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Front-Running Big Ben
From Nic Lenoir of ICAP
Yesterday was certainly a perplexing day. Stocks screamed higher breaking out the key resistances and making it look like we are in for a bull run into year-end. Meanwhile bonds were bid, not acknowledging equities one bit, and gold and copper were mixed at best while the dollar index which was initially weak finished close to unchanged. Either it was a stat-arb holiday I was not made aware of or people are trully confused here.
It seems people have been factoring in a quantitative easing announcement of some sort for this afternoon, or at least the consensus is that the market has priced it in. Certainly given the economic slow-down we are witnessing, a lot of the uptick in equities must be relying on the expectation that the Fed will back stop not only the market but also the economy (name the stimulus program, monetary policy tool, accounting gimmick, everything on the menu is in season). Global liquidity in USD is making highs partly thanks to interest re-investment by the Fed and the BOJ joined in last week with unsterilized FX intervention, but the market is greedy and with growth solely relying on the money spigots and government spending to artificially prop up GDP as demand is weak, bulls want to secure the rally they anticipated by breaking out ahead of the Fed.
While demagogy and monetary largesse have long be the favored answers by politicians lacking any form of courage, and while quantitative easing will happen in the end simply because it is the only way to grow our economy in its present state, I personally feel that it will not happen today. Nobody seriously thinks the Federal Reserve Bankers are independent, they are linked to politicians by the same desire and need to see equities go up during their tenure no matter the cost. However there is one thing the Fed still takes a little pride in, and that is the fact it is non-partisan. This is an election year, like every other year, but with the fate of democrats looking pretty dark and only hanging on to the hopes of a stock market rally into November, the Fed would effectively pick a favorite by announcing quantitative easing in any way more meaningful than a promise to backstop the system (a promise the Fed has reiterated any chance it got). I have very little faith in the Fed, but the little I have left would clearly be invested in that it tries to not be a actor in an election.
What if I am right? Well the 5s/30s sector of the Treasury curve has steepened aggressively, and one of the first consequences of no quantitative easing announcement this afternoon would be for the curve to flatten. So close to all time highs it is a relatively sound way to play market deception post-FOMC. The other asset class that is an explicit bet on loose monetary policies is precious metals. I will not bore you with my chart package on gold, but the story is the same than it was Friday: we have large divergence on the highs both daily, weekly and 3-hour, we have tested and so far failed to bypass the resistance joining the tops since 2009, so technically the short-term picture make a strong case for a pull-back. These are probably the bets two ways to bet on the Fed disappointing Keynesian aficionados. Equities would most likely sell-off under that scenario but given yesterday's break-out I am waiting for a little bit more clarity before expressing a strong opinion, though I must point out that the VIX has not confirmed further upside so far which keeps me hopeful as a bear that we do get a correction.
Good luck trading,
Nic
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Nic: all well and good to talk about "demagoguery" and "monetary largesse" and then let it slip glibly off your word processor that QE is the only way to grow this economy.
Their demagoguery is apparently working if they can get everyone to drink from the QE.
Everyone please repeat after me: QE does not cause real growth, QE does not cause real growth...
Anyone who mistakes additional malinvestment for growth should deduct 80 points from their test scores, and try again.
Something will derail this QE insanity, probably very suddenly and violently and when the music stops, there are no chairs, those 'invested' will see what it feels like to be looking at -0- suddenly.
Dear Fed Ladies and Gents, please raise the rate, even slightly. This will make people realize that the period of cheap money is over and they will rush for remaining cheap loans to buy properties and commercial real estate for fear they are missing the train.
Declarations of 'all is well' go ahead Ben raise those rates! Just to 1% go on I dare ya!
Cant have 'recession over, housing on fire, economy recovered' and going into 3rd year of ZIRP? Insanity. Markets priced to perfection while gold and bonds are priced for disaster, somethings got to give here.
This is exactly what needs to be done. 40million retired people who saved for retirement are getting zero,zip,nada, nothing on there savings without taking huge risk. Just suppose you are an average Joe who retired with 200K and were planning on getting about 10k, or 5% a year in interest payments to supplement your SS. You can't find decent return so you are scrimping by on whatever measly sum Socialist Insecurity provides.Age 67 is not thetime to try and double down on a penny stock of flip junk bonds, sorry. We have effectively removed one fifth of the American population from being a consumer so that the banks can buy more and more and more time. Get the freaking interest rate off 0% and start closing 100 banks a week instead of 4. Case in point, 1000 banks closed in 2 years in S&L crisis and we put it behind us and moved on.Guess what? the system did not implode thencontrary to what that asshole Munger would lead you to believe.Today we have yet to close 100 banks this year.Quit trying to hold up the whole damn system to appease a few bondholders and let the inept die so we can begin to repair this disaster...... The rest of the world China, Russia and Brazil are not standing by idle. So I guess it boils down to this. Please the 1% lobby and special interests and drag this out 20 years or dismantle your aircraft carriers and military conglomerate and hope like hell you can make amends for 50 years of aggression. In 20 years other countries are going to be bitch slapping American diplomats like altar boys. Congress the choice is yours...........
Great post Cow and one that reiterates the unquestioned corruption of our federal govt. from the top down.
Wow, what a tragedy. Too little risk-free interest.
Remind me to cry.
But they can't. Raising rates pushes bond prices down, pushes the government's borrowing rate up, and squeezes highly leveraged companies. The Fed is stuck and the only trick they have left is printing money.
Wouldn't mortgage rates jump with the Fed rate? Mortage rates go up and housing goes further down (which I beleive would be a positive) - so I agree, but for different reasons - I want to find the true bottom and that is not possible with ZIRP.
