wpeC.jpg (1913 bytes)        Tiger Software   -  Bill's Blog   9/27/2007      --  The Fed and The Stock Market  --
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     Tiger Software

Fed Keeps Injecting
    Billions into Market
    Despite Dollar's Weakness

Stocks To Buy When Fed Inflates  

              CARTOONS to CRY BY..

   William Schmidt,   - Tiger Software's Creator
   (C) 2007 William Schmidt, Ph. D.  - All Rights Reserved. 

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Fed Keeps Injecting Billions into Market      wpeC.jpg (5441 bytes)           STOCKS to Buy When Fed INFLATES

                    Econ text books tell us that the Fed, from time to time, typically buys billions of dollars worth
              of securities from major banks, pumping extra cash into the banking system, which the banks are
              obliged to repurchase at a later date.   But which they can then loan out, if they wish, so long as
              they meet their own reserve requirements.. Supposedly, the Fed does injects money in this way
              when an economic slow-down threatens.  It reverses this operations when it considers inflation
              is too great a risk. 

                   Now we have a situation when Oil is running to new highs, foreigners are starting to sell US
              Treasury securities on balance and Gold is rising, because it is trusted more than the Dollar.  
              Most text books would say these are signs of inflation.
  Yet the Fed is hewing an expansionary
              monetary policy,  the exact opposite of what ECON text books might suggest is a normal
              course of action.   It is doing this, at great risk to those on fixed incomes, to save bankers
              and brokerages from the consequences of their lax loan policies of the last few years. 
              are easy to find.  Think back just two years ago when you could buy a house or a condo for NO
              MONEY DOWN!    This was a shell game.  It was reminiscent of the 10% margin requirements that
              produced the 1929 Crash and the Great Depression.

                    Things are not what they seem.  Article I, Section 8, Clause 5, of the United States Constitution provides
             that Congress shall have the power to coin money and regulate the value thereof and of any foreign coins.
             But that is not the case. The Federal Reserve Act of  1913 has given that power to a semi-private corporation,
             registered in the State of Delaware - the Federal Reserve Bank.  At the time of its creation, the Federal
             Reserve started printing a new currency, Federal Reserve notes, which were backed by gold. Now it is
             only "good faith" which backs the greenbacks.

                   In 1936,  Congress became concerned and a bill was initiated to "to abolish the practice of creating bank
             deposits by private groups upon fractional reserves".  The Congress wanted to withdraw from the banks the
             right to issue credit on fractional reserves, and leave the banks the right to issue credit on account of actual
             deposits,   which means that permanent money will be loaned not bank manufactured money. Money could not be
             created out of nothing.  The law was not passed.  It was too much an affront to entrenched banking
             interests.   It is said that JFK wanted to end the whole Federal Reserve system.  Kennedy recognized before
             he was slain - the original deal in 1913 creating the Federal Reserve Bank had a simple back-out clause.
             The bank investors loaned the United States Government $1 billion to create its charter. The back-out clause
             still exists for the United States to buy out the system for that $1 billion. (See: http://sonic.net/sentinel/naij2.html )

                    True to his word, Fed Chairman Ben "Helicopter"<1>  Bernanke has been busy printing money
            and increasing the money supply.  Beginning August 9, the Fed aggressively used repos to add new
            reserves.  Until today, the zenith of these operations  was the week of August 9-15.  The new
            number is $38 billion!   Clearly they are worried about a run on the banks!  Banks have loaned
            too much money that is not being paid back!

        Since August 8th, the Fed has injected some 200 billion dollars into the financial system.  The
            distressed US mortgage market is just the tip of the ice berg, I suggest.  American consumers are tapped
            out.  The Fed typically tries to prevent a bear market until the next President takes office, especially if
            it he belongs to a party other than the political party which appointed him.  See my lengthy study of
            the politics behinds Fed Discount rate changes between 1955 and 2007.


                    wpe11.jpg (22657 bytes) 
          Source: )


  September 27  -  The Federal Reserve added 38 billion dollars in temporary reserves to the US money markets
                             Thursday in four separate operations to ease tight credit conditions.

