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Federally Funded Friday
I feel like I’m driving in a gasoline truck at a 100 mph and towards a brick wall, says Brian Kelly. And Ben Bernanke just lit a match. I can’t help but worry that this ends badly. - Fast Money's Brian Kelly
I also remain skeptical, adds Steve Cortes. The unanimous opinion sees to be the market can not go lower and I find it reminiscent of the rhetoric we heard right before the tech bubble burst. I want to know what the Fed sees that’s so dire that it’s required them to take drastic steps, muses Guy Adami. I guess it doesn’t matter because the market just wants to go higher. But the market action has the feeling to me of a blow-off top. I don’t know when it ends, but I suspect it ends extraordinarily badly.
[Pic (left), credit: Elaine Supkis Culture of Life News]
David Stockman sums things up very nicely, saying:
Today the Fed is scared to death that the boys and girls and robots on Wall Street are going to have a hissy fit. And therefore these programs, one after another, are simply designed to somehow pacify the stock market, and hoping to keep the stock indexes going up, and that somehow that will fool the people into thinking they are wealthier and they will spend money.
The people aren't buying that. Main Street is not stupid enough to believe that engineered rallies as a result of QE2 stimulus are making them wealthier and so they should go out and buy another Coach bag. This is really crazy stuff that I can't say enough negative about...The Fed is telling a lot of lies to the market... it is telling all the politicians on Capitol Hill you can issue unlimited debt cause it doesn't cost anything.
We have $9 trillion of marketable debt. Upwards of 70% of that has maturities of 5 years or less down to 90 days. All of those maturities are 1% down to 10 basis points. So from the point of view of Congress, the cost of carrying the debt is essentially free. When you tell politicians they can issue $100 billion of debt a month for free, how do you expect them to do the right thing, and ask their constituents to sacrifice... I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient."
Well, one thing we know about betting on a junkie that just got some heroin - they are going to get high! That's the easy bet and we took that earlier in the week for a quick 200% on the FAS spread and we're done with that as XLF hit $15 yesterday and FAS went over $25, up over 10% in 24 hours from Wednesday's pick.
I know that the trade was designed to make 1,334% but that was if we wait until January - after making 100% on day one and 100% on day too - forgive us if waiting 90 more days just to make 1,100% more seems a little tedious and we are still preferring to get back to cash early and often (per the above remarks!). Of course there are many other great leveraged trades, that was just an example, as I do still try to play Robin Hood and throw out the occasional trade or two to the masses but we've already moved on to XLF and UYG spreads in Member Chat and we will be making other plays next week to keep us ahead of the inflation game.
I said yesterday, I feel much less bad about taking advantage of our dysfunctional markets after the election - the little people obviously WANT to be screwed over, they want to the top 1% to own 70% of the nation's wealth while they go home to watch Fox news tell them what a great country this is. As I wrote several years ago, it's the opposite of Robin Hood, it's the Dooh Nibor Economy but it apparently the economy the American people are comfortable with so who am I to fight the will of the people?
We're gearing up to play the inflation game at PSW and it's a very exciting game to play (as you can see from that little FAS spread). We can magnify relatively small moves in the market to create great trading opportunities almost daily and inflation is like putting a gigantic safety net under everything we do - it's just fantastic. On behalf of the top 1%, I want to thank the bottom 99% for voting to "extend and pretend " rather than stopping the ongoing transfer of wealth that has now far eclipsed even the economic atrocities that led up to the Great Depression.
The big joke of the day is, clearly all this emergency Quantitative Easing was not necessary. We've been saying this for months but how else can the Fed tax the poor of this nation 10% of their total wealth in order for us to make 200% in 2 days trading on the banking sector? 151,000 jobs were added in today's Non-Farm Payroll Report vs 60,000 predicted by the economists Bernanke used to justify his debasement of our currency.
