Wednesday, December 1, 2010

ECB Bond Purchasing Speculation Pushes Stocks Higher

The Ponzi scheme rolled on today as speculation of ECB bond purchases rallied stocks:

"LONDON, Dec 1 (Reuters) - Bond purchases by the European Central Bank and growing expectations it could expand the scheme turned down the heat on the euro zone's higher-yielding sovereign debt on Wednesday and sent German benchmarks tumbling.

Irish, Italian and Iberian countries' bonds outperformed German debt, and the cost of insuring their debt against default fell, with some in the market anticipating the ECB would announce fresh details of bond purchases at its monthly policy meeting on Thursday."

My Take:

The world once again has been "saved" thanks to the magic of QE.  This time we get to see it Euro style.  It's not official yet but I can't see how they don't pull the QE trigger.

Europe will default if it doesn't.  As I warned yesterday, Spain, Italy, and Portugal's surging bond yields were about to take down the whole EU.

Defaults were imminent within a matter of weeks without a sticksave.  Of course, this solves nothing and only makes the world's problems worse.   Europe is going to spend more money that it doesn't have just like we have with QE2.

The markets of course loved the news because the music gets to keep playing.   I am sure the Fed has been calling the ECB all week and begging them to quantitative ease.

Folks, all I can do at this point is just shake my head.  I am speechless. 

Meanwhile back here in the states Rome continues to burn.  Mortgage applications fell off a cliff last week:

"(RTTNews) - U.S. mortgage applications dropped last weeks as refinancing activity continued to slump, the latest figures from a leading housing industry watcher showed Wednesday.

The Mortgage Bankers Association's weekly mortgage applications survey for the week ending November 26 showed loan application volume decreased 16.5 percent on a seasonally adjusted basis from one week earlier.

This week's results include an adjustment to account for the Thanksgiving holiday. On an unadjusted basis, the Index decreased 34.2 percent compared with the previous week."

Take Continued:

I can't even describe how bad this number is.  Without housing the economy and the banks are going nowhere.  Wall St doesn't seem to care as long as the bailouts keep rolling in.

The Bottom Line

I expect to see increased volatility in the markets over the next several weeks.  The ISM number was below expectations but the market was much more worried about Europe so the potential European QE was a pleasant surprise for the street.

The market has already priced in the "recovery" so we needed a new catalyst to create another huge buying spree in the casino and the ECB news certainly did the trick. 

Anytime Wall St hears the letters QE they automatically hit the buy button.  Wait, let me change that, the trading robots automatically hit the buy button.  There fixed.

I speculate that a lot of traders got caught offsides today as they went short after watching how bad Europe was deteriorating.  This likely exacerbated today's move higher.

Of couse this creates huge trading opportunities for the black boxes.

Once the market begins roaring higher the trading robots love to look for stocks that have large short positions.   Once they are discovered, the bots buy them with both fists.  The shorts are then left to be taken out to the woodshed and shot as a result.

I took no positions today and remain fully hedged from this insanity as I sit mainly in cash. 

Folks, violent moves like today are not signs of a healthy market.   The price action only validates my thinking that the stock market has been turned into a bubble making speculative mess that remains controlled by a very powerful few.

Be careful if you decide to jump into this shark tank and play with the sharks.

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