Bernanke Will Need to "Uncreate" Money
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Your Daily Profit

 

June 18, 2009

 

*****Uncreating Money

*****New Buy Signal?

*****TradeMaster: Buying for a Bounce

 

Fellow Investor,

 

10 banks have paid back $68 billion in TARP loans. Including some smaller banks that have already repaid loans, the total is now over $70 billion. Even though the repaid money was raised from secondary stock offerings, which dilute shareholder value, it’s still something of a positive sign, I suppose.

 

Now, what’s going to happen to the money? Will it sit in the TARP fund? Will it be used to back other loans to small businesses?

 

This is an inflation issue. The money supply has increased by around $1 trillion in the last year (much of the bailout “funds” have been loan and asset guarantees that haven’t increased the money supply, yet). It’s the Fed’s job to contract the money supply to keep price inflation in check.

 

This is the problem with creating money – you have to be willing to “uncreate” it at some point. With unemployment as high as it is, inflation is not yet a concern. But that will change eventually, and the Fed will have to have the resolve to contract the money supply when the economy starts showing signs of life.

 

As we’ve seen in the past, an economy that gets hooked on liquidity is very hard to wean. I personally have my doubts as to whether this Fed will be able to avoid the Greenspan legacy of allowing asset bubbles to form. So we want to be ready to profit form whatever asset bubbles arise in the future.

 

This is one of the topics we’ll be discussing in next Wednesday’s Video Conference. It’s titled Inflation Busters: Discover the Stocks

to Grow and Protect Your Wealth and will air on Wednesday, June 24 at 6:00 P.M. It’s free to attend, you can sign up HERE

 

*****Stocks are trying to put an end to the sell-off that started with Monday’s big decline. The S&P 500 is within a few points of its 200-day moving average. It’s also less than 20 points from its 50-day moving average.

 

One of the simplest trend following systems focuses on the crossover of the 50-day and 200-day MA. When the 50-day MA crosses above the 200-day MA, it signals a trend change from bear to bull. When the 50-day MA falls below the 200-day MA, it signals a change from bull to bear.

 

So, the current trading is very significant to technical traders. The S&P 500 is flirting with a major buy signal. It should be noted that the Nasdaq flashed the moving average crossover buy signal a few days ago. I would view the moving average crossover on the S&P to be confirmation of the Nasdaq signal.

 

*****Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, isn’t waiting. He’s expecting a strong bounce and recommended 3 upside positions to his readers yesterday. One of them, the Direxion Technology Bull (NYSE:TYH), is a leveraged ETF that seeks triple the daily gains on the Russell 1000 Technology Index. That trade finished the day with a 3% gain.

 

Don’t forget the new Daily Profit feature – Jason will give us another video chart analysis session tomorrow. In last Friday’s edition he pretty much nailed this week’s trading so I can’t wait to see what he has to say about next week.

  

*****I’m itching to recommend a new stock to Daily Profit readers. We did pretty well with Graham Corp (AMEX:GHM) and Hovnanian (NYSE:HOV) earlier in this rally. 

 

I can’t say I feel comfortable recommending Molecular Insight Pharmaceutical (Nasdaq:MIPI), but the story that came out yesterday is pretty darned interesting. The biotech announced that it can both detect and treat prostate cancer with its imaging agent, Trofex. And instead of the usual 5 tests including MRI and ultrasound, Molecular Insight can collect the necessary data for diagnosis within 2 hours of the Trofex injection.

 

The stock was up 42% to $6.24 yesterday. Of course, like most small biotechs, Molecular Insight is burning through cash like a teenager at the mall. But if this technology is viable, the stock will go a lot higher than $6.24.

 

Just thought you’d like to know…

 

*****As always, please write and share your thoughts and comments: [email protected]. I’ll talk to you tomorrow.

 

 

Ian Wyatt

Editor

Daily Profit

 

P.S. Late yesterday I got a few emails from readers regarding alternative energy stocks. Specifically, they wanted to know if it’s time to get in. Absolutely. These stocks took off during last year’s oil run-up then got beat down in the crash. They’re moving again with oil’s ascent from its lows earlier this year. To find out more and get my alternative energy recommendations just click HERE or visit pro.SmallCapInvestor.com.





Posted 06-18-2009 10:49 AM by Ian Wyatt
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