I already pointed out yesterday that inflation is out of control and the CPI is a total joke, also used by Ben to justify his extraordinary actions. "With all due respect, U.S. policy is clueless," Germany's finance minister said this morning. Pleading with the U.S. to take a global leadership role, Wolfgang Schaeuble believes there is no shortage of liquidity: "To say let's pump more into the market is not going to solve their problems."
Clueless, reckless, dangerous, damning, doomed, fatally flawed... Whatever. Our job as investors is simply to survive and thrive on the chaos. In chat yesterday, we were discussing some simple hedges to make 200% a year if we have 20% inflation and trades like that are good as we don't need to over-commit our assets because we are still wary of currency-led shocks to the system as we expect the dollar to bounce off that 76 mark (and we still like UUP at $22 with the November $22 calls at just .18 at yesterday's close as NO ONE believes the dollar will bounce, so a good contrarian play).
Despite crude supplies at 14% over the 5-year average, oil hit our Fed-induced $87.50 upside target yesterday and that puts the USO November $36 puts in play at .35, also a play on a dollar recovery as well as a sell-off of crude into the contract rollover period in 2 weeks.
“The markets have taken off like bottle rockets,” said Richard Soultanian, co-president of NUS Consulting Group, a Park Ridge, New Jersey-based energy procurement adviser. “The Fed action is going to create commodity inflation. A weak dollar is providing impetus to all the commodity trades.”
Aside from our own Federal Reserve screwing over the people by ramping up commodity prices, the oil industry is back in business (since we just voted out the possibility of more regulatory oversight) and the reason we had a draw in gasoline inventories the past two weeks had nothing to do with demand (still at 5-year lows) and everything to do with a 70% drop in gasoline imports for October. Actual consumption last week was just 9.03Mb per day, the lowest level in 3 weeks as prices squeeze those poor bastards in the bottom 90% off the roads entirely...
Things are certainly getting interesting. China said the U.S. Federal Reserve needs to explain this week’s decision to purchase bonds to pump money into the world’s biggest economy or risk undermining the global recovery. “Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing today. “It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.”
Cui’s remarks echo concerns raised across Asia as countries brace themselves for stronger currencies and possible asset- price inflation. German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next week’s Group of 20 leaders’ summit in Seoul.
We should be testing that critical 1,220 mark on the S&P and the percentage play is to short them into the weekend but we'll have to play that by ear in Member Chat as we still have Pending Home Sales at 12:30 and Bernanke Speaks in Jacksonville at 2pm and at 3pm we get the Consumer Credit numbers, which begin to matter as holiday shopping season is upon us.
Have a great weekend,
- Phil
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Ben knows QE2 won't spark the economy-- his academic writings predicted as much and QE1 bore out his prediction. But, he also knows that the stock market took off with QE1, and he knows the GM IPO is shortly at hand, the proceeds of which are going mainly to the USG (including perhaps the Fed, which maybe holds GM stock as part of its collateral for the GMAC loans). So, does this make QE2 the world's most elaborate, and expensive, "pump and dump" scheme?
David Stockman? Are you kidding? Anyone who looked like this:
http://www.slate.com/id/2163265/
can in no way be taken seriously.
Neither can you.
Next week the Dow Jones will get Rocked ....
A sell off in Gov Bonds.........
Good Story , China and Germany is pissed at the Fed.
I can see a flash crash coming ....
I think Bernanake and Stockman are looking for two different types of inflation. Stockman observes generalized commodity driven inflation from the first global Print Run and the current $US carry trade. Bernanke seeks consumption driven inflation and he won't stop until he gets it. In other words, The Federal Reserve needs us to believe that it will keep printing in order to force up global inflation and reduce the buying power of the dollar simultaneously until people are simply forced to spend.
If they are trying to pull this off and control chaos, they are more deluded than I thought. There's a reason why no country or govt. has successfully did what they are attempting. And thats because the cure for one is the poison for another. We are going into stagflation and then hyperinflation, just watch.
Why are women allowed to post here?
You are a woman aren't you? I thought your name was Geoffette.
