Wow!
That was one helluva day:
DJIA: 13,307.09 up 319.54 for 2.46%
Nasdaq: 2,673.65 up 89.52 for 3.46%
S&P 500: 1481.05 up 41.87 for 2.91%
What was this today? A massive over-sold Bear market rally, or is all the bad stuff now out and behind us?
What say ye?
a bit of both, but no way write downs don’t continue. I think it was mostly short covering, as WMT news helped restore some confidence on spending. Plus, BAC came out with a $3Bln write down, and market whiffed at it. I was waiting for when the financials would start trading favorably to negative news.
There was more negative credit news Barry:
1) Commercial MBS fell to 6.3Bln in OCT, down 84% since March
2) Blackstone Pres warns of steeper losses and a mortgage black hole
3) Fitch downgrades $37Bln worth of CDO’s.. Some 66 more still under negative review.
4) Blackrock’s Fink warns of more credit problems, also spreading to Europe. Fink also warns liquidation of assets have not occurred yet. Also says comm re loans are now harder to get.
5) Held To Maturity accounts will have unknown losses (Fink)
not over Barry. I think we will be in a period of ‘short the rally’ for a while until the next phase of the credit crunch hits and new sectors surprise with their credit infection.
Reverse gravity, what comes down must go up.
Barry,
Please move the blogroll down and the recent comments up. or put the recent comments at the top of the right column. either way, please, display them more prominently. as you know, the comments are a big draw.
How can I go “long” natural gas ???
How to get exposure?
Or do I need a futures account?
The market was due for an oversold bounce but its headed lower. There are still many skeletons in the closet and 2 million more ARMs to readjust.
At this point its simply opinion and conjecture – the market in time will tell us what this move meant.
My personal opinion is that this type action is more consistent with a bear market than a bull market. Although the numbers were up big, the new highs/new lows still show a significant divergence.
This is actually the bounce I’ve been looking for to increase short exposure, as individual stocks move up into overhead supply and resistance levels – fortunately, I have healthy positions in place and so can ride out this upswing by only risking paper profits without unraveling my short positions or risking capital.
Of course, historically this is the time of year the Fed pumps hard – so I may end up back close to break even if I am wrong.
But there is tremendous demand for money, and in a lot more areas than equity markets. There are still billions of dollars in losses floating free, and trying to keep those losses afloat will tie up much of the money that could propel markets higher – and if there is another sharp downleg, margin calls will put even more pressure on money demand.
In the shortish term, I think the markets will go slightly higher, but the upside is limited. The downside, although a smaller overall chance, is where the big move could occur.
So it looks to me that if timed reasonably well, the reward-to-risk ratio is still solidly on the short side of the markets.
I think those who believe that yesterday was the bottom will end up being quite disappointed. After four days of straight selling a buying spree should have been expected.
You can go long natural gas buy buying FCG (ETF) or buying calls on FCG (ETF) not a heavily traded issue but in time as the smart money starts going long Nat. Gas (which they should) volume will pick up.
On the subject of ETF’s a really cool new ETF is UltraShort China FXP. Good luck!!!
P.S. I think the volatility continues for quite some time.
“is all the bad stuff now out and behind us?”
Weren’t we saying not long ago that there was (near?) record investment on the short side of things that might limit the descent somewhat? Has that changed? (I am trying to ask this as neutrally as possible, as I really don’t know the answer.)
100 million fewer shares traded on the NASDAQ compared to yesterday, but volume was close to its average over the past few weeks. Today was also a 9-to-1 up day on the NYSE and NASDAQ, but new lows outnumbered new highs by a wide margin on both exchanges.
The 9-to-1 up day is encouraging but hasn’t been a reliable indicator of a new uptrend by itself. The lack of total volume and the relative number of new lows is cause for concern. Time will tell, but I call ‘relief rally’…
Unless I didn’t get the memo and the man in the street got a 200% raise (to counter our nonexistant inflation, plus a real wage increase),the fundamentals have not changed.
We don’t count the basics of life in our inflationary numbers, we don’t count people as unemployed if the do not receive unemployment. We might as well not count mortgage defaults, worthless tranches of unknown content, or the fundamental weaknesses of our system.
Everything is fine, now.
My ass.
DOUBLE-BOTTOM? I suspect yesterday was of the fabled double-bottom phenomena but the market just didn’t go low enough. One clue might be that as the financials were getting smashed the home builders were going up. Just a thought.
Equity markets can’t put Humpty.. er, I mean Citigroup’s multiple off-balance-sheet vehicles, SIV’s only one of the three-letter acronyms.. back together again.
