Daily Pfennig 8/12/2009

http://www.dailypfennig.com/

"...What happens if this great run that stocks have been on since March, suddenly ends? What happens if smart people begin to take profits, and that leads to more selling, and before you know it, things are looking bleak for stocks again? Well... I doubt anyone knows... But... We can look back to last fall's huge reversal of stocks for an indication... And I don't like that indication!

As you know, I've chronicled over and over again, how stocks and currencies have been connected at the hip for some time now... This is contrary to the historical trading pattern of these two risk assets. Currencies have different pricing mechanisms than stocks, and have a low correlation to stocks... But... The markets have put stocks and currencies and even commodities in a bucket labeled "risk assets"... And all that historical trading has been shoved under the bed for now..."

"...most important thing they can do in their investment portfolios is to diversify, and to add the asset classes of currencies and metals to their portfolios. I ask them... You wouldn't own just one stock would you? Then why own just one currency? Diversification, gives you a hedge against the potential drop in the dollar, which most people truly believe will happen eventually, but with short periods of dollar strength mixed in.

So, if one is "truly diversified" they don't panic when the short periods of dollar strength occur... In fact, over the years, I've seen, what I consider to be really intelligent investors, use the short periods of dollar strength as an opportunity to add to their positions at cheaper prices...

I told the crowd in Vancouver... Markets always do what their supposed to do -- just not when…

So, the dollar may have second winds here and there, and for sometimes up to 5 months, but the idea to diversifying now is to take away the risk of the markets doing what their supposed to do… now! And the idea is that eventually, the Gov’t will get what they want (a cheaper dollar to use to pay back their debts), and you will be diversified! And you’ll be singing: Jimmy crack corn and I don’t care!..."

"...story on the Bloomie... "The dollar may weaken should the Federal Reserve unexpectedly say it will keep buying assets", UBS AG, said...

What UBS is referring to here is the Quantitative Easing (QE)... And they feel that the dollar would be taken to the woodshed if the Fed decides to implement more QE...

"...Chris Martenson (yes, my fat fingers on Monday typed Mortenson, UGH!) revealed the plan that the Primary Dealers and the Fed put in place for the last auction of 7-year Treasuries. The Primary Dealers bought the bonds that nobody else wanted, and then a couple of days later, the Fed bought 47% of the purchased bonds by the Primary Dealers!

If the Fed can affectively buy back from the Primary Dealers what the rest of the world didn't want, without announcing it to the world, why then, would they announce it? It's all a shell game folks... With the cartel, I mean, the Fed Reserve in control...

Speaking of the cartel, I mean the Fed Reserve... Their FOMC meets today...

I read where 71% of economists surveyed want the FOMC to announce in their statement today following the meeting, that the recession is over... WOW! Now, that would be right up the Fed's alley wouldn't it? I mean how wrong have the Fed and Treasury been about this financial crisis and resulting depression since the get-go? VERY WRONG! So... Go ahead FOMC, say the recession is over... It's my opinion, that they'll be eating those words in the future..."