Good Afternoon Folks!
I hope everyone is having a nice weekend. I did some research today and learned a lot more about why the market moved higher yesterday.
It appears the Fed has followed through on its threat to buy GSE debt that doesn't exist at ridiculously low yields in the treasury market in a desperate attempt to lower mortgage rates.
Here is the information from the Fed:
http://www.newyorkfed.org/markets/pomo/display/index.cfm?showmore=1
My Take:
As you can see this announcement on the Fed purchases came out around 2pm which is right about the time the market started to moonshot into the close.
The market took this as a huge positive because this will result in lower lending rates. This is why you say SRS plummet yesterday. Anything commercial or housing related rallied hard on the announcement by the Fed because it will result in lower borrowing rates for the mortgage market.
The problem here folks is its setting a dangerous precedent that cannot be sustained. First of all, this is very slick form of printing by the Fed. The money is not sterlized meaning the money was not raised by selling treasuries. Essentially the Fed is borrowing from itself(using taxpayer dollars) and buying debt in the credit markets that doesn't exist. This is an end game folks.
The Fed would never stoop to such measures unless things got real real bad. There are other problems in doing something so drastic. This could potentially be a death blow to the mortgage industry. Who needs them doing loans at 5-1/2% when the Fed will be popping out 4-1/2% loans. These actions could result in the Fed being the only lending game in town doing 4-1/2% loans for homebuyers.
This why you saw the insurers like The Hartford double yesterday. The lower rates will be very helpful the insurance companies.
Bottom Line:
This is why you saw your bull run yesterday. In my view this is a giant disaster down the road. You can't continue to create money in an attempt to prop up your debt markets. The market appears to moving higher based on the Fed actions.
Sometimes I think I need to stop doing research. The more I read the more I realize how screwed we really are.
In the short run, this could keep the markets moving higher for awhile. Stay away from shorting anything housing or commercial related. This is going to set up some incredible entry points for SRS down the road.
I have no short positions other than BEARX right now. However, once this bullfest loses steam, I will be all over SRS and other shorts. I believe you might be able to pick SRS up in the 60's if the Fed continues this buying spree over the next several weeks.
Ben warned us in a speech earlier this week that he was going to do this. He has backed up his words. There will be a day down the road when the Fed no longer has the resources to do this.
I don't know when this blows up folks.
When it does, the world will never be the same.
Saturday, December 6, 2008
Friday, December 5, 2008
Don't fight the Tape!
Just a quicky tonight folks.
I will be socializing so I don't have much time.
Interesting day today wasn't it? Kinda played out like I said but I must admit I am surprised it did after seeing a -530k print on the jobs report.
I had been noticing that the market was starting to ignore bad news earlier in the week after Monday. Lets face it folks, there is no fundamental reason to like this market. However, market retraces after huge selloffs are not uncommon. In fact, they should be expected.
The market traded very technically today. The bulls were able to successfully protect the 815 level on the S&P. Once we bounced off of there I figured we might end up positive for the day.
Bear rallies always rear their ugly heads in every great bear market. We saw a a huge correction in 1929 before once again touching new lows in the 1930's. I still hold the thesis that we could very well see a nice bull run through the holidays.
That's not to say we won't get creamed here or there for a day like we did on Monday. It would be silly to assume we go straight up from here.
Bottom Line:
Take notice when stocks begin to shrug off bad news and move higher. I saw a ton of this kinda price action this week. Goldman was a classic example of this after announcing it will report a loss.
This is where I am focusing in the short term folks. There will be plenty of bad news in the oncoming weeks that will allow us to see if this type of price action is a trend. If this "denial" by the bubbleheads continues, we could see a nice run on the long side because the bulls will start to gain some confidence.
Also ask yourself this question: If a -530K monthly job loss report can't push the market lower what can?
I will have more on this tomorrow. I need to run for now.
I will be socializing so I don't have much time.
Interesting day today wasn't it? Kinda played out like I said but I must admit I am surprised it did after seeing a -530k print on the jobs report.
I had been noticing that the market was starting to ignore bad news earlier in the week after Monday. Lets face it folks, there is no fundamental reason to like this market. However, market retraces after huge selloffs are not uncommon. In fact, they should be expected.
The market traded very technically today. The bulls were able to successfully protect the 815 level on the S&P. Once we bounced off of there I figured we might end up positive for the day.
Bear rallies always rear their ugly heads in every great bear market. We saw a a huge correction in 1929 before once again touching new lows in the 1930's. I still hold the thesis that we could very well see a nice bull run through the holidays.
