Financial Sense Blog

The Federal Reserve is not only the most profitable company in the world, it is now the largest in terms of earnings. How did society get so dumb to let this happen?

Thanks to the St. Louis Fed's economic research unit, we have various data, graphs and information published from daily to monthly, depending upon the data being displayed. By perusing this data farm one can get a fair (perhaps not good - but fair) idea of the actual actions of the Federal Reserve which, in all cases, is far better than relying on what the Federal Reserve Chairman says. The two rarely match.

Markets in Europe and the U.S. that seemed to top out in mid-February, plunged further in almost panic-like selling in reaction to the disaster in Japan. That had them extremely oversold short-term beneath their 50-day moving averages, primed for at least a short-term oversold rally. Where do they stand now?

Bull markets are said to “climb a wall of worry”, which speaks to the contrarian role of investor sentiment relative to stock prices. The news continues to provide reasons to be concerned, and yet the market has gained 5.2% since making an intraday low of 1,249 on March 16.

While there are currently a number of bullish developments propelling the market forward, leading economic indicators are beginning to diverge and wave a red flag. New 52-week highs among individual stocks are growing fewer in number, showing that a topping process may be taking place.

The Investment Company Institute has reported a $1.3 billion outflow from domestic equity funds last week. The new buzzword for investors is de-risking. As the situation in Japan goes from bad to worse, it may be wise not to make some automatic assumptions about a quick recovery. This is a time to exercise extreme caution.

As a practical matter there is always the potential for a market crash, but the causes and magnitude will be different. For example, the Flash Crash and the 1987 Crash, were, in my opinion, caused primarily by structural weaknesses in the exchange trading systems.

The continuing political upheaval in North Africa and the Middle East along with the epic disasters in Japan are sowing chaos and confusion throughout the business world. In this week’s newsletter, we will examine just how all this is playing out.

As traders reached for some caffeinated assistance in perusing the early morning headlines on Thursday, they probably were thinking that it might be best to play the game from the short side.

An interesting item appeared in Business Insider on 22 March. The headline reads: "CAUGHT ON TAPE: Former SEIU Official Reveals Secret Plan to Destroy JP Morgan, Crash the Stock Market, And Redistribute Wealth in America." From the article you can access an audio recording of a revolutionary organizer and rabble-rouser discussing various plans in a closed meeting at Pace University.