My friend Peter Bookvaar of Miller Tabak comments on the recent pop in stocks off of today’s low:
"Stocks have bounced on a rumor that the Fed all of a sudden is going to cut the discount rate. Anyone who spread that rumor should go to jail as there is NO WAY the Fed will do anything one week before their next meeting.
Secondly, the Fed uses the discount rate to unclog the financial markets. Right now, the financial markets are in much better shape than 2 months ago. LIBOR spreads are tighter, commercial paper rates are down and swap spreads have come in alot. The economy and the housing/mortgage mkt on the other hand has its own issues which the Fed is trying to address with the fed funds.
Lastly, the discount rate only 50 bps above the fed funds is barely being used anyway."
Barry,
The Fed?? I thought Cramer set interest rate policy.
It’s probably the same dude who started the rumor about Buffett buying into Countrywide!
The few times I’ve decided to short sell I get hammered by fed rumors. I’m gonna stop playing.
Clearly, the problem is now behind us. All the losses associated with defaulting mortgages, poorly performing MBS, and murky CDOs have been announced and accounted for.
It is crystal clear smooth sailing from here on.
Thanks for the post, I was wondering what happend ~2:00. If it really was this rumor stocks should fall back when things are hashed out but that is unlikely.
A
BR,
Thanks for posting. I was wondering what was going on. Fires in California are a perfect excuse, otoh, for a between meeting discount rate cut.
Thanks for letting us know what caused the bounce. That’s precisely the reason that it’s very difficult to short this market. Now that Bernake has shown his hand, rumors of Fed intervention will run rampant on any decline. I’m sure that a lot of shorts covered on the rumor, although the advance / decline numbers didn’t impove appreciably.
I’m still watching the non-confirmation by the SPX of the new NDX high. The game is still on. Either the SPX plays catch up, or the NDX declines.
So folks when is this subprime mortgage crisis, CDO debacle, SIV mess going to precipitate Armageddon as predicted?
I am still waiting for a half way decent buying opportunity, but alas the current crisis is failing to bring it about. It is very disappointing.
what a complete joke. Merrill leads with a $5B write down just a few weeks ago, now we get an $8B hit, and S&P write down, markets tanking..then rumours of 50 bps discount rate cut and voila…. a 180 pt turnaround on the DOW. NY is the friggin’ Den of Thieves…. this is crazy.
I am sick of losing by shorting this market. The Fed has shown that it is going to burn you if you are short. Really. And hence the rational reaction to head for the door if you are short at the first sign of a rally.
I think that’s just the cover story for the usual shenanigans. Why? ‘Cause when some tried to sell the “rumor” at 3:30, they pushed it right back up at the close.
That spike at 2:20 was a bit ham-handed, no? I mean geezus, if they’re going to intervene and manipulate, can’t they at least try to be a bit more discreet?
all in the last hour two days in a row now (hmmmm)!
perhaps this bear won’t be sleeping as long as he thought
once your mild recession starts all the cutting in the world won’t help all the way to your real recession
rgds pcm
Well, I think pretty much all the bad news has been priced in in financial stocks. They trade at very low PE ratios and they have big dividend yields. By now everyone knows about subprime, write-offs, CDO and so on. Therefore, I think the bull market will continue and most of the people on this board will miss it as usual while they are waiting for the end of the world.
Why is anyone surprised????
Since last summer,
*Think (Thank?) Hank P. ERA!!!!!
the market has an end of day sharp upward move(insert any excuse here)…..
same ol’ same ol’
lather, rinse, repeat….
By now everyone knows about subprime, write-offs, CDO and so on.
Its the amount they dont know- sorry verdict is still out. Enronesque financial crap off balance crap – who the hell knows?
Waiting – watching as joe six pack goes down the drain.
Nicolas wrote: By now everyone knows about subprime, write-offs, CDO and so on.
I don’t know how you can be so sure a mere 10 hours after MER’s ~$3.5B surprise writedown.
Nicolas,
Maybe you’re right. Still, it’s amazing that everybody in the world appeared to come to that conclusion at exactly 2:20 EST.
The market will not truely sell off until all of the SHORTS capitulate. Short covering is causing the very floors you are all bitching about!
If you want to get to the basement you gotta punch a hole in the floor first!
