By my math, Federal Reserve balance sheet currently sports leverage of 54:1. That's higher than Fannie, Freddie, Bear, Lehman prior to the 2008 credit implosion.
Indicator of how risk has been socialized, meaning that risk has been transferred from private to public balance sheets.
position in SPX
Showing posts with label Fed. Show all posts
Showing posts with label Fed. Show all posts
Monday, January 30, 2012
Wednesday, January 25, 2012
Low Fed Rates till 2014 Sparks Gold
In today's FOMC announcement, the Fed signaled that they will be keeping rates ultra low thru most of 2014. That even raised my eyebrow...
This news put some giddy-up into gold, which vaulted about $50 this afternoon on the FOMC news.
I used this leap to sell my GLD position. It's up about 10% from its lows, price is now filling the gap, and stochastics are getting twisty in the overbought zone.
Am also concerned about the re-hypothecation issues surrounding these metal ETFs on the back of the MF Global situation last fall.
Selling this position puts me just about 0% net long (long metal and ag commodities against short equity index). Feels about right given the current field position of various asset classes.
position in commodities, SPX
This news put some giddy-up into gold, which vaulted about $50 this afternoon on the FOMC news.
I used this leap to sell my GLD position. It's up about 10% from its lows, price is now filling the gap, and stochastics are getting twisty in the overbought zone.
Am also concerned about the re-hypothecation issues surrounding these metal ETFs on the back of the MF Global situation last fall.
Selling this position puts me just about 0% net long (long metal and ag commodities against short equity index). Feels about right given the current field position of various asset classes.
position in commodities, SPX
Monday, December 5, 2011
Bail Out Mentality
Another sage letter by Dr J. In the front half he makes a compelling argument for a recession given the position of his forward looking indicators.
In the back half he discusses the EU situation given last week's 'coordinated' move by central banks. He reminds once again that the issue is one of solvency rather than of liquidity. Last week's coordinated dollar swap program is a short term measure aimed at boosting liquidity.
To remedy the solvency problem, it is likely that either banks fail or non-bank holders of EU debt must take haircuts. Thus far, no one wants to do that.
John ends with a section called "We represent the Lollipop Guild." His thoughts here are so wonderfully collected that I want to capture them here in their entirety:
"Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.
"What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on the poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth. The world's standard of living (what we can consumer for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education).
"Nietzsche famously said, 'What does not kill me makes me stronger.' The corollary is 'What constantly rescues me makes me weaker.' The world will only stop looking for bailouts when policy makers stop handing them out."
Re-read until you understand.
In the back half he discusses the EU situation given last week's 'coordinated' move by central banks. He reminds once again that the issue is one of solvency rather than of liquidity. Last week's coordinated dollar swap program is a short term measure aimed at boosting liquidity.
To remedy the solvency problem, it is likely that either banks fail or non-bank holders of EU debt must take haircuts. Thus far, no one wants to do that.
John ends with a section called "We represent the Lollipop Guild." His thoughts here are so wonderfully collected that I want to capture them here in their entirety:
"Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.
"What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on the poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth. The world's standard of living (what we can consumer for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education).
"Nietzsche famously said, 'What does not kill me makes me stronger.' The corollary is 'What constantly rescues me makes me weaker.' The world will only stop looking for bailouts when policy makers stop handing them out."
Re-read until you understand.
Wednesday, November 30, 2011
The Infuence of Today's Events on Inflation
As noted in this morning's post, central banks got out the bazookas today in an attempt to blow away systemic deflationary forces that are driving Euro and US banks toward insolvency.
On the surface, the concerted central bank actions are clearly inflationary.
This post on zerohedge w/ Peter Schiff comments captures it well. The snippet at the end of the post REALLY captures it well:
"...this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the [brink] of viability (and beyond) in trying."
As the snippet notes, the big question is whether this collective action will work. In late 2008, the Fed got out the fire hose of liquidity to stem the Lehman blowup. After a sharp relief rally on the news, however, markets resumed their downward path as the deflationary forces were not to be denied.
