposure keeps growing and growing. In that climate, Helicoptering in credit is like pushing on a wet noodle. Chop Sue-y anyone?

A Down Day - the STU weighs in!

The STU reads this wave as clearly signaling a degree change and a broader psych change. The drop broke below the lower trendline of the recent rise (D wave in the triangle), so that is over; and also went below the a wave of the D, meaning the odds are low that this is a wave 2 of an impulse up. Indeed, they also think the triangle is lower odds, since it is losing the "look" of a triangle. That remains to be seen. But the bigger news is the sharp drop may indicate the market is losing faith in the Fed to control events. If so, the market may melt down before we have the last Surge.

The Market Can Also Be Predictable

This is so expected as to be sad. Every time the market rises into a Fed announcement, then falls. Sometimes falls like it just did. The triangle seems to still be on. Now, this sharp drop could instead be the beginning of a 3d wave. The recent drop off Oct11 being a wave 1, and the rebound until a few minutes ago a wave 2. We would have to go below the August intraday level to confirm that (Dow12.5k). Sy Harding is watching when the seasonal uplift (Nov to May) will begin. It might have begun a few weeks ago when we bottomed around Dow 12.7k. I will watch his reports for the signal - MACD going positive. Sy's view would be consistent with the triangle, as it should not fall below 12.7k, and may end much higher (38% retrace). But right now with two views, one very negative, wait for the signal. I still expect this wave E (if it is a triangle) to meander into early January. In the meantime, take a look at the comments in the prior post. A very good debate on trade policy, China and similar issues.