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Guest Post: Strength Of Post Oct 2 NFP Bounce In Equities Is Impressive

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Submitted by John Bougearel of Structural Logic

 

 


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Wed, 10/07/2009 - 09:26 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Is it just me or does anyone else see that this rally is entirely driven by the weaker dollar? One can create wonderful explanations for the rising market the past 2 days but all I need to look at is the dropping DXY.

Which is it? Is the dropping dollar driving the stocks higher or are people driving the stocks higher which is weakening the dollar. Chicken or the egg? 

I've been wrong before so it won't hurt my feelings if I'm wrong again.

Wed, 10/07/2009 - 13:53 | Link to Comment Anonymous
Wed, 10/07/2009 - 14:33 | Link to Comment Anonymous
Wed, 10/07/2009 - 21:09 | Link to Comment john bougerel
john bougerel's picture

CD,

 

We have to ask ourselves why is the dollar dropping? Because of the liquidity provided by the fiscal and monetary policies, and the kindness of our foreign neighbors. the dollar is falling. And as it falls, foreigners lose trust not just in the dollar but in US policymakers to make fiduciary decisions that are responsible as trustees and stewards of the dollar. 

And as confidence in US policymakers and the us dollar erodes, the lower the dollar goes. It is a self-reinforcing psychological mechanism. This self-reinforcing psychological mechanism has a curve, and at some point it will begin to accelerate. Thus far, it is just stair-stepping lower.

Now what is unusual in recent developments is that most mkt observers expected that us policymakers would actively destroy the dollar. but we may actually get a little help from foreign countries that are actively seeking to buy and sell crude oil in Euros or SDRs.

Their pre-emptive actions to the dollar destruction, is akin to the other side saying "game over, I quit."

 

 

 

 

Wed, 10/07/2009 - 09:33 | Link to Comment NUREG
NUREG's picture

Somewhat OT but interesting . . . foreign CBs may be big TIP buyers.  I wonder if that means anything.

 

"NEW YORK -- The Treasury Department sold $7 billion in inflation-indexed 10-year notes on Monday to yield 1.510%. Investors bid $3.12 for every $1 of debt sold, compared to an average of $2.10 at the last five sales of similar securities. Indirect bidders, a class of investors that includes foreign central banks, bought 44% of the offering, versus an average of 26% at the last five. This is the first 10-year TIPS reopening since the government changed the way it tallies indirect bids, which substantially raised the proportion of sales going to the group. After the auction, regular 10-year notes pared gains. The yield, which moves inversely to prices, remained down by 1 basis point to 3.21%."

Wed, 10/07/2009 - 09:37 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I've learned in my old(er) age to watch what people (and institutions) do, not what they say. That goes triple for any central bank. They have their own interests squarely in their sights.

So when central banks are purchasing or selling something, I want to know why. I could care less the reasons they give me because that's usually a smoke screen. Or should I say I listen to what they say so as to understand the smoke screen but I don't believe it.

Wed, 10/07/2009 - 21:11 | Link to Comment john bougerel
john bougerel's picture

Nureg,

I can't comment on TIPS, it's outside my core competency for one, and for two, I don't believe that TIPS will achieve their stated objectives for investors particularly when CPI is so understated.

 

Wed, 10/07/2009 - 09:35 | Link to Comment Shylock81611
Shylock81611's picture

Where were all the "genius" tech anal-ists when this thing collapsed?

Wed, 10/07/2009 - 21:13 | Link to Comment john bougerel
john bougerel's picture

Shylock,

You mean 2007-09,

they were around, just that ZH wasn't

Wed, 10/07/2009 - 09:40 | Link to Comment Dixie Normous
Dixie Normous's picture

Yet another claim that the bounce off the 10/2 lows (reached mostly pre-market) is a result of short covering?

If it is, haven't the shorts covered?

This is 2 days in a row on ZH with a post claiming this week's rally is a result of short covering.

Can anyone help confirm.

 

Wed, 10/07/2009 - 21:16 | Link to Comment john bougerel
john bougerel's picture

Dix,

There was some real buying on the bullish non-ISM report, because money managers still consider last months bearish NFP a lagging indicator, and last months services report as trending higher. Since that suggests things are getting better, they bought.

While I can't comment on most shorts, the folks that I work with were covering their shorts on the bearish NFP report, expecting a selling climax that day. What was unexpected was the buying strength behind the non-ism report on Monday, and the overnight strength in the stock indices after AA blew analyst expectations away to the upside this evening.

