Flash KISS

The decision by the central banks of the US, Canada, England, Japan, Switzerland and the European Union to allow more liquidity and access to US dollars, is just another step in a crawling QE 3. China has joined the party by dropping banking reserve requirements (another form of credit easing). Basically they are kicking the can down the road again in an attempt to create inflationary pressure as opposed to deflationary pressure. The difference this time, is that it is a concerted international QE 3, aimed at devaluing the USD.

I will say this again. The only way to avoid deflation (Recession) is to devalue the USD. This causes a rise in the prices of all USD denominated commodities. These rising prices create upwards pressure on
markets. Simply put, if inflation rises to say 6%p.a. and a bank deposit earns say 2%, immediately the investor will look for alternatives to hedge the loss. There are about two trillion of these dollars floating around looking for direction.

The markets, despite the news, remain rangebound for the time being. The following are KISS indicators

DOW: 12000 Trading range still in the 10-12200 area. A strong break above 12200 with higher than usual volume (todays average volume is about 5-6 billion shares) would be a green flag. A break below 10,000 would be a serious red flag.

USD INDEX: 78.30 and still in the 73-83 range. This indicator has to be closely watched. A break above 83 would indicate a rush for the financial bomb shelters.

DR COPPER: $3.56 and steady, indicating, at worst, a soft landing for economies.

GOLD: $1750 an ounce and steady above the 200 day moving average. This indicator appears to be stabilizing.

OIL: 100 bucks a barrel and reacting to dollar movements and some speculation (always seems to be some psychological forces at play in this commodity).

Thats it for now. A desperate attempt to keep world economies afloat. Lets hope it works. Don't forget, as always, to discuss your risk appetite with your advisors.

Regards

Harry

The KISS Letter