Hard not to wonder whether the same set up might not be in play here. Yes, the collective bazooka exceeds the power of the Fed's firehose. But the deflationary forces are more global in nature this time around.
Peter Schiff suggests that this is the time to load up on gold. That may turn out to be the case. Heck, gold popped 40 handles today.
But the other side of the trade is that the market forces pressing against the intervention are deflationary in nature.
And it's generally not nice to fool Mother Nature.
position in SPX, gold
On the surface, the concerted central bank actions are clearly inflationary.
This post on zerohedge w/ Peter Schiff comments captures it well. The snippet at the end of the post REALLY captures it well:
"...this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the [brink] of viability (and beyond) in trying."
As the snippet notes, the big question is whether this collective action will work. In late 2008, the Fed got out the fire hose of liquidity to stem the Lehman blowup. After a sharp relief rally on the news, however, markets resumed their downward path as the deflationary forces were not to be denied.
Hard not to wonder whether the same set up might not be in play here. Yes, the collective bazooka exceeds the power of the Fed's firehose. But the deflationary forces are more global in nature this time around.
Peter Schiff suggests that this is the time to load up on gold. That may turn out to be the case. Heck, gold popped 40 handles today.
But the other side of the trade is that the market forces pressing against the intervention are deflationary in nature.
And it's generally not nice to fool Mother Nature.
position in SPX, gold
Central Banks Announce Coordinated Measures
This morning central banks around the world announced coordinated measures to enhance global financial system liquidity. Coordinated measures like this imply that central bankers see something severely wrong with the global financial system.
Their perceptions of systemic probs are correct, although as usual they are behind the curve.
Unfortunately, the planned approach--i.e., 'more liquidity'--does little to remedy the underlying problem, which is one of insolvency.
Nonetheless, the news jacked markets around the world. Domestic stock markets have opened about 2% higher. Gold jumped $30 on the money printing spectre.
My inclination is to 'fade' (read: sell) this news and will be looking for an opportunity to add to short side exposure.
position in SPX, gold
Their perceptions of systemic probs are correct, although as usual they are behind the curve.
Unfortunately, the planned approach--i.e., 'more liquidity'--does little to remedy the underlying problem, which is one of insolvency.
Nonetheless, the news jacked markets around the world. Domestic stock markets have opened about 2% higher. Gold jumped $30 on the money printing spectre.
My inclination is to 'fade' (read: sell) this news and will be looking for an opportunity to add to short side exposure.
position in SPX, gold
Tuesday, October 18, 2011
The Influence of Dividends
Borrowed the chart below from this article. The graph suggests the dominant influence of dividends on stock performance over time.
Since 1871, dividends account for more than half the nominal gains in the S&P 500 Index. Today many folks shun dividends in search of capital gains. Over time, however, capital gains have accounted for less than 2% of the 8.8% annual return.
Parenthetically, note that there was no inflation prior to the mid 1910's. The Federal Reserve Act was passed in 1913.
Before running out and loading up on dividend paying stocks right here, keep in mind that average dividend yields rest at the low end of historical benchmarks. Current yield on the SPX is about 2%. Historical buying opportunities in stocks have typically corresponded to aggregate yields in the 5-6% range or higher.
While there may be special situations here or there that are paying outsized dividends, I'm trying to remain patient for much higher dividend yields in aggregate before 'buying the list.'
position in SPX
Since 1871, dividends account for more than half the nominal gains in the S&P 500 Index. Today many folks shun dividends in search of capital gains. Over time, however, capital gains have accounted for less than 2% of the 8.8% annual return.
Parenthetically, note that there was no inflation prior to the mid 1910's. The Federal Reserve Act was passed in 1913.
Before running out and loading up on dividend paying stocks right here, keep in mind that average dividend yields rest at the low end of historical benchmarks. Current yield on the SPX is about 2%. Historical buying opportunities in stocks have typically corresponded to aggregate yields in the 5-6% range or higher.