CNBC/Fox talking their book.
Did you notice the non-seasonally-adjusted housing numbers [eg, if you pay attention to the NAR you deserve to lose all your money] .. or the new high/new lows?
And, the minor deal of Impac being downgraded to F3 from F2.
No news here, carry on, the bull market lives!
Walmart lowers guidance. Walmart beats lowered guidance. Buyers have reason to party. Same old guidance con-game, same old mo-mo crowd behavior.
The oil/gold/loonie overbought condition corrected. The yen carry trade collapsed. It is the chicken and egg question. Dollar weakness leads to yen strengthening, carry trades collapse due to failure of the yen-short. Luckily their commodities-long trades had profits to offset the loss on the yen-short. Profit taking brings down the commodities.
Holiday markets are easy to slap around. Currency maneuvers by governments are easier and require less reserves during holidays. The party can continue until January.
If the yen has structurally strengthened on more than a short term basis, then that is the story of this move.
http://www.breitbart.com/article.php?id=071113234035.gxkistsc&show_article=1
I’m not sure what to say about this, the rage is blinding me.
Want to trade natural Gas look at the ETF UNG.
There is a big spread between gas and oil. It will tighten up but it appear oil is coming down. You may want to wait until Nat GAs get under 7.50. Before you leap.
Cheers
If you don’t want to watch the video–
US President George W. Bush predicted in an interview Tuesday that the battered US dollar will get stronger because the US economy is robust.
“If people would look at the strength of our economy, they’d realize why, you know, I believe that the dollar will be stronger,” Bush told the fledgling Fox Business Network.
“We have a strong dollar policy, and it’s important for the world to know that. We also believe it’s important for the market to set the value of the dollar relative to other currencies,” the president said.
Bush cited low US inflation figures, modest interest rates, job growth, and gross domestic product growth and declared “the underpinnings are strong.”
Asked whether he was satisfied with current exchange rates, Bush replied: “I am satisfied with the fact that we have a strong dollar policy and know that the market ought to be setting the exchange rate.”
XX,
UNG is a Natural Gas ETF trades heavily. It trades over a million sharea a day.
Barry,
Strangely enough, I hope the market keeps going up, because, then the Fed would not be forced to cut interest rates!!
“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”
William Shakespeare
“I am satisfied with the fact that we have a strong dollar policy and know that the market ought to be setting the exchange rate.”
>:O
One rumor I heard as a partial explanation of today’s rally was the possibility of the FASB deferring implementation of rule 157. Outrage is not strong enough a term to describe my sentiment if the FASB dares defer the implementation of 157. That will be a blatant admission of acceptance of Enron style accounting practices, and at a time when more than ever, they need to be extinguished and confidence restored. Every foreign investor should immediately sell all US holdings and run like hell to get out of dodge for the “officials of the game” will have just denounced their neutrality in order to actively support the Wall street pigmen in their efforts to cover up deceit and fraud. If the Treasury sponsored super scam SIV wasn’t bad enough, now for the accounting standards board to sanction opaque accounting practices and deliberate misrepresentation of asset values, this is simply too much. If that happens, investing in the US financial markets will be no more trustworthy than investing in the Russian markets. Oh how the noble will have then fallen from their lofty heights, never to be trusted again.
With apt apologies to Bob Dylan:
Come gather ’round people
with money to loan
And admit that the spreads
around you have grown
And accept it as true
money might never come home
If your ass to you
is worth savin’
Then you’d better start buyin’
All those treasury bonds
For the risks they are a-changin’
Deferring implementation of 157? Only because there are no L3 assets on balance sheets.
“Only because there are no L3 assets on balance sheets.”
Please tell us all you’re being extremely facetious….
Did you ever play that Internet cat-launching game, where the kitteh keeps bouncing along even once it is all broken and bleeding and stuff?
Yeah, it’s like that…..
Wow. So what?
The market made up for yesterday.
Goldman announces they are short subprime CDOs, don’t you people understand that if the SMARTEST GUYS IN THE ROOM are short, that it is clearly time to BUY, BUY, BUY!
Oh, wait, didn’t they create these CDO’s and pimp them to their hedgepensionequity buddies? Here take some CDO’s baby, your gonna feel great….
Goldman Just follows BIGGIE SMALLS rule #1:
Don’t Get High on Your Own Supply!
Brit said:
Asked whether he was satisfied with current exchange rates, Bush replied: “I am satisfied with the fact that we have a strong dollar policy and know that the market ought to be setting the exchange rate.”
