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Dollar robust, commodities bust as stocks take sickening Thursday plunge

Written By | Sep 25, 2014

WASHINGTON, September 25, 2014 – After a brief bull picnic yesterday, the bears have returned to town with a vengeance this morning as stocks are plummeting pretty much across the boards. A pictured above, famed inventor and trader Wile E. Coyote has already taken the honorable course many of his distraught predecessors took in 1929, though these unfortunates took their final leap from atop the eastern canyons of Manhattan, not the American Southwest.

Like super-genius Wile E., a few of the wealthy have begun to repent of their sins. Like, two of them, maybe. The rest could care less, as reflected on the TV parody environment otherwise known as financial news networks.

The carefully coiffed and blow-dried pundits and fat cats on CNBC and elsewhere blame this or that for September’s largely unabated and sickening plunge, blaming the Fed’s interest rate threats housing, unemployment, foreign anarchy and violence—you name it—for the market’s poor performance this month while neglecting to tell you they’ve been shorting like hell while they tell you to buy.

More likely, however, are two subtler virtual perps: commodity prices and the dollar-Euro trade, both of which seem to be rather interlocked.

The reasons behind Fed Chair Janet Yellen’s unwillingness to say exactly when the Fed might start pushing up interest rates is rather ironic. Aside from the fact that U.S. inflation is non-existent (except when you’re shopping for groceries), the price of virtually all commodities—ranging from gold and silver, to livestock and grains, to base metals primarily used in manufacturing—has been gurgling down the commode for the better part of 2014.

This is a clear indication that at least to some extent, either the fear or the actuality of deflation has re-appeared on the scene, indicating that the Fed’s longtime QE money-printing scheme has pretty much failed to inflate the economy as it was intended to do. Bummer. But we’ve been saying this for years.

All the Fed’s money printing has lacked the virtue of “velocity,” that is, the ability of money to ripple through economic sectors as its intrinsic value is multiplied each time it changes hands, thus bringing prosperity to more and more U.S. citizens.

Due in roughly equal amounts to idiotic Dodd-Frank regulations and outright greed, banks have been forced to sit on all those QE dollars, either collecting interest, trading in stocks and bonds for profit, and, not coincidentally, paying their top management teams ever-increasing salaries and bonuses for making the firms and their stockholders so much money.

No matter what they tell you, banks still are not lending to small businesses and would-be homeowners to any degree, at least by historical standards. So all this money effectively has zero velocity. The result: no real inflation (except for groceries), an ever-wealthier 1% (crony capitalists and their Democrat politicians/enablers), and a middle-class that’s vanishing vaster than the passenger pigeon ever did.

Add to this the ironic fact that Europe’s 1%—the Lords and Ladies of the Euro—have finally decided to inflate that ridiculously ineffective currency against the dollar. Despite partially successful Chinese and Russian machinations to dethrone the dollar from its world reserve currency status, the buck is still the international king, albeit a weakened monarch. Its strengthening here against the Euro and other international currencies is thus a big reason behind the down-pricing of commodities.

Hence, deflation, when we thought we were getting the weird kind of inflation that would increase at least the perception of returning prosperity. The smoke and mirrors only worked so long, and the markets’ current across the boards collapse here is an early warning sign that the game has just about concluded with roughly zero results.

The international thuggery and violence only adds to the fear and uncertainty that’s already been noted by market watchers like the Maven. The only people who have truly prospered under America’s horrendous 6+ year experience with Hugo Chavez-style socialism, the specialty of Obamanation, is that the wealthy have become even greater kings and Pooh-Bahs on the backs of an eviscerated middle class.

Check out this recent Morgan Stanley chart illustrating the number of low wage jobs generated in the U.S. when compared to other nations:

U.S. low wage job chart.

U.S. low wage job creation. Morgan Stanley chart via Liberty Blitzkreig.

The U.S. is a big place, of course, probably accounting for some of this. But the fact remains that this country used to be capable of creating jobs that carried along with them the kind of wage that would support middle-class prosperity. That’s not happening now, and millennials are increasingly facing the inevitable effects of rapidly creeping socialism.

When the middle class is effectively obliterated, America’s transformation into a banana republic ruled by sanctimonious and incredibly wealthy Democrats, will be complete. Worse, the country will begin to resemble a feudal monarchy of old, as nicely described by Mike Kriegher at Liberty Blitzkreig:

In an apparent attempt to advise investors on how they can take advantage of America’s transformation into a neo-feudal oligarchy in a 50-page research report, Morgan Stanley has put together some very interesting charts.. We will be sharing many of them in the next few days but none is more telling and depressing than the one that shows how the U.S. leads the developed world in the share of low wage jobs


As the middle-class has been destroyed, and the poor placated temporarily by various government benefits, the oligarchy has had free reign to thieve and expand its wealth at a dizzying pace. The Federal Reserve fueled stock market has been a key tool in the process of keeping the 1% silent…

U.S. policy is all about keeping the 99.9% quiet and distracted, while the oligarchs strip-mine the nation. Unfortunately, that strategy is working.

Depressing, isn’t it? National sentiment, alleged by the left-wing propaganda machines of Harry Reid and Barack Obama to be on the way up, is, in fact, a bit more complicated, as the following chart, again via Liberty Blitzkreig and Morgan Stanley, clearly illustrates, breaking down consumer confidence/sentiment vs. markets via our now increasingly stratified class structure which effectively eliminates the middle class and lumps them with the lower classes, which is where those remaining middle-class wage earners are heading. (Government employees excepted, of course):

Markets and consumer confidence by social class.

Markets and consumer confidence by social class. Morgan Stanley via Liberty Blitzkreig.


Mr. Market is somehow reflecting this mood today in its own way, perhaps starting to tilt toward consumer depression. With occasional respites, the current, sickening, corrective plunge will continue until either perception, reality, or both take a turn for the better, or until the hapless Republicans luck out and take the Senate in November—a possibility that the Soroses, Reids, and left-wing media propagandists are doing their best to discourage.

Today’s trading

We’re increasing our position again in the S&P 500 short ETF, SH, and considering the purchase of at least a limited number of shares in the much-riskier double short S&P 500 ETF, SDS.

We continue to pare back positions, sometimes at a loss. But on the other hand, as certain positions we favor for the long-term pull back by 5% or more, we’re cautiously doubling them, particularly if they pay a nice dividend. The market is actually short term oversold at this point, leaving it subject to the occasional nice bounce as we saw yesterday.

With increasing short positions being added during this lurching but nasty market plunge, the buying power will build for an eventual, powerful rally. It would be nice to catch the initial blastoff.

That said, we’re still not going overboard when we add to underwater but promising positions. The market can stay oversold for longer than we’d like, so there’s no reason to take more punishment than is absolutely necessary to have a front seat for the next rally.

We’ve passed on all new issues this week. Citizens Financial Group (CFG) actually had a nice pop in its opening trade yesterday, after marking down the initial offering price for its IPO. However, it’s slowing today, indicating that the underwriters may have engineered some of this pop, which, BTW, is perfectly legal during an IPO’s first month of trading, as some manipulation is generally necessary to establish a stable price floor.

Regarding other IPOs, it’s clear from the cautious way they’re being introduced—one, in fact, was postponed indefinitely last night—that the Alibaba (BABA) IPO sucked a lot of speculative capital out of the room. In this currently treacherous environment, IPO pricing will not be robust until some principal flows back into markets. So it’s best to be cautious on IPOs, near-term, until the atmosphere for the new stuff improves.

Hang in there, raise cash, hedge a bit, and wait for big commitments to the short or long side until the charts start behaving themselves again.

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17