  September 9      The Fed added $5 billion of temporary reserves to the banking system through 2-day
                            repurchase agreements.

  September 6      Fed injects 31.25 billion dollars into markets.    The Federal Reserve added 31.25 billion
                           dollars in temporary reserves to the US money markets Thursday in three different
                           operations, the latest move to keep credit markets from drying up.  The New York Fed
                           added 7.0 billion dollars in 14-day repurchase agreements, 16 billion in seven-day
                           repurchase agreements and 8.25 billion in one-day repos.

  August 27          Federal Reserve Bends the Rules for Citibank and Bank of America
                           One of the central tenets of banking regulation is that banks with federally insured
                           deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades
                           financial institutions were legally required to keep the two units completely separate.

                           "In a clear sign that the credit crunch is still affecting the nation’s largest financial
                           institutions, the Federal Reserve agreed this week to bend key banking regulations
                           to help out Citigroup and Bank of America."    The regulations in question effectively
                           limit a bank’s funding exposure to an affiliate to 10% of the bank’s capital. But the
                           Fed has allowed Citibank and Bank of America to blow through that level. Citigroup
                           and Bank of America are able to lend up to $25 billion apiece under this exemption,
                           according to the Fed. If Citibank used the full amount, “that represents about 30%
                           of Citibank’s total regulatory capital, which is no small exemption,” says Charlie
                           Peabody, banks analyst at Portales Partners.
                           (Source: www.crooksandliars.com/2007/08/27/federal-reserve-bends-the-rules-for-citibank-and-bank-of-america/ )

    August 11        "The Federal Reserve injected $38 billion into the system in three increments Friday, its
                          biggest one-day infusion since September 2001. The Fed sought to reassure investors by
                          releasing a statement before financial markets opened, saying it would provide as much
                          extra money as needed to hold its benchmark overnight interest rate at about 5.25 percent"
                          (Source: http://www.washingtonpost.com/wp-dyn/content/article/2007/08/10/AR2007081000689.html )

   <1>   Bernanke wrote that he would have dropped greenbacks from an airplane in the millions in the
             early 1930's, rather than follow the tight monetary policies of the times that he blames for lengthening and,
             possibly, even starting the Great Depression.

                                                              WHAT TO DO WHEN
                                           FED INFLATES US DOLLAR?

                           Tiger makes it easy to trade this market in these circumstances.   We know the Fed's
                  printing money debases the dollar.  So we are long those vehicles and stocks that rise in an era of
                  a sliding dollar.  International American companies like those in the DJI do well because so much
                  of their earnings comes from overseas.  And in the DJI-30 group, we always buy the highest
                  Accumulation    stocks.  Now those are XOM and MCD.  Both are at their highs.    Next we
                  buy gold.  That is at its  highs.  We buy oil.  Oil stocks and Gold stocks are making new highs
                  together.   Lastly we buy foreign ETFs, especially China and foreign telecomms.  These groups
                  of stocks are the best...

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                                   OUR CURRENT BUY LIST  (Charts are shown below)
                                                XOM and MCD in DJI-30
                                                 Gold and GOLD Stocks - XAU is up 25% in last month!
                                                 Crude Oil and strongest high Accumulation Oil Stocks
                                                 CHN (China Fund), LVS  (Las Vegas Sands - Macao casino is big.)
                                                 Foreign ETFs
                                                 Foreign Telecomms

             Declining Dollar and Rising Oil

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        XOM - Exxon - Oil and High Accumulation DJI-30 stock

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       MCD - McDonald's  - High Accumulation DJI-30 Stock

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          Crude Oil is at all-time high.

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         Oil and Oil Services - High Accumulation - WFT
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    Oil and Oil Services - High Accumulation - CAM

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     Look at RIO, too.
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      CHN - China Fund

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     LVS - Las Vegas Sands

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    Tiger Index of Foreign ETFs

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    Foreign Telecoms - IXP SP Global Telecomm

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                              Does Anyone Care about Those on Fixed Incomes?

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                         Editor's Note: Caption should say, I hope you paid in $dollars and not $EUROs.
                                                                         FALL IS HERE
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