I think that what The Decider meant was that we have a strong-arm dollar policy and our various trading partners are going to be buying USD over the near term because they don’t have any choice unless they want to watch their economies crap out when the next rate cut takes place. By the same token, I am looking for both gold and oil to take some severe hits shortly via sovereign intervention.
All of that may reverse after the first of the year, but currency, oil and gold all have a lot more to do with mercantilism than capitalism and it would be a mistake to assume that the big state players even care whether they are making or losing money on paper. They have bigger fish to fry and do not think like day traders.
==whipsaw==
There are bounces on the way up and bounces… on the way down.
There are bounces on the way up and bounces… on the way down.
Dougie Kass has been suggesting a xmas rally….
but new High/Low numbers showing more instability ….
There were 180 new lows out of a total of 588 issues declining….
Things STILL fundamenatlly suck but Wall Street’s inhuman desire for year end bonuses are a force to be reckoned with……
Black Swan?
From MoneyandMarkets.com
“Fitch, for example, has already announced that it will spend the next six weeks reviewing the capital of MBIA, Ambac Financial, CIFG, and FGIC to ensure they have enough capital to warrant a AAA rating. Any bond insurer that fails the new test will be downgraded within a month.”
Here is the kicker – regardless of the original rating of the bond, if the bond issuer bought this “bond insurance”, then the bond, regardless of quality, received the same AAA rating as the insuring company.
A downgrade of these comapanies’ ratings would cause thousands of bonds to be downgraded as well.
Again from Moneyandmarkets.com
“This is no trivial matter. (The downgrades) It directly impacts $2.3 trillion worth of municipal bonds, mortgage-backed bonds, plus asset-backed bonds packed with credit card and auto loans — the same kind of securities that are now collapsing.”
This could be monumental in its ripple effects.
LaRealityCheck:
Biggie Smalls wasn’t the first one to say that. I know Tony Montana said it(of course he broke his own rule).
Is it possible the 11.25 Billion added by the fed Tuesday had something to do with the rally? I know its “only” 11 Billion which is chump change nowadays.
I can see a year end rally–the folks need to keep the P&L in good enough shape to get ye bonuses. And let the chips fall where they may in the new year.
This will be good since when these folks leave their jobs in January, the birth death model will reflect huge job groth in January.
See how easy it becomes to spin and justify something?
Regarding nat gas–
FCG is an etf that follows and index of nat gas operating companies–while UNG follows the price of nat gas
two different strategies.
FCG buys the stocks–UNG buys futures–another difference.
do your own dd
I’m awaiting your well informed answer, Barry.
There’s a rock group down here in Georgia known as ToyTV. I’m pretty sure that I saw some of them role playing at the exchange about an hour before it closed.
Just saying…
This is all part of the inflation.It will take years to get all this cheap Money out of the System as long as there are stil people doing carry trades the market will have a good support.
Hate to tell you this, but remarkable rally on options expiration day was probably due to one thing more than any other:
Japan’s central bank did not raise rates and said they had no plan to. Their prime rate is about 1.85%, the carry trade is enormous, and borrowers in Japan were investing in the US’s risky assets. Japan has no intention of letting its currency rise and choke off its exports – this is pure case of predatory mercantilist behavior. Very cynical.
@OldVet
This will work untill the system bursts.
I second what others said about new lows way outnumbering new highs on that “surge.”
As for year end bonuses, I heard the trick was to beat down the indexes so you can easily beat them. It can’t be hard to beat the S&P if it’s only up 2% at the end of the year. Any truth to that one?
Thank the gods he wasn’t pursuing a *weak* dollar policy, then.
Every oscillator I could find showed us as oversold as in August at the close on Monday. I think it’s an oversold rally.
If you look at the Naz leaders, like GOOG, RIMM, AAPL, these look like charts that should be sold into strength at this point.
There was also the Buffett rumor du jour about bailing out the 100:1-leveraged MBI. The guaranty insurers are kinda a lynchpin of this mess now.
Buffett rumors, as we know, are the refuge of those who are long and lugging.
Look at the Xetra dax what a ride… ;)
I think yesterday was the best way to contrast the use of repo.s to prop up the market.
Monday when the banks were closed, no repo.s..the market HAD to rely on fundamentals and it sold off towards the close. Add in the repo.’s on tuesday and some well-placed news and you see the result.
So to whoever suggests or implies that repo.s do not have any effect on the market all one need to do is contrast and compare Monday’s and Tuesday’s action.