Wed, 10/07/2009 - 09:40 | Link to Comment Anonymous
Wed, 10/07/2009 - 09:46 | Link to Comment mdtrader
mdtrader's picture

But everybody is short the dollar! I wonder what the market will do. lol

Threatening to break down on the 20 DMA for EURUSD.

Wed, 10/07/2009 - 10:01 | Link to Comment rhinotrader
rhinotrader's picture

What has completely confounded me is that most asset classes are moving in unison. I can't figure out why gold rallying has not spooked the market. I know that I feel the bid underneath this market as we have had no meaningful correction in months. Has anyone disappointed yet in earnings (no). The perception in this market is insane.

Wed, 10/07/2009 - 10:25 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

The staggering dollar liquidity has everyone (and every asset class) down right giddy with excitement. Ya can't lose when ya got the Fed behind you.

Right up to the point when ya can lose. The market has a tendency to frustrate the greatest number of people for the longest time. When everyone is leaning in one direction, my spider sense tells me to go in the other. So far (the past 5 weeks) overall I've been wrong.

But the game ain't over.

Wed, 10/07/2009 - 10:57 | Link to Comment deadhead
deadhead's picture

on point cd...

as of this moment, equities UP, dollar UP, gold UP, treasuries UP (pretty decently I might add).  i think oil is up too...  makes perfect sense to me.

Wed, 10/07/2009 - 10:44 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

This market is being moved by the United States government.  The Fed loans (or just plain gives away) money to big banks which turn around and buy up their stock.  When the market gets tired, the process repeats itself.  This is why the Fed needs to be audited.

So how high can the market go?  My guess is 14,000.  Why 14,000?  Because Warren Buffet is on the hook for his bet that the Dow will get to 14,000.  Warren bailed out a lot of important people and companies, so I am thinking that will be how he will be paid back.

That has got to be the wildest idea I have come up with in a while.

Wed, 10/07/2009 - 11:03 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

You might very well be correct. But for the Dow to go up to 14,000 requires the dollar measured by the DXY to go down to the 40-50 range.

I expect we will eventually see 40-50 in the DXY but IMHO first the Fed has one more pop up in store for the dollar to create the illusion they're actually interested in saving the dollar.

Wed, 10/07/2009 - 11:19 | Link to Comment Anonymous
Wed, 10/07/2009 - 21:21 | Link to Comment john bougerel
john bougerel's picture

all riskier asset classes tend to be driven by liquidity, hence they move in unison, more or less. It really is a matter of deciding which asset classes you want to own, which you think will have greater relative strength and which will have the least risks as the economy shifts.

 

So, perception is not insane at all. It is what it is. Perception is following the stimulus until its impact flatttens out. Then we will find where the true risks lie. Until then, the risks are hidden.

 

Wed, 10/07/2009 - 10:11 | Link to Comment Anonymous
Wed, 10/07/2009 - 10:21 | Link to Comment Anonymous
Wed, 10/07/2009 - 21:23 | Link to Comment john bougerel
john bougerel's picture

I am not familiar with "phase transition" that has been modeled mathematically.Do not kid yourself, dollar devaluation can indeed lead to war, and may, the schisms are already straining.

Wed, 10/07/2009 - 10:23 | Link to Comment cocoablini
cocoablini's picture

Look at Volume. If this market drifts higher yet again, it's due to participation issues. My question is, who really owns stocks with all this TARP money

Wed, 10/07/2009 - 21:25 | Link to Comment john bougerel
john bougerel's picture

Some observers believe that the banks bought equities with yours and my TARP dollars. Transparency is not going to be forthcoming from TARP recipients on the matter. Maybe the COP is looking into that. 

 

Wed, 10/07/2009 - 10:34 | Link to Comment rhinotrader
rhinotrader's picture

cocoablini-exactly!! We have 1-2% moves up in equity with no pullback followed by another day of 1-2% up move with no pullback. We have rallied 50-75% in most indices with no meaningful pullback. Either we are due for the most monster of down moves or Bernanke is a genius and did save the global economy. I don't know anyone outside of my trader world that is buying stocks (neighbors, business owners, friends etc....). Completely frustrated with being so short for so long (July).

Wed, 10/07/2009 - 11:03 | Link to Comment deadhead
deadhead's picture

Completely frustrated with being so short for so long (July).

the hallmark that P2 is just about over or has ended.

we are pretty much at bear capitulation.

patience is rewarded and will definitely be in this case. just a queston of when in my view. 

Wed, 10/07/2009 - 21:27 | Link to Comment john bougerel
john bougerel's picture

there is no chance in hell that BB "is a genius and saved the global economy." He may be smart, but the last thing on earth he is doing is saving the global economy.

Wed, 10/07/2009 - 11:06 | Link to Comment Anonymous
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