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November 16, 2005

Figuring out the trader's conundrum, Wed, Nov. 16, 2005, 8:35 AM

A Bloomberg interview with Charles Biderman of TrimTabs Investment Research a couple moments ago served to focus the trader's conundrum. Hear me out on this one because what I am about to say is a little controversial.

The Administration in Washington knows there is a fiscal emergency in the country. The article in USA Today is proof of that.

So to begin the third quarter, this Administration, based on a plan devised by Secretary of the Treasury, John Snow, has decided to undertake a massive reflation. At the same time, the Federal Reserve Bank, soon to be put under the charge of President Bush's Chairman of Economic Advisors (CEA) Ben Bernanke, has been told to try to talk down inflation, and to send out signals that the tightening will soon end.

The proof of reflation exists for anybody to see in the M3 money supply numbers. I reported on this earlier in the week.

The signals that there would soon be a let up on the constant Fed rate increases was duly noted by the world's biggest bond trader PIMCO's Bill Gross. I referred to this situation a couple times in mid-October, once in a headline article.

Today, Charles Biderman put the chances of a rally in the U.S. equity market at 80 per cent" citing two factors: (i) the incredible share buy-backs by Corporate America, which I have written about, and (ii) the incredible increase in tax payments being received by Washington this year, which he claims is a sign that the U.S. economy is surging".

Biderman pointed out that Citigroup has bought back about $5.5 billion of its stock in the third quarter alone, which he acknowledged as being stunning. I have written about that too. In fact, I have linked that phenomenon directly to the reflation, which has put multi-billions into the hands of bankers.

Here is the problem: (i) share buybacks increase the Earnings Per Share of a corporation, which gives the perception the corporation is doing better than it is, and (ii) the extra taxes are based on price-inflated transactions, not on unit growth in the U.S. economy. I have written about these points as well.

CPI was just reported as being up +0.2 pct for both headline and core numbers. The reported figure (i) is greater than anticipated, and (ii) hardly representative of true inflation.

The judge on all this, which I sum up as a process of deceit of the highest order, is gold. Gold (Dec-05) is now up on the day +$6.00 to $475.00.

There is a crisis afoot, and it is just now being figured out.

Be wary of Talking Heads. The answer is in the data.

Posted by Posted by Bill Cara on November 16, 2005 08:34:46 AM | Category: Cara Today in the Market

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