Thursday, July 23, 2009

After Hours Trifecta

Whoa!

What a crazy day. I don't have much time so just a few notes around today. The market soared as investor's continue to increase their appetite for risk. The dollar traded all over the place as rumors swirled around the usage of the US dollar as a carry trade currency.

On the downside, treasuries COLLAPSED as the Fed announced a whopping $200 billion in new debt sales over the next week or so! Yields soared as a result. The 10-year closed with yields a hair below 3.70 which is up about 15 basis points from yesterday.

After hours we saw a bear trifecta. Microsoft, American Express, and Amazon all disappointed on the earnings front. This is the danger of buying into this market after such a huge moves folks. Stocks become priced for perfection, and the companies tend to sell off if they just meet expectations or beat by a penny like Amex and Amazon did today.

The parabolic move up in the market has been quite a thing to watch.

The NASDAQ has traded higher a whopping 12 straight days. The last time we saw a move like this was 1992. This is unbelievable considering the health of the economy. Something tells me a lot of this was short covering. I think many bears have been starting to hop in short at these levels only to get burned and quickly cover.

Bottom Line:

I expect a pretty sharp correction tomorrow after such poor earnings after hours. The market is ripe for a pullback. Microsoft missed badly. Business and consumer sales were very slow. Top line revenue missed by over a billion dollars.

Should we be surprised considering the health of the consumer?

It's all about the treasury sales next week. The stock market could get overwhlemed if we can't find buyers for all of this treasury debt. There is only so much money folks. We can't expect equities and bonds to rise at the same time when we have $200 billion in paper to sell in the credit markets.

Something has to give. Will it be stocks or treasury yields? Possibly both?

The plot thickens.

9 comments:

Randy said...

Im beginning to wonder if the fed shouldnt raise rates 1/4%?

Think about it - yeilds are moving up to price in inflation, but their still below rates of a few months ago.

Even with those higher interest rates, home sales did well this month. Clearly 5.5% mortgage rates wont kill this rally.

Clearly im being premature, but isnt that what happened last time around? Looks like greenspan didnt back off the accelerator in time resulting in the biggest bubble of all time.

So why not throw out a quarter point now - sort of a shot across the bow "yeah, no inflation yet, but were watching and will pop this if necessary"

getyourselfconnected said...

Jeff,

great post!

I observed that next week "All Your Liquidity Belongs to Us" and that will be very interesting to watch.

I am starting to get an idea where all that cash sitting at the banks (which will casue rampant deflation allegedly) is going to be deployed...to help the bond sales perhaps? My tin foil hat is starting to itch!!!

Jeff said...

Randy

Its an interesting question around raising interest rates.

My question is are yields rising to price in inflation or is the bond market asking themselves: How in the hell are we going to sell $200 billion in debt each week?

I still believe treasury yields coud potentially end up in double digits. There isn't enough money in the world to soak up all of the debt we plan to sell.

Its simmple mathmatics.

Jeff said...

Get

Thanks!

My tinfoil hat has been itching as well. I try to keep it out of my posts but its hard!

You gotta wonder if the treasury doesn't pull liquidity and force a stock sell off in oreder to scare people into treasuries in order to sell all of this debt.

Whats interesting about the cash on the sidelines is the savings rate actually includes money that is being used to pay off debt.

My cash is on the sidelines indefinitaly until the fraaud is cleansed from the system.

I must admit, my finger is getting itchy to press the short trigger!

Peter said...

I guess nothing can stop this market, not even horrible news. The interest rate issue is insane, as the government and bankers are stealing money from old people and savers. The "Greatest Generation" that did so many things is now being thrown out the window by these scumbag Baby Boomers who have given this country nothing but their bile and garbage. The first generation to leave this country in worse shape than they found it.

The reason I am getting more and more convinced that this is criminal racketeering and not ignorance is the way things progress. To almost all Americans the value of the "market" is a proxy for how the economy is doing. They have no clue about economics (because the government wants it that way), so the only thing they can work off of is the market action and manipulated government statistics. A handful of people can control the economic beliefs of this entire country with just a few billion dollars in the stock market.

Now when I add this belief to the market action it becomes even clearer to me.

Need TARP passed: tank the market.

Need Obama elected: tank the market (remember the market was up from the end of January through August in 2008) how did the crash hold off until just before the election. And what a coincidence, Obama was trailing in the polls until the market tanked.

Need to pass a budget with a $2 trillion deficit: run the market up so people think things are getting better and spending is acceptable.

Need to pass health care: run the market up two weeks ago when things were about to tank again. Does anyone actually think we would be debating socializing medicine and spending trillions on it if the S&P were are 700 today?

Large corporations love this health care bill as it will make small/medium sized business fold under the costs. Which of course benefits our fascist business leaders as it destroys their competitors and future innovation.

Jeff, where we moving to?

Anonymous said...

Peter - I think you are confusing cause and effect

Lehman collapses, market tanks, Tarp is announced, stock rises, Tarp vote fails, stock tanks.

ALso, the logic could be turned on its head:

Need to pass a budget with a 2 trillion defecit? Tank the market, showing why we need more spending in our new keynesian economy...

Jeff said...

"Jeff, where we moving to?"

Great question Peter.

I wish I knew.

I am with my family this weekend so I won't be on much.

I think we are at a point where the market might get boring for a bit.

We may flatline for awhile. The only market mover I see is the massive treasury sales.

If they don't go well the market could sell off. However, the bulls have a lot of confidence right now and I think it might be a struggle for the market to move much in either direction.

Jeff said...

Hi All

I will be back on Monday.

Jeff said...

post up 6ish