While there may be special situations here or there that are paying outsized dividends, I'm trying to remain patient for much higher dividend yields in aggregate before 'buying the list.'
position in SPX
Sunday, September 25, 2011
Long Bond Yields at All Time Lows
Below is monthly chart of the yield on a ten year Treasury note over the past 20 years. Earlier this month 10 yr yields dropped below 2% for the first time ever.
After the Fed announced Operation Twist this past wk, yields broke lower yet again. They now reside at about 1.8%.
The Fed is trying to buoy economic activity thru borrowing--particularly w.r.t. housing. But anyone with a pulse recognizes that interest rates, which have been at generational lows for months, do not constitute a binding constraint on economic activity here. Economies around the world are already choking on debt and have little appetite for more. The Fed is thus pushing on a string.
Two groups are especially hurt by Fed policy here. Retired people and other savers are having trouble making ends meet as it is becoming impossible to make ends meet by making 1-2% off modest principal. Savings are being gutted by Fed policy. Moreover, low returns on savings are nudging more people into risky assets such as dividend-paying stocks.
Keep in mind that, over time, savings are the driver of higher standard of living as resources set aside are invested in productivity-enhancing technologies.
Pension funds are also significantly impacted by long bond rates. Pensions funds are built on bond portfolios, and these portfolios are returning less and less. Lower bond yields increase pension fund assumptions about future liabilities, thereby creating funding gaps. To close these gaps, pension fund managers can take more risk increasing their allocation towards stocks, or, in the case of corporate pension funds, have the corporate parents write checks out of retained earnings to fund the shortfall. Those checks in turn reduce earnings...
By discouraging saving and encouraging risk taking, current Fed policy serves as a major drag on standard of living.
position in SPX
After the Fed announced Operation Twist this past wk, yields broke lower yet again. They now reside at about 1.8%.
The Fed is trying to buoy economic activity thru borrowing--particularly w.r.t. housing. But anyone with a pulse recognizes that interest rates, which have been at generational lows for months, do not constitute a binding constraint on economic activity here. Economies around the world are already choking on debt and have little appetite for more. The Fed is thus pushing on a string.
Two groups are especially hurt by Fed policy here. Retired people and other savers are having trouble making ends meet as it is becoming impossible to make ends meet by making 1-2% off modest principal. Savings are being gutted by Fed policy. Moreover, low returns on savings are nudging more people into risky assets such as dividend-paying stocks.
Keep in mind that, over time, savings are the driver of higher standard of living as resources set aside are invested in productivity-enhancing technologies.
Pension funds are also significantly impacted by long bond rates. Pensions funds are built on bond portfolios, and these portfolios are returning less and less. Lower bond yields increase pension fund assumptions about future liabilities, thereby creating funding gaps. To close these gaps, pension fund managers can take more risk increasing their allocation towards stocks, or, in the case of corporate pension funds, have the corporate parents write checks out of retained earnings to fund the shortfall. Those checks in turn reduce earnings...
By discouraging saving and encouraging risk taking, current Fed policy serves as a major drag on standard of living.
position in SPX
Thursday, September 22, 2011
SPX 1120
Domestic equities gapped about 3% lower after dismal overseas response to yesterday's FOMC announcement (plus continued deterioration in Europe).
They 'felt' lower in early morning trading as well. Early afternoon saw the SPX toying w/ the Aug closing low of 1120. This was the battleground for the remainder of the day.
I covered 20% of my short position during the probes of 1120. I intended to cover more if sell stops were tagged and sucked the index lower but that didn't happen.
I also bought a little SLV as silver was tagged for nearly 10%.
Stochastics suggest that the SPX is not all that oversold--unlike previous visits to 1120. Thus, there may be more downside 'energy' for piercing support. Classic technical analysis says the more times support is tested the weaker it gets. And today's back and forth around 1120 likely chewed through a few layers of latent demand.
Futes are up a few after hours, but would think that we see a probe lower in the near future.
position in SPX, SLV
They 'felt' lower in early morning trading as well. Early afternoon saw the SPX toying w/ the Aug closing low of 1120. This was the battleground for the remainder of the day.
