. . . we have no idea what’s going on:
Its now official . . .
April 27, 2006 9:00am by Barry Ritholtz
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Earnings and Subsequent Market Performance
Hurray. Another one and done (maybe) rally.
Very, uh, “interesting” action in the markets this morning. Hard sell off followed by 100 pt rally. Who put in THAT little order? Can’t have Bernanke testifying when the Dow is off 200 I guess.
I have watched these Fed/Congressional tete-a-tetes for a long time. The interaction this morning between Ron Paul and Bernanke was the most worthwhile discussion I have ever witnessed. Paul seems to be the only person on the committee to understand economics, the action of the Fed and open markets. And Bernanke responded with extremely open and honest answers to some very straight questions.
Amongst other insightful comments:
-Gold is something Bernanke watches every day……….with comments of why and his interpretation of gold’s action today.
-The CPI is not indicative of real inflation………..and he doesn’t use the CPI to set policy
Ben Bernanke is so much better than Greenspan. He’s honest, very insightful, extremely smart, forthright and nonpartisan across the board. I just fear Alan has left a big turd under Bernanke’s Christmas tree.
Yeah, B. Ron Paul is one of the very few congress critters that I respect. He gave a speech a couple of months ago on dollar hegemony that was the best thing to come out of congress this session. And outside a few libertarian and/or goldbug websites, it got ZERO press.
Kinda shows you what sort of clownshow the press is these days.
For the second time in two weeks, I thought, if we can get a down close I’ll bu today. And, for the second time in two weeks, we got a down open followed by an explosive rally.
But this time, the statistics are dreadful. Advancers are ahead of decliners by only 200 on the Naz, volume is awful, the new highs are at 3%, and it makes me wonder if May won’t be the mirror image of May 05: specifically, a top followed by unrelenting selling through the summer.
and then the question becomes will he stop tightening with the dollar falling apart? the dollar will continue to test Bernanke and could put upward pressure on the yield curve like it did today.
You know this market action is giving me a migraine. Even the breadth in the Naz on the November rally sucked comparatively. Yeah the market is making new highs but it’s more of grasping at the same stocks we just keep pushing around. Oh, except today they read Bill Miller says to dump commodities yesterday and buy banks so they are pushing banks which are already overvalued based on their dividend yields. I just wish someone would throw in the towel. I don’t give a sh*t if the market goes up or goes down just GO and do it with enough force to start a sustainable move in either direction.
How about this scenario vf? Every Tom, Dick and Harry thinks the dollar is headed for a crisis because America is doomed. Regardless of whether our interest rates are still higher than the rest of the world, the dollar is going to zero.
Instead, commodities reverse and strength in the dollar starts to accumulate as the rest of the world finally realizes their are huge risks to emerging markets right now. So, instead of heading where the sentiment is overly bearish, the dollar reverses and starts to head north. A possiblity? Definitely not the mainstream perspective.
B,
I like your scenario short term, but I think long term America is in deep shit. And I don’t think every Tom, Dick and Harry thinks we are headed for a crisis. In fact, I’d wager that nearly all of the public and a sizeable majority of the investment world aren’t really worried about any long term weakness in the dollar.
We normally have relative seasonal strength in USD from May-late July anyway. I can easily see a rally in USD until mid summer.
and one positive for the dollar could be a reversal of the savings rate and a deflationary credit bubble correction.. those who truly have the liquidity will have huge purchasing power when the market corrects v those who will still be paying off their upside down home equity loan. a lot of dollar bears out there but there are also still a lot of dollars out there.
but it will be hard for the dollar to rally if the FX market doesn’t think Bernanke has taken enough liquidity out of the system.. the commodity rallies and recent collapse in credit spreads suggest that there is still work to do…
Interesting comments from all. Obviously it’s just an exercise in futility on our part. I must say that sentiment as I am defining it in the dollar is really defined by those who trade it. One of the long bond sentiment indicators I follow is very negative right now. Does that mean rates are done rising appreciably? That’s a little odd because I anticipated rates would peak at 6% or so. So, for argument’s sake, if rates are close to peaking on the long end, what does that say for the commodity rally? That it is a bubble and rates aren’t moving higher because they know inflationary pressures will abate meaning commodities are peaking? And because bond traders already know an earnings recession or worse is coming later this year?
In any event, it is hard to see equity valuations rising much regardless of what the economy does. I just don’t see how we can start anything appreciable without a reset.
Btw, can anyone answer a question for me? We are seeing this global economic boom through the entire supply chain. The end of the supply chain for the entire global expansion ends with the American consumer. With China, India, Europe, Japan, Korea, Vietnam, Cambodia, Taiwan and Thailand all expecting to provide the US with finished goods (In addition to American companies) and Brazil, Russia, Australia, Canada, Mexico, Malaysia and Indonesia providing the raw materials to all of those countries to make their finished goods, is there some slight chance someone along the line is overbuilding capacity? Throw in the global real estate froth. Any deflationary pressures there? Any chance that is why long rates might stay low? Any chance we can’t buy all of the sh*t from every freaking country gunning to supply us? What happens if that is the case? Are their consumers going to start spending? NOT! What would happen to the dollar in that scenario? You want to own the Yuan, Yen or Euro in lieu of the dollar then? You think oil will go to $100 in that environment? I smell a mess at some point unless other countries start stimulating their own consumers to spend.
Is It Different This Time?
A well proven leading indicator for economic disaster is when people begin to proclaim Its Different This Time as a way of explaining how a short term movement becomes a long-term trend. Dig up your memories (and your forecasts) of…
B Said:
“world finally realizes their are huge risks to emerging markets right now”
Everyone says this. But what risks are you refering to here? Certanly political risk. But things have changed in the last decade and the global economy is more intertwined than before. Do you think these risks have abated? The govts realize they cannot mess up. They will nevre be in power if they do.
But the really big story is the war budget and that it is being funded entirely with IOUs…
It is colossal enough that it will sustain demand no matter what.
Speaking of “its different this time”, of course its always different, and always the same. This lesson cuts two ways, though. Long term America is deep shit, in the sense that Rome or England at the peak of their power were “in deep shit”, or in the sense that long term we are all dead. I guess the question here is what is going to happen in the next 12 months? Along those lines I would just ask for testimonials from those who have spent the last 12 on the sidelines sporting tin foil hats. Regarding both overly sanguine and overyly gloomy projections, its probably not really different this time.