I do think the bad news is already reflected in the market. Look, BAC is trading at single digit PE and has a dividend yield of roughly 5.50%. Since interest rates are still very low and going down these stock are undervalued. This credit crisis will not last forever.
KP,
I agree with you. As I posted several weeks ago, this might be the begining of the larger downtrend i dont know, but a nice spike up for short capitualtion first makes much better sense… who knows, I just scalp either way and dont hold anything overnight so for me I could care less… but for a swing trader this can be difficult. Great Price Action today btw… 22 pt ranges on the mini es… makes my job alot easier…
KP,
I agree with you. As I posted several weeks ago, this might be the begining of the larger downtrend i dont know, but a nice spike up for short capitualtion first makes much better sense… who knows, I just scalp either way and dont hold anything overnight so for me I could care less… but for a swing trader this can be difficult. Great Price Action today btw… 22 pt ranges on the mini es… makes my job alot easier…
you can still make 5% on cash, which was beating the S&P 500 at one point today. without the agita of wondering what Uncle Ben will do next to trap those who wont drink the kool-aid. loved seeing the FDIC head yday talk about restructuring residential mortgages. when was the last time anyone even saw the initials FDIC? sometime back in the early ’90s. there are no regulatory bodies anymore, just cheerleaders and Plunge Protectors.
Even the bulls are starting to suspect that the fed cuts are useless, as higher “inflation-Ex Inflation”(aka input costs) offsets any weak dollar gains overseas, and it’s better to take our medicine than to take the dollar to the point where their Latte costs $15 and milk is $10 and Gas $8, they know that will kill the consumer, or do they?
And only that Paulson implies the fed will save financial institutions. By trying to make the CDOs more attractive than treasuries. I.E. if you can get Bonds to 3% then fifty cents on the dollar for 7% returns sound good..
Even Cramer has taken 3 of the 4 horsemen of the Tech apocalypse out to the barn and shot them.
In a declining market the Day traders stop buying the dips and start selling the strength. With the bulls hiding and the institutions buying bonds, the only buying is short covering, and suckers.
Honestly the music has stopped, just waiting for the slow money to try and find a chair.
Time to take our medicine. But I’ll be in cash on fed day, and if they cut, I’m buying Euros…. and maybe moving there.
No wonder I keep taking everyone’s money.
*knock on wood*
I just can’t believe anyone believes these “convenient rumors” anymore.
Even the constant reminders of “dip buying” as traders lie to the journalists, go to show that the music has stopped, find a chair.
Update: the guy on bloomberg is dumber than the guys on CNBC, but at least the screeching doesn’t give me a headache.
Just more air in the market to short.
It’s always the 20-30 year old morons in the market, who have never seen a recession before, doing everything they can to keep pumping in air, not realizing the time is better spent selling.
This market is acting like a wounded animal that’s still in danger. No matter how you try to approach it (long or short), there’s a real chance it will claw your face off. I think the Fed et al want that to be very clear. I also wonder if the timing of the uptick removal wasn’t a bit sinister…kind of like baiting a trap.
“Therefore, I think the bull market will continue and most of the people on this board will miss it as usual while they are waiting for the end of the world.”
Could be. Or recession could be imminent. A collapse in housing, NFP rolling over and heading down, and various other conditions have been highly reliable precursors to recession in the past. And if there’s one thing for sure, recessions take stocks down hard. For anyone who cares about keeping their money, a certain quotation might come to mind:
“I know what you’re thinking. Did he fire six shots or only five? Well, to tell you the truth, in all this excitement I kind of lost track myself. But being as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself a question: Do I feel lucky? Well, do ya punk?”
The market seems these days to be ENTIRELY about the Fed bailing everyone out, and not at all about what is going on in the economy.
Everyone is convinced that the Fed will bail everything out, no matter how bad the news.
No reason to go quoting Alan Greenspan here TKL, no just yet. Unofrtunately, another of his famous qoutes might also be applicable:
“There are people with guns, and then there are people that dig. Pick up the shovel…”
I, myself, don’t have a gun. Gulp.
TKL,
NFP rolling over is a “highly reliable precursors to recession”??
The revised-way-after-the-fact version MIGHT be a reasonable coincident to lagging indicator, but I don’t think you’ll find it’s a precursor.