Let’s face it the market gets too much help that is disguised as news that is fed to the masses.
Wal-Mart is worth 300 pts eh??? I will be looking to short the crap out of this as it dies out next week.
Ciao
MS
To follow on MS and hal’s comments..
The 11.25B added by the Fed is a ONE DAY LOAN DUE TODAY. Sure, you’re playing with house money – assuming you buy in the morning and sell after the shares gain 100 points. But, stick saves like this aren’t fundamentals.
The PPT doesn’t exist, but POMO and TOMO do.
Look….it’s not that they do them and I am not even going to explain the concept of paying off “loans” as they come due with other sources. You should be well aware of that.
The Repo/s are done and the brokers take that cash and throw it towards ANY asset class they want to.
If you had a fresh pile of cash at your disposal EVERY EFFING DAY I wonder what you would do with it….
believe what you want and think that te situation that the fed and treasurey create has little or no affect on daily trading of the markets. The evidence of it’s work is there for all to see…if you choose not to see it..well then that’s you’re deal.
It is helped….massively so….
Ciao
MS
and as what usually occurs with the morning gap and fade the market sits and waits for it’s next injection of herion…that is coincidently timed with the release of the current day’s repo. funds. By :10 after we will be up over 50 pts and going higher…
Ciao
MS
MS,
I agree in part and disagree in part with your assessment. The purpose of using repos is to influence the federal funds rate – today’s stop out was right on target at 4.75%. So in a sense, you are right that it is the protection of the federal funds rate via repos that is adding extra liquidity into the markets, but it was the decisions to lower rates to 4.75% that is the basis behind it all.
Looking at the type collateral and the amounts is telling in that the more the fed has to intervene, the less willing are banks to lend to each other overnight.
And if you want to talk bias, the truly interesting part is how few reverse repos the fed did last year to protect the 5.25% rate, even when overnights were well below that rate.
There is an upward bias to the markets as surely as there is an inflation/bubble bias to the Fed – it takes severe economic pain to counteract those propensities.
That said, I think Q4 will be ugly and GDP may be flat to slightly negative.
regarding repo.s….I have only ever seen one reverse repo. and I look almost everyday.
and I do agree with GDP however I’m positive that it will be released at whatever % allows the machine to take the market up. If you backed out the military spending out of the last “release” you are looking at about .02-.03 growth…hardly the fuel that a bull market is made of.
But as usual…if the machine wants to take the market up…it does…..that is what is wrong here. The bonus’ are in jeopardy so let’s rally the market for no other reason than that. That nothing is done to remove the excess that was created by this failed philosophy is what is really wrong.
Ciao
MS
MS,
I believe I have read that you are a day trader, and if so that would explain the emphasis on repos to market action on any given day – and your assessment would be right on that basis.
However, from a swing trader perspective, repos are only a part of the overall scope of the target rate, and as such can only support so much if a large drop occurs.
On the GDP, inventory builup is telling, as this will force a slowdown of production if demand does not keep pace, and with retail at only 0.2%, demand seems to be on the wane. Also, the PPI core came in at 0.0%, and as this reflects producer fihished goods prices, it shows to me that producers are either unwilling or unable to raise prices to combat the inflation in raw materials – add this to the mix and you have inventory buildup, slowing consumption, and profit margins getting squeezed – all the makings for a 300 point rally – NOT!
I hear you however if the trend is to influence the trade via the repo process (which it most certainly does) then how can it be looked at in any different light when looking at swing as opposed to day trading. It’s done EVERYDAY and has the same affect…pushing up the market in spite of billions more in writedowns (HSBC said it might write off $1b and it actually throws $3.4 b under the bus and the stock rises????)
If I were a swing trader I would most certainly see the connection to the repo process even more. Monday had none…market rolls over (about a 130pt reversal) how did that set up a swing trade in your favor???
Repo’s occur on Tuesday and low and behold…..300 pt rally.
Some will likely say what the talking heads said….tech. bounce (I would almost agree with that) Wal-Mart, and short covering. We’ve seen many additional billions just washed away (and will likely see many more soon) and the only real difference from Monday to Tuesday is the repo. process.
The results of which speak for themselves. No help=market falls
Lotsa help=market rallies
Did anything really change fundamentally for the better?? Not at all..In fact the news was worse on Tuesday.
Ciao
MS
MS,
My point is that the big trend (a la Dow Theory) as well as the bond markets are too big to be influeced by the Fed.
The Fed has limited power – most of it perceived and not real.
The repo actions look like significant amounts of money, but in the overall scheme of things it is a gnat on an elephant’s ass.