"I said yesterday, I feel much less bad about taking advantage of our dysfunctional markets after the election - the little people obviously WANT to be screwed over, they want to the top 1% to own 70% of the nation's wealth while they go home to watch Fox news tell them what a great country this is."
You should always try to avoid profiting on the misery of others. No earthly reason for this other than it's just improper and wrong. Unless you have so divorced yourself from humanity that none of that matters anymore.
I think Bernanke will continue with the pressure to lower the dollar until the United States gets what it wants... geopolitically.
Germany will have to stop selling arms to Iran, Pakistan, et al and get their banking system to follow the "rules" if they want the US to play ball.
China would need to stop selling arms and buying influence to be seen as the "new" geopolitical foil to US foreign policy.
France & Britain's banking systems needs to clean-up their act and not exploit any "new" rules the US implements on it's domestic banking system. If France & Britain thinks it will exploit the "rules" in the international banking industry to "grab" marketshare from US banks, why should the US step back from the brink?
All in all US brinksmanship is the one opportunity for the countries of the world to re-consider how they play off US geopolitical interests and foreign policy. If some international accommodation cannot be found, keep the printing presses going. Sooner or later all the world's "savings" will be held in US currency.
Now that's an original take on things! The problem would be that our savings will be worthless.
Other than India, I think every other country's economy would boil over before the US economy hit rock bottom.
I don't think China wants to take a whole lot more. In order to cut costs, they are moving inland. Infrastructure along the coast will soon be underutilized and the carrying costs to their banking system will get very high. Also, as the US economy hunkers down, imports into the US will face political and economic hurdles.
I suspect at some point, Japan will express displeasure at the way their currency is being driven skyward by some "hidden" Asian force. China could not deal with currency losses on US dollars and Japanese Yen without looking extremely foolish to their "electorate" who in turn would be facing significant inflation. The last time China had significant inflation was in the 1940's as the country was fighting it's civil war.
Germany needs healthy vibrant economies to purchase their luxury goods. If the US starts tanking, every other economy will batten down the hatches. That would likely dry up the luxury goods sector.
All in all, the US is in a very strong position. Time is on their side.
Taking swipes at fox news just sounds like disgruntled liberal whining.
If we assume the election results were even in a small part driven by the tea party, I think it's totally wrong to characterize the results as a desire to extend and pretend.
Phil-- I'm very surprised, China has not called the Fed's bluff. Do they see the Fed's REAL goal is devaluing the dollar? Do they see that in perhaps a few months, their Treasury holdings will be worthless? I'm an American and I SEE THIS!
BUT ALAS! China is caught with its pants down! They can't sell now! They must hold! They are at the mercy of the Fed! If they sell, the dollar drops like a rock! What an ironic twist on things. And all this time, the Chinese thought they had the upper hand... I'm sure they will take action soon...
China has not got it's pants down, they have a death grip on the U.S. pulse.
Yuan pegged to the dollah, and amerika trying to beg off the deal. Are you going to quit buying their junk? We don't even make our own light bulbs anymore, so when the lights go out...
The world doen't need america anymore. we import evreything, the world has us by the balls.
ya sure let the dollar crash, that would hurt us much more than the rest of world
we would be finished
With respect the consumer credit numbers, if there is a freeze on the foreclosure process, I assume that means less credit agreements being terminated, therefore we get more consumer credit?
Thanks for the boost Bernazi... took some profits off of the paper-legged bull and standing by...
For information on Fridays: Yesterday, approximately 50% of the Fed government employees were paid and the TSP was infused with cash to buy either government bonds (G Fund), other bond funds (F Funds), I (International Funds), C Funds (Stock Funds), and one other fund. Last Friday, the other half of the government was paid; so I try not to plan for doing much until Monday.
Coach gun yes, bag, not so much.
The real problem is, to do what they hoped, they probably didn't print enough. What Benny will do however is break down everyone else to competitive devaluation, and that will be more than enough, its coming!