Loading ...The US stock market was up pre market on unemployment data and the dollar falling 0.6%. Then, the GDP came out, inflation numbers and talks of Citi needing billions of additional capital started circulating the street. Suddenly, it was like all investors were reminded that not all is well with the economy and the unrealistic P/E ratios had to be looked at.
We been expecting a sell off for months now, but the market kept heading hire as the dollar kept heading lower. The difference is that this was what was in the best interest of the government and Fed to happen. Now, it’s obvious that they cannot keep deflating the dollar and printing money to support the equity market without causing damage to the balance of the US economy.
Being cynical, we firmly believe that the stock market is not a free market but quite manipulated by the major players. Goldman Sachs, Fed, Government policies and other big players DO work together to assure a stable financial market. So the question is, what will they do next? One, they can let Citi fail, cause a panic in equities and let it have the correction it needs. The benefit would be interest rates could be kept low (helping housing data) and the dollar would strengthen. Both of those are needed at this time. Or, they can rescue Citi, keep devaluating the dollar and support the equity market. The harm of this would be that interest rates will creep up and the dollar would fall further.
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