I covered 20% of my short position during the probes of 1120. I intended to cover more if sell stops were tagged and sucked the index lower but that didn't happen.
I also bought a little SLV as silver was tagged for nearly 10%.
Stochastics suggest that the SPX is not all that oversold--unlike previous visits to 1120. Thus, there may be more downside 'energy' for piercing support. Classic technical analysis says the more times support is tested the weaker it gets. And today's back and forth around 1120 likely chewed through a few layers of latent demand.
Futes are up a few after hours, but would think that we see a probe lower in the near future.
position in SPX, SLV
Wednesday, September 21, 2011
FOMC Selloff
Looks like the FOMC statement did not contain enough goodies for the addicts, and markets subsequently drained. SPX was down about 3%, with things really letting go in the last half hour.
While we're still some distance from the August lows in the SPX, other 'tells' hint that a date with those lows may be coming.
The Trannies, for example, were splattered for more than 5% today and are now within spitting distances of their recent lows.
Will be interesting to see how overnight markets, particularly Europe, greet the FOMC decision.
position in SPX
While we're still some distance from the August lows in the SPX, other 'tells' hint that a date with those lows may be coming.
The Trannies, for example, were splattered for more than 5% today and are now within spitting distances of their recent lows.
Will be interesting to see how overnight markets, particularly Europe, greet the FOMC decision.
position in SPX
Tuesday, September 20, 2011
Fully Hedged
As a result of today's MSFT sale, I am pretty much flat risky assets on a net basis. Long positions in Cisco (CSCO) and ag commodities (RJA) are offset by a short position in SPX (SH).
A fully hedged position feels good ahead of the Fed's special two day soiree which is setting up as a binary event.
If the Fed injects another round of drugs and markets trip higher, then I hope to unload some of my CSCO exposure. If the Fed takes the narcotics away and markets head into withdrawal, then I might trim my short book. Either way, chances are that my risk will be pretty manageable.
My sense is that the Fed may in fact do nothing--with the justification that it is already propping up Euro banks. Why nothing from a central bank that loves to meddle? It is becoming politically less palatable to engage in interventionary behavior. Plus, the marginal bang for each interventionary buck is approaching the zero bound.
If the Fed does indeed stand pat, then domestic markets will likely fall thru the floor.
position in CSCO, RJA, SH
A fully hedged position feels good ahead of the Fed's special two day soiree which is setting up as a binary event.
If the Fed injects another round of drugs and markets trip higher, then I hope to unload some of my CSCO exposure. If the Fed takes the narcotics away and markets head into withdrawal, then I might trim my short book. Either way, chances are that my risk will be pretty manageable.
My sense is that the Fed may in fact do nothing--with the justification that it is already propping up Euro banks. Why nothing from a central bank that loves to meddle? It is becoming politically less palatable to engage in interventionary behavior. Plus, the marginal bang for each interventionary buck is approaching the zero bound.
If the Fed does indeed stand pat, then domestic markets will likely fall thru the floor.
position in CSCO, RJA, SH
Thursday, September 15, 2011
EU Bank Bailout
This morning, a 'syndicate' of central banks stepped in to promise loans to European banks that are having trouble staying solvent. The announcement sent markets higher world wide. Euro bank stocks ripped 8-10% on the news.
The situation is similar to late 2008 when the Fed opened the uber cheap credit window to crippled US banks. Ironically, today is the third anniversary of the Lehman collapse.
Initiation of yet another bail out has stock buyers giddy today as morale hazard takes control. However, when market participants pause to consider just how dire the situation must be to motivate coordinated central bank intervention, perhaps their mood will change.
position in SPX
The situation is similar to late 2008 when the Fed opened the uber cheap credit window to crippled US banks. Ironically, today is the third anniversary of the Lehman collapse.
Initiation of yet another bail out has stock buyers giddy today as morale hazard takes control. However, when market participants pause to consider just how dire the situation must be to motivate coordinated central bank intervention, perhaps their mood will change.
position in SPX
Thursday, September 8, 2011
Long Bond Yields and the Fed
The chart below displays yields on the 10 year T-note over the past 200+ years.
