Thursday, October 14, 2010

A Google Good Evening!

Haha...And you don't think this casino that we like to call the stock market is rigged?  Take a look at the last hour of trading on the QQQQ's(NASDAQ):

My Take:

Gee do you think the Google news got leaked before they announced blowout earnings after hours?

Congratulations to Google by the way.  That was a nice quarter.  This bear has no problem giving credit where credit is due. 

Nonetheless, the market shouldn't know about news before it's announced after hours.  This is the type of crap that makes investors lose confidence in the markets.  The SEC should be all over this kinda stuff but I guess I am delusional for thinking that honesty should be restored to the financial markets.

I am sure the NASDAQ will be off to the races tomorrow although the futures so far don't seem to be acting like it. 

Has Bondzilla Arrived?

This is ugly:

"An already-tough week for Treasury auctions turned dramatically worse Thursday when investors skipped out on a 30-year bond sale.

The $13 billion of reopened long bonds was a mess: the yield of 3.852 was well above the when-issued level; a bid-to-cover ratio, or the measure of how much was bid compared to each dollar auctioned, came in at 2.49, which was the worst since February and well below the average of 2.70; and foreign interest, as measured through indirect bidding, was a paltry 32 percent."

My Take

Folks, if we can't sell bonds today after the Fed has basically given us a QE layup then how in the heck are we ever going to sell them?

The 30 year bond no likey the news:

My Take:

These bond auctions should be cake walks right now!  Why have the central banks decided to run away after the Fed has basically told you that they plan on doing more quantitative easing?  Anyone that's not concerned about this is nuts!

Before I continue let me stress that this is only one auction so time will tell.  However, the central bank participation in the 3 year bond auction earlier this week was also pretty ugly.  Rick Santelli only gave it a "C".

If this trend continues folks it's time to wake up. 

The way I see it, the bond market sees the dollar dropping and they do NOT like it one bit. They are scared to death of the "I" word which of course is inflation.

If the bond market so much as even sniffs it then they will sell off treasuries and take interest rates higher.

The problem we have right now is is they are getting a big wiff of the "I" word as they watch the USD and the gold market.

So why would the bond market increase rates when it sees inflation? 

Let me answer this with a potential 30 year bond "nightmare scenario" if inflation hits:

Let's say inflation hits at an annual pace of 7% and you own the 30 year bond which only returns 3.5% yield.  Essentially you are guaranteed a 3.5% loss annually on your investment.  If the inflation continues you are guaranteed further losses the following year. 

Making matters worse is the bond that you own at a guaranteed -3.5% loss essentially becomes worthless.  Who on earth would want to own something like this that guarantees losses?

Makes sense right?  Think of it in another way:

If someone came to you with a crappy investment that they paid $10 dollars for that returned -3.5% would you pay $10 for it? Of course not!  It's no different when it comes to bonds.

The Bottom Line

Tomorrow will be interesting because the market has a lot to digest.  There was the big Google beat that was preceded by the bad unemployment news and the awful bond auction.

This mixed news is taking it's toll on investors.  Can you blame them for being confused?

On the one hand you have companies who are executing nicely as they slash their cost structures and raise cash.  On the other hand you have a financial system that's rapidly deteriorating behind the curtains to the point where it pretty much seems hopeless.

Money is scared right now and it's running into everything:  Stocks, bonds, and of course gold(which hit new highs once again). 

At this point, investors pretty much don't know what to do with their money.  I thought the results of my poll in the upper right reflected this:

Of the 35 people who responded(thank you) 48% of you are sitting in cash.  

You are not alone.  

The whole world feels just like you do:  Scared, confused, and angry!  It gets to me at times too.

It's also the biggest reason why I don't think we rally much higher from here.  Too many people want nothing to do with the market at this point.  And why should they? They have been violated by it several times in the last 10 years.

It takes time for those wounds to heal and it's not gonna happen overnight.  The Fed doesn't want to hear this but it's the damn truth.

Investors are not going to want to take risk for a looong time because they have been burned to a crisp in doing so.

The Fed's trying to tempt them to get back "in the game" with zero rates and it's not happening.  It's time for them to realize this and shut down everything down and allow the unsustainable credit bubble to collapse.

If they don't stop the dollar is going to go right down the toilet. 

The market in the past few weeks has sent a clear message to the Fed about our deficits: 

Stop it or we will stop it for you by taking rates higher, trashing the dollar, and driving gold into the stratosphere.

Only time will tell if they are smart enough to listen.

The world is waiting Ben...Whatcha gonna do?

Disclosure:  No new positions taken at the time of publication.


getyourselfconnected said...

It is just that Boom Boom will not be buying 30 year bonds so no frontrun opportunity?

Seriously, how does GOOG make money in the billions? Does everyone use their search? Soon there will be one of everything per market segment: One Walmart, one Best Buy, one Google, one Apple, one supermarket (no guess) and that will be it. Remember, in "Demolition Man" Taco Bell won the franchise wars and that would be really bad!

Jeff said...


I know. I was shocked at that number.

Good for them. You just have to wonder how much spending they cut back on to hit that number.

Talked to my credit trader buddy about the 30 year tonight. He wasn't happy and he thinks we have seen the highs of the year for treasuries.

HE also thinks the market is calling out Ben with regards to the deficits.

Next few days are gonna be interesting.

Anonymous said...

deep regulatory capture simply means they are in on it... at the highest levels.

Jeff said...


I agree.

Whichever way this plays out one thing is gor sure:

The people at the top will end up with all of the spoils.