The Hidden Hand
Research for Online Investors

by John Dalt

10/11/11

Belgium bought the consumer lending division of Dexia bank for $5.4 billion.  Wait a minute…didn’t Moody’s put Belgium on credit watch Friday?  I guess another $5.4 billion won’t matter.  Belgium, France and Luxembourg have agreed to guarantee up to $120 billion dollars in bank borrowing and bond sales for the next ten years.  Belgium’s share is 61%, guess another $73.2 billion doesn’t matter, even if it represents 15% of the country’s GDP.

Who are these guys?

We have seen heavy buying in the markets since last Tuesday.  Not the kind of buying from mom and pop.  These are big orders that light up my computer screen with green across the board.  I saw this on Thursday, and started questioning my premise that the market was ready to roll-over to set new lows.  I had discounted the late volume on Tuesday and Wednesday because we were just coming off a new 52-week low.  But the volume on Friday left no doubt in my mind.  The big boys are buying.

I explained it to a friend that is not in the market. New money flows into funds that manage IRA and 401k accounts because of the new quarter, but more importantly, we have hedge funds that were out of the market and they felt they got a tradable bottom.  When you have a billion dollars to put to work, you can’t buy it all in one day.  So you buy every day, in the last hour.  You buy whether the market is up or down, just buy.  Get into the market.  Of course, this is premised on the belief that the world economy is not going into a recession.  The smart money is telling us the fourth quarter will be better than the summer.

Are they right? We all have heard the predictions that the market was going to rally into the end of the year. But, it was hard to believe those anymore, after going through August and September. Now I wonder if the rally isn’t here, but by the end of the year the “big money” will be slowly pulling money back out of the market.

Be as it may, we have to play the hand that is delt us.  And the dealer is calling a higher market.  Here is a chart of the S&P 500.

We are looking for the S&P 500 to push as high as 1220 before succumbing to selling pressure.  Of course, we are still subject to headlines, but we see 1220 as possible before the Eurozone Summit or the “Super Committee” in Washington, D.C. blows up the market.

Perhaps the “big money” recognizes something we haven’t factored into the mix yet.  The eurozone is going to have to engage in Quantitative Easing.  The Bank of England announced $116 billion last Wednesday.  They are going to push it into the system by the end of the year.

We could get a trillion or two from the European Central Bank. It is already being discussed. Quantitative Easing is the result of “leveraging” the EFSF fund. They will use the EFSF balance sheet to borrow more money. Where will the ECB get the extra liquidity to loan the EFSF? Well…happy days are here again.

Quote:
It's clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that.--Professor Giacomo Vaciago of Milan's Catholic University

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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