If we were to calculate the standard deviation of interest rates for the first half of the series, and then do the same for the second half, which standard deviation would be higher?
Answer: the second half by a mile. Long bond rates have been significantly more volatile during the past 100 years than during the previous 100.
A key difference between the two periods is the presence of the Federal Reserve. The Fed came into being in 1913, and has been getting progressively more intrusive in markets since then.
Ironically, a primary justification for the Fed was that a central bank was needed to stabilize economies and markets that purportedly were too volatile in their free unregulated states.
The interest rate data above suggest just the opposite. The Fed's presence increases, rather than decreases, volatility in credit markets which, because of credit's centrality to economic activity, spills instability into the entire economic and financial system.
Stated differently, credit markets unhampered by central bank regulation are likely to be more stable, rather than less, stable. How can that not be a boon for economic activity?
no positions
If we were to calculate the standard deviation of interest rates for the first half of the series, and then do the same for the second half, which standard deviation would be higher?
Answer: the second half by a mile. Long bond rates have been significantly more volatile during the past 100 years than during the previous 100.
A key difference between the two periods is the presence of the Federal Reserve. The Fed came into being in 1913, and has been getting progressively more intrusive in markets since then.
Ironically, a primary justification for the Fed was that a central bank was needed to stabilize economies and markets that purportedly were too volatile in their free unregulated states.
The interest rate data above suggest just the opposite. The Fed's presence increases, rather than decreases, volatility in credit markets which, because of credit's centrality to economic activity, spills instability into the entire economic and financial system.
Stated differently, credit markets unhampered by central bank regulation are likely to be more stable, rather than less, stable. How can that not be a boon for economic activity?
no positions
Wednesday, September 7, 2011
Nice Missive
The last 5-6 paragraphs of John Hussman's weekly missive are 'must read' material. Then they are 're-read' material.
Until policy making returns to market driven themes such as private savings and investment, and rejects themes grounded in Fed money printing and government stimulus, we have 'an economy built on speculation and paper, stacked into a flimsy house of cards.'
Very nicely put.
position in SPX
Until policy making returns to market driven themes such as private savings and investment, and rejects themes grounded in Fed money printing and government stimulus, we have 'an economy built on speculation and paper, stacked into a flimsy house of cards.'
Very nicely put.
position in SPX
Monday, August 29, 2011
Rallying to Resistance
Stocks have tacked on close to 5% off Friday's lows on the back of Fed chair Bernanke's Jackson Hole speech. We're now coming up on the SPX 1225 level that led the spill once breached nearly a month ago.
Will be interesting to see how things behave at these levels, as that 1225 now serves as resistance.
Personally, I've been fading (read: selling) this rally--unloading longs and adding to shorts. Have worked my net long stock exposure (longs minus shorts) down from about 22% to 13% of liquid assets.
Still sense that we have a date below w/ SPX 1025 in the not too distant future. As such, I want to use strength to reduce my net long position.
position in SPX
Will be interesting to see how things behave at these levels, as that 1225 now serves as resistance.
Personally, I've been fading (read: selling) this rally--unloading longs and adding to shorts. Have worked my net long stock exposure (longs minus shorts) down from about 22% to 13% of liquid assets.
Still sense that we have a date below w/ SPX 1025 in the not too distant future. As such, I want to use strength to reduce my net long position.
position in SPX
Friday, August 26, 2011
QE3 Still a Possibility?
A year ago at Jackson Hole, Fed chair Bernanke signaled a major policy initiative aimed at stimulating the stock market, er, the economy, that became known as QE2. That policy lit a fire under the equity markets and they ripped higher--only to come tumbling down over the last month or so coincident with the end of QE2.
Markets were looking for some deja vu today as Bernanke took the podium this year's summer shrimpfest this morning. His speech did not detail a new stimulus program, although he did indicate that he has extended the length of the Sept FOMC meeting to two days so that the committee can amply discuss the various 'tools' at the Fed's disposal for stimulating growth.
