Tempatations....Temptations.....the beauty of FIAT money (Macro May 13th 2010)

It's very tempting to join the fans of FIAT-money creation and go long the stock markets, but fortunately I have a few rules which keeps me from doing it:

• The extremely simple moving average model (as shown yesterday) called our Beta-model, as it is designed to tell us when to be long (or short) on strong trends.
• Analysis of money-flow into big assets classes: Gold, Bonds and Stocks. Todays three charts looks at this and find that somewhat surprising big inflow into bonds- and gold, while the move higher in stocks since April has been without "real money" buying.
• The risk indicators: USDJPY & EURCHF (as shown in Tweets yesterday EURCHF chart
• General news picture and macro assesment as per our Weekly Investment Outlook.

This week has been interesting in the sense that despite everyone 'intellectually' agreeing this plan failed to do anything about structure- and competitiveness in Southern Europe, they love the fact they now got free state guaranteed money for longer - Yesterday was a turning point in the research I receive from major banks of the G-20 - EVERYONE and I mean everyone embracing the FIAT money creation and to no big surprise either. Their livelihood is now 100% dictated by the whimps of central bankers and politicians. Long live the easy money, long live the FIAT regimes - their only issue being:

• EURCHF at all-time low - even lower than in 2009 on the low point in S&P
• GOLD at all-time high.... and it is very important to remember Gold is the only currency you can't manipulate and hence the real money of the world is flowing that way. Gold,EURCHF (plus USDPY) are the true STATE-OF-THE-WORLD indicators - as shown in the chart attached S&P goes up without ANY real buying- it is back to the algo-trading manipulation of the FIAT-banks buying programs.

Botttom line:

This could go on for another 24 hours or 24 days, but the gravity of the above observations is not to be neglected at least in my experience.

After having been short up to Friday- square over week-end I am now more or less back to same Gamma-short position in Equity and Gold, the only thing missing is a true conviction FX deal, but JPY strength is tempting for old macro guy like me.

Winston