Monday, October 11, 2010

We're on a Road to Nowhere

Today was a total snooze fest as the S&P closed the day essentially flat. 

You know it's funny, I keep hearing about this glorious rally that the markets have seen in the last several weeks.  

The bulltards on CNBC deliriously tell us that all is well because the Fed is going to "QE" us back into prosperity.  

They then explain that if the Fed doesn't QE then it means the economy the economy is recovering so you need to buy stocks no matter what the outcome.

These clowns try to add fuel to the fire by explaining that interest rates rates are at an all time low which will eventually stimulate the economy(Yeah ok 3.875% mortgage rates and houses still remain vacant.  How's that workin for ya?).  Sorry couldn't resist.

Given this supposed "perfect storm" for equities I must say that I am not all impressed at the recent bounce when you look at the year as a whole:

As you can see above, the DOW has essentially flatlined for the year.  We still remain about 300 points below the highs for the year and about 400 points above where we started 2010. 

Essentially one rough day in the markets could wipe out all of the gains for the year.

Consider my a cynic until I see the DOW break through the highs for the year.  I am curious to see what happens if we bounce up a tad and get there. 

As I ponder about where we head from here I keep asking myself the following question:  What else can possibly be done to prop up stocks, and how do we move higher from here?  I really couldn't come up with much of an answer to either.

Think about it:

You have the Fed pumping in trillions of liquidity into the markets, rates are at all time lows, and companies no longer have to mark their losses to market.

The only answer I could come up that could send stocks higher is an economic recovery. 

Uhhh....Good luck with that one.  The chances of this developing are slim to none when you look at the unemployment levels in this country.

To be fair to the bulls I also ask myself the same question from the other side:  What could possibly happen to push stocks lower"?

I had no problem with this one:

-  Out of control deficits at both the state and federal levels.
-  Falling dollar/higher commodities.
-  Massive unemployment.
-  Foreclosuregate:  Can you say Subrime Crisis X 100?
-  Underfunded pensions.
-  Robotic market manipulation(I guess this one could go on either side)
-  Lack of confidence.

I could continue but I will leave it there.

BTW let me elaborate on the one point from above...A quick chart on some commodities.  Many were lock limit up last night.  I picked wheat for the chart below but pretty much all of them looked the same except for oil:

The Bottom Line

Without an economic recovery I think the bulls are in trouble.  The market has failed to reach new highs for the year despite receiving EVERY tailwind known to god.

The Fed is in a real bad spot here.  They market is 100% all in on the Fed doing another QE.  If they fail to deliver the market is going to throw a hissy fit and reverse course IMO. 

If the Fed does decide pull the trigger then you are going to see a lot more lock limit up days when it comes to commodities.  A dropping dollar as the heating bills start to add up during the winter is going to be painful for a lot of people who are barely making ends meet as it is.

We get the Fed FOMC minutes tomorrow.  Pay attention to this.  Any hint of easing could create some violence in the currency and commoditity markets.


getyourselfconnected said...

The commodity thing is getting crazy. Money must flow (like the spice!) and the clowns at the FED have no control over where the liquidity goes. Ugh.

Got a great Julian Jackson KO clip up if interested.

Jeff said...

Put it up on SAturday Get!

YEah, futes down pretty sharply tonight. ES -4.5

Hmmm...Have to see whats going on. Been busy tonight. Haven't had a chance to check out the news.