The analytical work that I do for you deals with issues that may be at times complex, or may be difficult to grasp at first. That is simply because the mainstream media either doesn't cover them, or covers them in a way that is misleading. They are presenting the views of Wall Street, and Wall Street's goal is always to separate you from your money. So they either feed you a lot of meaningless stories or they outright mislead you, in order to get your money under their control. Once they do that, their skim begins.
Well, I want to help you understand enough about how the market really works so that you can manage your own investments successfully and with a minimal investment of your own time. I'll do the heavy lifting for you and present critical information that will enable you to surely make your own decisions about managing your own money, or at least to ride herd over the people who do so that they don't squander it.
With those goals in mind, today I'm beginning a new feature at Sure Money. I hope that it is one that you will enjoy and will help you better understand the things you really need to know to first protect your capital, and second, to make it grow.
Starting today, I will respond to your comments and questions posted on Sure Money and Money Morning. Those comments, questions (and criticisms) help me get my message to you in a way that's clear and understandable. Your feedback tells me where I'm succeeding and where I'm missing the boat. It helps me to be the best communicator I can be in helping to reach your investment goals.
The comments section on the website is open right now, so I hope you'll ask me any questions I didn't cover here. Fire away and you'll likely see your name in an upcoming issue!
Here's what you wanted to know...
Mike Bailey | Oct. 14, 2017: I am curious what will happen to the money that is withdrawn from the system. It was "created" i.e. printed, so will it be destroyed?
Lee: Hi Mike, this is a great question! I have been reporting that the Fed begins draining money from the system this month (October 2017). The Fed is starting small at $10 billion a month and will gradually increase that to $50 billion over the next 12 months.
The answer is a resounding YES. The Fed printed that money, and now it will go to money heaven.
For example: The Fed holds Treasury notes as assets. Normally when the notes mature, the Fed merely extends the credit by buying an amount of new notes from the Treasury equal to the amount maturing. We call that rolling over the paper. But now the Fed will allow some of it to mature and will not roll it over. It will tell the Treasury, "Sorry, I want my money back now!"
The Treasury will raise the cash to pay back the Fed by selling new debt to the public. Whoever buys the new paper will make a withdrawal from their bank in the form of a check to the U.S. Treasury. That cash thus leaves the banking system to go into the U.S. Treasury account, which the Treasury holds at the Fed.
Normally, when the Treasury sells new notes and bonds and bills every week, the money it raises goes into that account at the Fed. But then it goes right back into the banking system when the Fed spends the money in its normal spending.
But not in this case. When the Fed demands repayment of a Treasury Note that it holds, the Treasury then pays that money back to the Fed. Both the note as an asset on the Fed's books and the Treasury's deposit at the Fed disappear from the books.
Remember, that money was in someone's bank account a few days before. Now it's gone. Poof! It will no longer exist in the banking system as part of the vast pool of money that feeds the financial markets
fallingman | Sept. 27, 2017: Would you call your associate, David Stockman, a permabear? Do you think his analysis of Amazon is wrong ... or simply his strategy regarding the stock?
Lee: Hi Fallingman. I worked with Mr. Stockman for four years. I haven't always agreed with him, but he is a genius and knows more about investing and the history of investing and its interplay with economics and government policy than I ever will. I always respect his analysis.
But I just don't do stock fundamentals. So I don't have an opinion on Amazon's fundamentals. Seems to me that Jeff Bezos long ago decided to forego profits with the idea of constantly investing in his business to grow this massive thing. I'm a customer. Most of us are.
But to me, it's irrelevant. I don't care about a company's fundamentals. I'm a technician, a trend follower, and a cyclical analyst, looking for potential turning points in the trends.
And Rule No. 2 of trading is eternal and immutable. "The trend is your friend," aka "don't fight the tape" when it comes to individual stocks. I learned these slogans from some very wise old traders 50 years ago when I was a kid. It took me years to realize that those old farts knew what they were talking about. But they did.
So I do not short stocks in uptrends. I do not short cult stocks. I especially do not short wildly popular acronyms like FANG stocks. They get those names because they are so popular. People buy them because they are popular, and they are popular because people buy them. Some day the party will end. But trying to pick that day isn't a productive use of your or my time.
If the bandwagon on any particular cult stock is going to end, I don't care if I miss the first round trip back. I have no interest in trying to short the high of stocks like that. Those highs usually don't last long. They get broken again and again.
No, I'm looking to short stocks that have demonstrated their weakness and that aren't likely to rally viciously first when they hit the 20-day moving average, then the 50-day, then the 200-day, etc. There are better ways to make money on the short side. Shorting monster stocks like AMZN is a great way to lose a lot of money fast.
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Ben Pickar | Sept. 26, 2017: Good article about the money supply. So I better understand the chart, what does LAMPP stand for... and looking back historically, how well does it correlate with the market indexes?
Douglas D Quine Oct. 3, 2017, at 3:13 p.m.: It would help me if you would say what LAMPP stands for. I have no clue what you are writing about.
Lee: Hi Ben and Douglas - I have tracked the Fed's impact on primary dealer accounts and the Treasury's supply impact on the markets separately for many years. Neither fully explained the stock market's moves. They both came close, but there were times when the market diverged from one or the other. I had been working on a way to combine the Fed and Treasury's impacts for a long time, tinkering with an algorithm that would accurately portray and forecast stock market moves.
The result was this indicator, named the LAMPP by my brilliant young editors here at Sure Money. The acronym stands for Liquidity and Monetary Policy for Profit. The object was to have a red light, green light system. Green is when it is safe to be in the market and red means that it's not safe. We are a hair away from turning red on the long-term LAMPP.
I have overlaid the graph of the SPX on the LAMPP chart so that you can see the correlation for yourself. It began to work when the Fed began to actively intervene directly in the financial markets when it caused the crash in 2007-08. You can read more about that here.
It's not a perfect indicator, but I believe that it represents the reality of what drives the markets in a macro sense. It helps me to establish the context in which I read the technical charts in my Wall Street Examiner Pro Trader Market Updates and Daily Trades (a service geared toward helping active traders).
And I hope that it helps you in making your own long-term investment and trading decisions. Because it measures the trend of systemic liquidity.
Liquidity is just another word for money in the banks that is available to be traded in the financial markets. Liquidity is the fuel for investment demand. If liquidity is growing as it was when the Fed was doing QE (printing money), then stock prices should rise. I forecast that soon after the Fed started QE in 2009. We saw that work quite well in practice.
Now that the Fed has set a course in the opposite direction, I expect the markets to eventually follow.
tom Sept. 9, 2017, at 7:57 a.m.: I feel the storm is brewing but when?
Lee: Hi Tom. Soon.
So stay right here every week and I'll keep you posted. In the meantime, keep selling and raising cash regularly. For those interested in short-term trading from the short side, I have some suggestions in the daily trades list updates in the Wall Street Examiner Pro Trader Market Update.
I'll have more questions and answers for you soon, so please, head on over to the comments section and ask away.
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About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.