Carry Trade Has Created Asset Bubbles
But the Fed's vice-chairman Donald Kohn disagrees.
The Fed's Vice-Chair Donald Kohn Sees No Asset Bubbles
I say, take off the rose-colored glasses and get a Seeing Eye dog. Look at the charts for gold, copper, equities, and for the Dollar Index.
For the Dollar Index, there's a potential weekly key reversal. The dollar reached a new low for the move on Monday at 74.75. A close this week above last week's high of 75.88 defines a weekly key reversal. A weekly key reversal followed by two weeks of higher closes confirms a dollar bottom.
Source: Thomson Reuters
Don't listen to Donald Kohn, as he wants to induce investors into riskier and longer-term assets to lower the cost and increase available capital to households and small businesses. He wants to encourage spending when consumers on Main Street want to reduce debt and increase savings.
I agree with Donald Kohn when he says that the labor markets are continuing to weaken, and because that's the case, the recession that began at the end of 2007 hasn't yet ended.
Kohn says that the Federal Reserve's challenge in tackling asset bubbles is the timing, and central banks need to spot those threats early. Well, Mr. Kohn, the warning bells are ringing this week!
TARP Money Was Given to Problem Banks
Remember when the US Treasury was giving TARP money to any bank that asked for it. As this was happening, I raised repeated concerns that they were allocating taxpayer dollars to banks that would likely fail anyway. We now have two categories of deadbeat banks: The 33 banks that reneged on TARP Dividend Payments in May and/or August, and those that have actually failed.
Pacific Coast National Bank (PCST), a failure from last Friday, was a recipient of $4.1 million in TARP bucks. A week earlier, United Commercial Bank, publicly traded as UCBH Holdings Inc. (UCBH), received $298.7 million in TARP money. It paid a $7.5 million dividend in May, but didn't make the payment due in August.
As TARP money was spread like manure, I said that banks overexposed to C&D and CRE loans weren't suitable investments for taxpayers. I also warned that private banks weren't suitable taxpayer investments, as a US citizen couldn't invest in these banks if they wanted to.
Builder Confidence Remains Pessimistic
The National Association of Home Builders Housing Market Index didn't budge in November with a subdued reading of 17. October's reading was revised to 17 from 18. A neutral reading is 50, so our nation's home builders remain pessimistic.
Builders continue to face the same headwinds -- obtaining credit for new home construction and achieving appropriate appraisals. Community banks are reluctant to lend faced with increasing bad C&D and CRE loans. Home appraisals are adversely affected by foreclosure sales and short sales.
One-third of home builders have indicated that they have lost sales because of home appraisals that were deemed too low.
The Dow Jones Industrial Average traded to 10,438 on Tuesday versus Ascending Wedge resistance at 10,458 on the weekly chart. The down trend that goes back to October 2007 is 10,675.
Source: Thomson Reuters
If this trend breaks, the carry trade would have successfully ended the multi-year bear market replacing the environment with a random and wide trading range market. That range is 6550 to 11,500.
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That's today's Four in Four. Have a great day.
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