Nirvana priced in already. Ben better have some good news for the equity bubble markets (bad news for us), or what else fuels this garbage into the fall 100 points daily?
"hopeful as a bear that we do get a correction."
trading on "hope" usually leads to poor performance
I've said it before, I'll say it again, they will - 1. pump through the elections 2.suck in every last retail investor dollar 3. crash the markets, precipitate a crisis 4. use that to nationalize 401K's and a few other things- gotta "save" Ma and Pa's retirement, after all.
Gotta keep the ponzi going- those markets aren't going to fix themselves.
obama and dems could use a market correction, post election to manufacture an argument that republican election gains are bad for the market
I agree with 'pump thru elections', however Im not so sure they even get that far. If these poll numbers that are in the sewer dont turn in Obamas favor very soon, then whats the point of going forward? 'Crash the markets and precipitate crisis' may well come BEFORE elections. In my opinion.
i think you are right. heard a commentator say last night that obama and the dems have no plans or agenda at present. instead, they are merely defensive and attacking their opponents. they are not touting their plans - cap and trade, etc. things are mired down and the elections are some time off. there is talk that congress will recess early. the fed and market manipulators are the most active at the moment. look at the ramp yesterday.
"I have very little faith in the Fed, but the little I have left would clearly be invested in that it tries to not be a actor in an election. "
dont have "faith" in liars. ben is a politican and a cronie first and foremost.
he has made his bed with this admin
Ben is a Rothschild Zionist, first and foremost.
Only the really hard and tough ones are really SHORT, the Rest is Whining! And Bitching!
Benjie is NOT Impartial, He belongs to the establishment and does not care about anything else but his "academic achievements" :-))))))
He Will DO What Someone Else, you know who, is telling him to do! Don't be stupid or naive, or you will be sorry!
The Federal Reserve is not independent; it is a part of the executive branch of government and maintains its "independence" only at the pleasure of the president. The treasury is in the legislative branch and therefore serves the legislature. Never forget it: There are only three branches of government.
what about the big bank branch of gov't
The Federal Reserve is independent with merely a wink and a nod that the President will do anything. Last US President that did something was Kennedy, and he got murdered for issuing his own money independent of the central banksters. Lincoln also tried avoiding the international banksters by issuing his own money, he got murdered too.
So are you saying Obama could issue his own money, via his Constitutional right? The answer is of course yes, yet if he did am sure he would find himself dead in short order. So yes the Fed is at the mercy of the President, yet only if the President does not value his life yet believes in the long-term USA and is a true patriot willing to give his life for the country. Obama is not a true patriot.
Obama should be sellling cars at a Honda dealership in Chicago. He is a turd in a suit, the bankers strings are so numerous you can see them clearly. He is lost without his script.
QE 1 Never ended... The Household Sector got stuffed with $980.4B in 'other treasury issues' Q2 2010.
Page 44 F.209 Treasury Securities
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
hilarious flip flops. one day the recession is over, hope is back and they are singing to the king. the next day the economy is "sagging" and there are cries for QE and help.
Exactly! 3 weeks ago, the world was ending again and QE was to be announced today. Now, all the "experts" say, "data has been much, much better so we don't need it."
The CNBC take: "QE2 will be good for the markets and take us to yearly highs. No QE2 will be good for the markets since it signals all is well and will take us to yearly highs."
There you have it.
Chart: ZN
Possible Inverted Head and Shoulders here on the ten-year.
http://99ercharts.blogspot.com/2010/09/zn.html
It will be stealth QE as it has been ongoing.
Why would they tell everyone they will print. ?
The Dollar would be/is toast.
LORD OF KACHING
http://williambanzai7.blogspot.com/2010/09/lord-of-kaching.html
This administration can't deliver on QE2 so they are going to have to sell us on why we don't need QE2.
I don't expect the bulls to receive any free candy today. Ben and the boys have to save their last box of ammunition for whatever black swan event shows up, and I'm sure they are watching some I haven't thought of yet.
2:15.
The Fed, Treasury, banks, and stock market are a closed loop through which "money" is being pumped to make things appear better than they are. They aren't letting any cash out into the "real" economy. Their plan is to make things appear good enough with the help of the MSM to make people start spending money and get the economy going again, at which point the "money" would be extracted from the system. The main reason the NBER called the end to the recession in June '09 was because the markets have been pumped up since the Fed originally started QE. The real truth is that we're still in a depression.
The Fed isn't in any rush to get it's "money" back since it was created out of thin air. It's main goal is to try and preserve for itself the obscenely lucrative position it has been in since it's creation as America's money creator.
I don't see how they can announce any more QE today since the farce this week is that the recession is over.
2:15.
The caliber of the Fed's bullets decreases with each shot it takes. The more dollars they create, the less each of them are worth, and not too far along into this they risk causing all become totally worthless. The last QE lite announcement was .22LR. What they have left is one shot each of pellet gun, BB gun, pea shooter, spit wads, miniature marshmallows, ....
LOL too funny. An the mini Marshmallow shot will be a shovel ready Jobs package to create 25 new part time jobs to built a moat and drawbridge around the Whitehouse and a free $5 dollar food stamp if you agree to spend it before the 2012 election. Humm.... December 11, 2012, maybe the Mayans were on to something after all about moving to a higher plane of conscience..............
You people are all over the facking board. Day after day I read how POMO is the reason for the massive ramps. Remeber? 5bil*15? Next it's massive short covering. Next it's the talk of QE2. You guys have no facking idea what it is. A broken clock is more right. I'm getting pretty irretated with the same old chit sandwiches being served up around here.
Of course we all know this is a scam. So what? The talking points here have become a big circus jerking event.
Is there someone twisting your arm to force you to read the blog?
If "you can't handle the truth," go bury your head in the sand.