That 'potential' for future Fed intervention was perhaps all markets needed today, as early market losses were quickly reversed as Bernanke spoke and the indexes sprinted higher for gains of 1% or so.
Hope springs eternal for the addict.
position in SPX
Markets were looking for some deja vu today as Bernanke took the podium this year's summer shrimpfest this morning. His speech did not detail a new stimulus program, although he did indicate that he has extended the length of the Sept FOMC meeting to two days so that the committee can amply discuss the various 'tools' at the Fed's disposal for stimulating growth.
That 'potential' for future Fed intervention was perhaps all markets needed today, as early market losses were quickly reversed as Bernanke spoke and the indexes sprinted higher for gains of 1% or so.
Hope springs eternal for the addict.
position in SPX
Wednesday, August 10, 2011
Turnaround Tuesday
Another N-V-T-S trading day. Last night the Dow futes were down about 300 but in the span of a few minutes in the early am prior to the bell, futures reversed higher and were up about 1.5%.
After the opening bell markets rallied a bit and then oscillated in front of the FOMC statement. Kowtowing to the market's need for speed, Uncle Ben & Co indicated that the Fed would keep interest rates at zero until at least mid 2013 (the 1st time I've ever seen a specific time frame expressed here). The Fed also promised to employ various 'policy tools as appropriate' depending on economic conditions.
Initially, markets didn't like this statement and the indexes drained to the tune of about -2%. Then, in classic 'the first move on FOMC day is a head fake' fashion, stocks reversed and ripped higher, ending on the high tick. The Dow was +429 with the SPX and COMP up 4-5% each.
Once again, we saw intraday range of more than 5%...major league volatility.
I was busy parsing out trading inventory into that late day lift. If we continue higher I'll hold more for sale.
It is my growing sense that we are entering a significant downleg--meaning that rallies should be sold rather than bought. The word circulating in my crowded keppe is 'deleveraging.' Over the past few days, we've witnessed what happens when market particpants want to deleverage in a big way: a tidal wave of supply.
I am having my doubts whether central banks have enough sandbags to stem the tide if deleveraging continues. There is so much debt and leverage out there that if risk appetites wane, I'm just not sure central banks will be able to hold it all together.
Think about it this way. In the last few days we saw all of the market gains realized during QE2 get washed away.
What does this imply about the size and effectiveness of another round of Fed intervention?
position in SPX
Monday, August 8, 2011
Waterfall Decline
The answer to the $trillion question turned out to be a), the 'elevator shaft' scenario. US markets gapped lower by over 2% and, save for a few rally attempts here and there, basically sank throughout the day.
In the last 30 minutes, margin calls intensified the selling, sending the Dow to a -600 point day. The SPX was off almost 80 handles.
Last Friday I put back on a small SPX short position which I let fly into the morass this afternoon. Stocks are going down very easily here.
Indeed, downside bets may be getting too easy. What we've witnessed in the past week is a 'waterfall decline' which is self-explanatory by the image above. And contrary to the waterfall imagery, markets rarely move in a straight line without relieving some pressure.
About two weeks ago the SPX was tickling 1350 and appeared to be tracing out a reverse head and shoulders pattern (bullish). The SPX has shed about 17% since then, which qualifies as a multi-day crash.
While I sense that, ultimately, the indexes have more work to do on the downside, I'm warming to the risk/reward of a long side trade. Technically, the SPX has some support right around here. Moreover, trend exhaustion indicators are suggesting high probability of a near term 'trend reversal' in all major indexes. And bullish percent indicators now show levels that favor upside rather than downside.
As such, I did some buying in big cap tech this pm.
A wild card over the next day or two is the FOMC meeting. Cratering markets are exerting big time pressure on the Fed Heads for another round of QE. Past Fed interventions have invited huge amounts of risk taking behavior steeped in moral hazard. All this risk is looking once more for a bailout from the Fed.
