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The Battle for Our Financial Future


Policymakers take aim at free-market capitalism.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Do you remember watching professional wrestling as a kid? There used to be steel cage matches that locked two behemoths in the squared circle - two men entered; one man left.

Such is the case in the modern-day financial markets. In one corner, global central banks have done - and seemingly will do - "whatever it takes" to stave off crisis. In the other, undeniable structural imbalances continue to build.

The battle continued this week as the Federal Reserve hinted at another round of stimulus while the European Central Bank signaled that it will partner with governments to buy sovereign bonds in an effort to reduce interest rates.

ECB President Mario Draghi opined that a "severe malfunctioning" in bond markets "needs to be addressed in a fundamental manner."

I've learned a few things over my 20 year career and one of them is that the markets are never wrong; price is the arbiter of variant views. Nobody is bigger than the markets; while they might be manipulated, free will can never be caged.

Today's root issues - too much debt, rampant under-employment, and underwater mortgages - are symptoms of the economic condition, not the causes of it. While policymakers may be well-intentioned, it's never wise to mess with Mother Nature.

One day, our grandchildren will study this era and ask what it was like to live through The Grand Experiment. We'll likely share the importance of perspective, the virtues of meritocracy, and the wisdom that capital preservation is the first step toward wealth accumulation.

Random Thoughts:
  • Do you see how important the $26-half level is for silver (SLV) through a technical lens?

Click to enlarge
  • Mark Dow, one of the sharper minds in the marketplace, flagged the short side of silver as his single best idea during the Minyanville Fireside Chat on July 18 (silver is trading at the same level now as it was then).
  • IF that plays out - and that's a big if - the implications for equities are meaningful, as highlighted in The Most Important Chart in the World.
  • There's no doubt that Apple (AAPL) will eventually split; it's been in its back-pocket for years. Be careful betting on invisible catalysts, however, as the timing remains elusive.
  • Facebook (FB) is trading at $20 and it's worth noting that $19 is a 50% retracement from the $38 IPO. I'm nibbling on some for a trade into that level, as discussed in real-time on our Buzz & Banter (click here for a free two-week trial!).
  • I spy a negative divergence! Check the chart below, which tracks the S&P vs. the transports (-2%).; history doesn't always repeat, but it often rhymes.

Click to enlarge
  • Do I think we will see QE3? Not before the election (the Bernanke put likely resides well below current levels given - but the wild-card resides overseas, and that's the bigger unknown.

Twitter: @todd_harrison

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