Oddly enough, initial claims for unemployment seems to be somewhat useful. You’d think workforce growth would slow before layoffs started, but the numbers don’t seem to bear that out. My guess is (in addition to serious problems with the NFP data) it’s because recessions don’t start uniformly. Some sectors feel it harder earlier, and they start laying off. Other sectors not yet affected much may hoard staff, which are time consuming and costly to replace, but may start cutting inventory, which is easier to rebuild if growth continues.
Anyway, this NFP chart from 1970-present shows that YoY growth in NFP doesn’t turn negative until well into or even after a recession. Add in problems with the birth/death adjustments etc., and the indicator is pretty much useless as a predictor of recessions.
Posted by: Nicolas | Oct 24, 2007 4:39:06 PM
“BAC is trading at single digit PE and has a dividend yield of roughly 5.50%.”
Nick, obviously you have no idea what you are talking about if you evaluate banks using PE. (or really any stock for that matter)
Just to stay on your playing field, what happens when BAC earnings over the next 12 months are 25-50% lower then they were over the previous 12 months? That PE goes to 12-15.
The 5.5% dividend doesn’t matter much when your principle goes down 10%.
Anyone shorting right now and making money? If so I’m proud of you.
History of the stock market for the past 100 years shows that buying stock with single digit PE and big dividend yield is a bulletproof investment strategy. If you study the history of the stock market it’s extremely rare to see dividend yields over the 10-year treasury note, it means a lot of bad news is already priced in.
nicolas would like to see your proof of that – anything during the depression? course I think WM will reduce their divie shortly
Estragon,
Um, that’s exactly the chart I had in mind. I said NFP “rolling over and heading down” was a precursor to recession. I didn’t mean NFP turning negative, so your comment that NFP “doesn’t turn negative until well into or even after a recession” is beside the point. But sorry if I wasn’t clear enough.
As the chart shows, when NFP has peaked and the slope turns downward, recession has usually been imminent. There were exceptions in the mid-’80s and mid-90s, when it turned out to be a mid-cycle slowdown. Could this be just a mid-cycle slowdown? Sure, it’s possible, although the chart suggests it may not be probable (especially in a post-bubble era of declining P/Es, not a growing-bubble era of rising P/Es). Time will tell.
I agree wholeheartedly that weekly unemployment claims will need to agree with the trend in NFP before recession fears gain further merit. It’s unusual for NFP to roll over without weeklies rising, but it has happened.
Betting on the unusual (post-peak NFP not foretelling recession and weeklies not confirming NFP) strikes me as risky. That’s why you gotta feel lucky to bet that more good times will roll before trouble comes to town.
You didn’t mention my other recession precursor — housing collapse. Barry’s posted charts on this a few times, but here’s a link: http://www.economagic.com/em-cgi/charter.exe/cenc25/startssa01+1960+2007+0+1+0+290+545++0 (sorry, I’m not tech-savvy enough to know how to embed a hyperlink in blog-comment text). Seems like the bulls have a pretty tough row to hoe, but anything’s possible.
No reason to go quoting Alan Greenspan…Unofrtunately, another of his famous qoutes might also be applicable:
“There are people with guns, and then there are people that dig. Pick up the shovel…”
That’s from Alan Greenspan? I remember it from “The Good, the Bad, and the Ugly.” Maybe he plagiarizes.
Dont worry W said the economy is doing good!!
Does anyone know if the treasury is currently paying the PPT time and a half for the long hours they have been working lately.
Yea this rumor makes absolutely no sense. I wonder just how much this rumor contributed to the whipsaw rally today. If the rumor led to a large amount of the rally, it will likely end up selling back off.
In 29, the economy’s great contraction began in July 1929 but the market still moved up for another month. Then didn’t fully fall apart untill October’s crash……….then had a impressive counter-rally to the middle of 1930.
Talk about delusional. Your economy was contracting 10% in 1929 and still contracting in 1930 and yet stocks rallied. Heck, even then a 10%+ contraction was no laughing matter.
Another bad legacy of Greenspams diatribes, now every freaking idiot believes the FED can stop any economic downturn. Wow!!!!!
Nicolas,
The lack of rigor in your rule of thumb is harshing my buzz. Six months ago you could swing a cat in the financial sector and hit companies with yields nearly 2x greater than the 10yr. i.e., Countrywide, Accredited Home Lenders, Novastar and New Century come to mind.