The money pouring into gold (north of $1700/oz today) is betting that Uncle Ben & Co will do the deed and keep moral hazard in play.
position in select big cap tech, gold
In the last 30 minutes, margin calls intensified the selling, sending the Dow to a -600 point day. The SPX was off almost 80 handles.
Last Friday I put back on a small SPX short position which I let fly into the morass this afternoon. Stocks are going down very easily here.
Indeed, downside bets may be getting too easy. What we've witnessed in the past week is a 'waterfall decline' which is self-explanatory by the image above. And contrary to the waterfall imagery, markets rarely move in a straight line without relieving some pressure.
About two weeks ago the SPX was tickling 1350 and appeared to be tracing out a reverse head and shoulders pattern (bullish). The SPX has shed about 17% since then, which qualifies as a multi-day crash.
While I sense that, ultimately, the indexes have more work to do on the downside, I'm warming to the risk/reward of a long side trade. Technically, the SPX has some support right around here. Moreover, trend exhaustion indicators are suggesting high probability of a near term 'trend reversal' in all major indexes. And bullish percent indicators now show levels that favor upside rather than downside.
As such, I did some buying in big cap tech this pm.
A wild card over the next day or two is the FOMC meeting. Cratering markets are exerting big time pressure on the Fed Heads for another round of QE. Past Fed interventions have invited huge amounts of risk taking behavior steeped in moral hazard. All this risk is looking once more for a bailout from the Fed.
The money pouring into gold (north of $1700/oz today) is betting that Uncle Ben & Co will do the deed and keep moral hazard in play.
position in select big cap tech, gold
Wednesday, July 13, 2011
Fed Hints of QE3
While speaking to Congress today, Fed chair Ben Bernanke stated that the Fed is prepared to inject additional stimulus should economic conditions warrant. QE3 anyone?
Those words were barely out of his mouth before domestic markets ramped higher by 1% or so.
![]()
Exuberance dwindled as the day wore on, however. By the close, major indexes sported a bearish whisker on the candlestick charts. The SPX is once again sitting on its 50 day moving average.
Perhaps it dawned on market participants that further economic weakness will likely be necessary before the Fed can engage in more money printing.
The market continues to act like an addict, perking up at signs of another fix, and fading when prosects of another fix dwindle.
position in SPX
Those words were barely out of his mouth before domestic markets ramped higher by 1% or so.
Exuberance dwindled as the day wore on, however. By the close, major indexes sported a bearish whisker on the candlestick charts. The SPX is once again sitting on its 50 day moving average.
Perhaps it dawned on market participants that further economic weakness will likely be necessary before the Fed can engage in more money printing.
The market continues to act like an addict, perking up at signs of another fix, and fading when prosects of another fix dwindle.
position in SPX
Friday, July 8, 2011
Weak Payroll Number
Hard to see much good in today's surprisingly weak payroll number. That may not stop the bulls from drinking it pretty, however.
Bulls will likely suggest that weak job reports like this one 'demand' more stimulus from the government.
Quite convenient thinking--given the recent end of QE2.
position in SPX
Bulls will likely suggest that weak job reports like this one 'demand' more stimulus from the government.
Quite convenient thinking--given the recent end of QE2.
position in SPX
Wednesday, June 8, 2011
The Fed's Leverage
Since 2007, assets on the Federal Reserve's balance sheet have expanded from $850 billion to $2.8 trillion. At the end of April, the Fed reported assets of $2.695 trillion against capital of $53 billion.
That's a 50:1 leverage ratio. Bears Stearns and Lehman were leveraged about 30x before they imploded.
At 50x leverage, prices need only go against you by 2% before equity is wiped out.
Of course, the Fed does not have to worry about insolvency risk. That risk has been transferred to us.
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That's a 50:1 leverage ratio. Bears Stearns and Lehman were leveraged about 30x before they imploded.
At 50x leverage, prices need only go against you by 2% before equity is wiped out.
Of course, the Fed does not have to worry about insolvency risk. That risk has been transferred to us.
no positions
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