That's not to say we won't get creamed here or there for a day like we did on Monday. It would be silly to assume we go straight up from here.
Bottom Line:
Take notice when stocks begin to shrug off bad news and move higher. I saw a ton of this kinda price action this week. Goldman was a classic example of this after announcing it will report a loss.
This is where I am focusing in the short term folks. There will be plenty of bad news in the oncoming weeks that will allow us to see if this type of price action is a trend. If this "denial" by the bubbleheads continues, we could see a nice run on the long side because the bulls will start to gain some confidence.
Also ask yourself this question: If a -530K monthly job loss report can't push the market lower what can?
I will have more on this tomorrow. I need to run for now.
Thursday, December 4, 2008
Its All about Jobs Tomorrow!
Hello all!
Just a few comments today. Before I get started I wanted to share a great clip from CNBC today that featured Hugh Hendry from Electica Asset Management. Hugh's fund is currently up 40% this year. According to Hugh, stocks won't get back to the highs until 2025!
http://www.cnbc.com/id/15840232?video=950838437
I thought this was great analysis from Hugh. There is currently a huge disconnect between the credit markets and the equity markets. The credit market is basically pricing in a deflationary depression folks. We are seeing 50 year lows on yields in treasuries. Short term treasuries are now paying .005% yields! Investors in the credit markets could care less about the returns on their money. They want safety! Meanwhile, the bubbleheads on the equity side are out there screaming that the bottom is in.
I have always said since day one on here that the traders in the credit markets run circles around the traders in the stock market. Always stick with the bond boys. Until these two are on the same page in terms of where the market is headed, I wouldn't go near stocks!
Bottom Line:
The market continues to bounce around like a pinball. The big three were in Washington again begging for money. I wouldn't give them a dime until they slash costs and prove they can make money. Detroit autoworkers get paid $72 per hour including benefits. The autoworkers in the southern US that make the japanese cars make $44 per hour including benefits.
Uhh hello! Houston we have a problem! The big three will never make money as long as there is this type of gap in costs between the two.
The Market
Its all about the jobs number tomorrow folks! I am going to make a small play on this news. This is a risky one and I will have a stop on it.
My guess here is the bulls already know this number will be awful. If the jobs number comes in at or a little below expectations I plan on buying a small position in SSO which is long the S&P 500 AFTER the gap down in reaction to a jobs report that is guaranteed to be ugly.
If the jobs number comes in way below expectations then this trade is off the table. I will have a tight stop on this if I place it because the market has been acting goofy. I also plan on selling on any bounce.
My guess here is the bulls will be prepared for the number tomorrow. Lets see what happens.
Just a few comments today. Before I get started I wanted to share a great clip from CNBC today that featured Hugh Hendry from Electica Asset Management. Hugh's fund is currently up 40% this year. According to Hugh, stocks won't get back to the highs until 2025!
http://www.cnbc.com/id/15840232?video=950838437
I thought this was great analysis from Hugh. There is currently a huge disconnect between the credit markets and the equity markets. The credit market is basically pricing in a deflationary depression folks. We are seeing 50 year lows on yields in treasuries. Short term treasuries are now paying .005% yields! Investors in the credit markets could care less about the returns on their money. They want safety! Meanwhile, the bubbleheads on the equity side are out there screaming that the bottom is in.
I have always said since day one on here that the traders in the credit markets run circles around the traders in the stock market. Always stick with the bond boys. Until these two are on the same page in terms of where the market is headed, I wouldn't go near stocks!
Bottom Line:
The market continues to bounce around like a pinball. The big three were in Washington again begging for money. I wouldn't give them a dime until they slash costs and prove they can make money. Detroit autoworkers get paid $72 per hour including benefits. The autoworkers in the southern US that make the japanese cars make $44 per hour including benefits.
Uhh hello! Houston we have a problem! The big three will never make money as long as there is this type of gap in costs between the two.
The Market
Its all about the jobs number tomorrow folks! I am going to make a small play on this news. This is a risky one and I will have a stop on it.
My guess here is the bulls already know this number will be awful. If the jobs number comes in at or a little below expectations I plan on buying a small position in SSO which is long the S&P 500 AFTER the gap down in reaction to a jobs report that is guaranteed to be ugly.
If the jobs number comes in way below expectations then this trade is off the table. I will have a tight stop on this if I place it because the market has been acting goofy. I also plan on selling on any bounce.
My guess here is the bulls will be prepared for the number tomorrow. Lets see what happens.
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