Some say it was futures buying behind the rally.
Could one prince, or a Buffet or Gates or Slim create such a rally on their own?
How many millions or billions would one have to commit to create a rally like that?
The last time we had a rumor of an emergency rate cut, that is exactly what we got the next day. Congress needs to put a stop to this shit immediately, since the SEC either is asleep or doesn’t care.
With the Merrill MOAB and the Centex blowup (Semtex?) I wonder when all the losses are going to start to make an impression. Perhaps if the losses were not dollars, but puppies instead, more people would take notice. I try to make the anaolgy in a post!
Bob A,
it doesnt take as much as you think. once you get the ball rolling, the shorts start to cover, late buyers/chasers then get in and so on… the mini’s es, started off of 98, I was in on that one but admitingly didnt anticipate the easy money… I was glad, but didnt know why at the time, its been a long time since I saw the mini’s scream up as fast as they did… I never care what the news is as long as I am on the right side… :)
If theres truth of a rumor as opposed to the rumor.
Well the only thing I’m taking away from this and even that’s uncertain, is that a dry-run off a rate cut has occured and that this is the effect that if one does occur thats being projected.
If the FED were questioning the psychological implications of a cut and the boost it might provide in comparison to the problems it might create, they now have data.
Pst….. I have a secret, there are housing numbers tomorrow…… I bet they are bad, that some half assed earnings, and some slightly higher initial unemployment claims… could set something off, for the third time…. Third time could be the charm…… Pst… pass it on…
(this should not be construed as investment advice, Please check with your own investment advisor before taking any action.)
Go! Sox!
Barry, an idea for your web-site: Could you possibly number your comments page, because sometimes I have to go away and come back later to finish reading them, so numbers would make it much easier to find where I left off. Thanks ahead of time.
If you want to see how the market was manipulated today, listen to this video and then sign the petition.
http://market-ticker.denninger.net/
http://financialpetition.org/
Justin: Just use the time stamp.
I am sick of losing by shorting this market. The Fed has shown that it is going to burn you if you are short. Really. And hence the rational reaction to head for the door if you are short at the first sign of a rally.
Posted by: zao | Oct 24, 2007 4:11:21 PM
????????????????????????????????
Duh ??
Which way is the FED going to go ??
Decrease or increase the supply of money ??
Decrease : Hurt the borrowers and those living on credit,,,, ie the avg US consumer and homeowner. Enrich those holding high quality Government US debt … like the chinese.
Increase : Screew the chinese and bail out
the US debters.
Is the answer not clear to you ??
Is the sky not blue and shiit not brown ??
“It’s always the 20-30 year old morons in the market, who have never seen a recession before, doing everything they can to keep pumping in air, not realizing the time is better spent selling.”
I’m in that age range and I’ve seen my share of market crashes. I guess I had a good “education” because our family lost everything in the Korean market crash in the late 80s. But for this one I’ve been short and loving it! :)
I don’t really think age has anything to do with it. I was talking to my friend’s father (a wealthy doctor who himself struggled through the previous real estate crash) and he sat there telling me with a straight face that real estate has never gone down in history! He still tried to deny it after I pointed out to him that he had bought property in the 80s and sold at a los…
What the heck are you all doing. You guys are all crazy. The feds are going to continue cutting rates and the stock market is going to stay steady. The markets are going to have some highs and lows every week. But it doesn’t take a brain scientist to figure out what they are doing. They are trying to have the americans NOT TO PANIC. By the way, are you guys all happy that the value of everybody’s homes are going down. Wake come or go back to school.
I’m outa hear
Wow, somebody in the futures market, with money left. I lost two thirds of mine in two years. Spent the rest on a some folding chairs.
I agree about the coming pants explosion.
zot23,
>> “There are people with guns, and then there are people that dig. Pick up the shovel…”
I’m afraid board-regular eclectic filed for a monopoly on using The Good, The Bad, and the Ugly metaphors for financial analysis. He might force you to use another movie.
Personally, I’m working on some nursery rhyme metaphors:
“Alan and Ben went up the hill
Both with a buck and a quarter.
Ben came down with five hundred newly printed notes.”
OHH!
Justin,
If it helps: FYI, I read from the bottom-up until I recognize an earlier post.
diceman,
Here’s another for you.
