Fundamental Trading Diary

Fundamental analysis of the capital markets

Global Plunge Protection Team

At the beginning of this week, I opined that we are near the end of the bottoming process, but that we had some pain to face this week before we could move.  That pain showed itself yesterday with a punishing -5.27% day for the S&P 500.  Today, the global capital masters have decided to rein the pessimism with some massive rate cuts.  The prime rate in the UK dropped a staggering 1.5% to 3%.

Although the lending market has improved somewhat (but nowhere near as much as it should have with the trillions which have been pumped into the system at or near zero interest), the push for more and less expensive cash is becoming a lot like pushing on a string.  The global apetite for debt has cratered.

The result of these rate cuts — if they work, and the outcome if they don’t will not be pretty — is inflation.  The entire model of money supply intervention to manipulate the markets in order to avoid economic recession is insane.  Expanding the monetary base to this end does nothing but delay and exacerbate the inevitable.  This is all just a symptom of the macroeconomic divide which has been sucking wealth and production out of the West for the past 30 years from running consumer, trade and government budget deficits – all at the same time.  Neither candidate spent time on any of them.

Spot silver spiked to over $10.74.  With effective returns in every global currency negative while the supply rapidly expands, do you think it’ll stop there?

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November 6, 2008 - Posted by | Uncategorized

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