I’m positve there will be anouther 50 bps rate cut, because that is what the short term treasuries are pricing – the bond market sets rates; the Fed just tags along and makes everyone think they are important.
The only way the Fed could become pertinent again is to refuse to follow the bond market lead and raise rates, reserve requirements, and actively sell trearies to absorb liquidity.
What are the chances of that ever happening?
>>My point is that the big trend (a la Dow Theory) as well as the bond markets are too big to be influeced by the Fed.>>
I could’nt disagree more. There is enough evidence out there to suggest that this market is nothing more than a liquidity fueled boner created, facilitated and sustained by the Fed.
They have ALL the power but refuse to do what it should be doing i.e. raising rates. Tell me if rates were raised would the market still be this close to the ATH?? Not a chance in hell. Bond Yields would also follow having the affect of channeling money into them…….but not at the Fed where we seem to have NO POLICY other than equities UP Dollar DOWN.
What we have is a market that goes from one artificially created and fueled event to another. There is no fundamental aspect of this market any longer. If there were you would’nt need to create events (ala the Fed or any one of the bank CEO’s jerking each other off almost daily to the tune of “we’re ok so….we’re ok”)
There also would not be the “need” of repo’s in the first place. Remember these banks are saying that the assets they have are perfectly valued-for the most part…..why do you need to exchange them for cash???? Yet more drivel and confusion.
That the Fed is powerless is a just another piece of lip service. If they are so powerless than why do they peddle so much influence on the markets??? You get one word changed in a FED statement and it’s off to the friggin races…rightly or wrongly they KNOW they have influence and use it according to the current administration’s agenda.
The Fed is not powerless or irrelevant…it’s only the system that gets to pick which date or time frame it IS relevant or not.
MS,
In my opinion, the power of the Fed is in the perception of its power – FFR is short term borrowing, and a comparison figure is the 3-month T-bill rate, which according to Bloomberg right this minute is 3.42%, a full 1.08 below the FFR. Bond purchasers don’t seem to care about the Fed’s target rate – and they have all the money.
Don’t misunderstand me, I am closer to your position than you might imagine, more like a MS light, if you will – but I see things in a slightly (very slightly) less manipulative manner. But it is important, in my opinion, to keep in mind that the FFR is nothing more than the rate that banks charge each other for overnight loans. It takes serious permanent open market operations to expand money stock, as well as bond market intervention to either swell or contract money stock.
Perhaps that is the sole difference, in that I differentiate between money-supply growth and credit growth – although both lead to higher prices, it is the former that to me is “real” inflation as it is permanent. Debt expansion to me is bubble blowing – call it bubblation – but it can contract as easily as it expands, so I don’t count it as true inflation.
Either way, I agree with you that fundamentally we are in for a fall – big, hard, and deep. And I don’t think the Fed can stop it – hence, my concept of their lack of ultimate power.
That said, I do agree with you that the Fed can contribute mightily to debt expansion and thus bubblation – but I view that as non-permanent and subject to cycles that Mises described.
No matter, glad you survived the fires and are still at the keyboard. Best of luck.
Bob A is right: a bounce on the way down. Economic- and firm-specific news gave us a bounce, and will also give us dips of greater magnitude…
winston-
I cannot disagree with you however the observation of : “but I view that as non-permanent and subject to cycles that Mises described.”
When is it considered not permanent when it occurs almost every single day? There is nothing temporary about what the fed does with repo’s.
I really hope what I’ve seen posted here regarding the FASB rule is not true…if it is that would just be too damn perfect would’nt it?
Ciao
MS
Michael,
I agree completely – if FASB 157 is postponed the credibility of the U.S. financial system is toast.
As for the repos, it gets back to my idea of money stock increase versus debt increase. You are absolutely right the rolling over of repos is in essence a permanent operation hidden as temporary, but as it is a loan and not a purchase or a sale, the effect is that of debt increase rather than money increase – at least that’s how I view it.
My idea is that debt increases are what cause asset bubbles – which is in line with what you have been saying, I believe.
So in a sense we are in agreement that repos do affect asset values – it’s simply that I don’t call that inflationary but bubble creationary.
The key difference is that no one has a choice when money stock is increased; however, when interest rates are decreased, that doesn’t guarantee a demand for loans and does not affect the capital markets.
Whereas, in my opinion, money stock increases lead to real generalized inflation, as real inflation is a debasement of the currency’s value by oversupply.
Not a lot of difference in our viewpoinst – end results are virtually the same.