There was an old woman who lived in a shoe.
Her COLAs were so bullshit, she didn’t know what else to do.
I see Kudlow calling for another 50bp shock and awe…amazing how such a strong economy needs all these cuts. That guy was saying he doesn’t want a cut as recently as Monday…haha, he really is pathetic.
We are in fact a nation of irresponsible individuals in need of constant bailouts. The fact that some people deny that this is going to get a lot worse is simply amazing
to me. I see more ridiculous comments about how cheap banks are which are the same ridiculous comments we all heard about homebuilders a year ago. I see financials being even worse due to the fact some/most of their assets are in fact close to or are worthless.
Financial may bounce and subsequently prompt idiot Kudlow to pronounce that the market is telling you things are all fine, but that will be a short bounce on the way to a level people never thought possible.
how about this:
futures markets made a double bottem at 2:15 after going sideways from 11:15. After the market seemed to hold at the double bottem, Goldi stepped in bought a few thousand, causing a squeeze and up we went.
Rumor? who buys billions of dollars of stock in 30 minutes on rumor? Pleeessse.
You dont know that you dont know.
the tail wags the dog.
check it out. bang on.
http://tickervideo.org/eod-1024/eod-1024.html
before anyone make statement about Fed not going to cut rate, make sure you really know JumboJet Ben. The dovish FED will cut the rate to bone, that is 0%
Al,
Loved it!
Ok, here’s another one (and I promise “no mas” after this):
Hickory dickory dough.
A foreign bank was feasting on my CDO.
But, collateral did plummet.
And triggered a Minsky moment.
So, I gave my SIV to some schmo.
OH!
sung to the tune of “Three Blind Mice”
“To the banks
To the banks
See how they run
See how they run
They’re all withdrawing their savings now
Bernanke proved he’s a lying cow
So, to the banks
To the banks”
Time to buy that King-size Serta?
So the Fed and the pump-monkeys keep driving the prices back up …but earnings and the economy keep them going back down. Ya know what …we are gonna find out that 12% earnings growth in Q4 is a fantasy 6-9 months before the Fed rate cuts actually have any effect. THAT …is why I am short!
Regarding the pump monkeys …they should be taken out and shot. If somebody stole millions of dollars today from a bank, what do you think the response would be? Why is this any different? Anyone naive enough to think they didn’t buy before the rumor and sell at the top?
Don’t f*ck with my constitution or my free market. Either one makes you a traitor in my view.
So, rumors might explain todays action….but as to the larger picture: why joe public seems so ready to view every decline as a buying opportunity….well, here’s what I think is going on. Sure, investors know that it makes no sense for stocks to hit new highs with housing in the toilet, liquidity crisis, retail in a slump, durable goods orders down, recession looming, inflation threatening (outside the US anyway), shipping rates climbing, dollar falling (making US investments unatractive to foreign investors), etc. But, on the other hand, investors also know that historically you don’t want to sit on the sidelines during the 4th quarter. I’ve talked to a number of investors who fully admit that there’s too much risk in the market and that’s why they plan to get out of the market – but not now – not until after the 4th quarter is over. If these investors represent the average investor (and you know their logic makes sense on a certain level), then I would predict a max exodus in the late November to mid January timeframe with momentum investors following seasonal trend investors out the door. Last one out winds up holding the bag. I predict for round one that the DOW dips just below 10000 before it recovers.
– Francyne
Norman, thanks!
It is going to be a very interesting day. Yes, I’ve been F*cked shorting this market because of the “system,” that supports Bulls, and bull-shit. Their day will come however.
Regardless of whether it was an engineered recovery or not, what is truly unsettling is that the n100 is now up 26% year-to-date _ahead_ of the two best months of the year, and _ahead_ of tougher economic conditions and a cycle downturn. If there is no inflation (<5%), what else can justify the 30+% annual return (assuming November and December do their usual magic)?
Even harder to explain is why Barry has that Daniel Gross book on his site.
>> If there is no inflation (<5%), what else can justify the 30+% annual return (assuming November and December do their usual magic)?
Leverage, yen carry trade, falling dollar, irrational exuberance, false earnings estimates for Q4/Q1.
Besides the S&P is up less than 7%. Tech is doing well because there is no where else to go...
Where is the goddamn SEC?