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Hello, September
POMOs are drawing to a close (for now) and the Fed looks like it's finally allowing a liquidity drain. Why? Could be because, despite last year's financial panic and deleveraging of dollar-denominated debt, the Dollar Index is within earshot of last summer's lows and bond yields actually touched last summer's highs during this equity rally.
So if the Fed's high-wire act of balancing liquidity injection to spur a momo beta-chasing equity rally and preventing a total USD collapse/run on the Dollar and Tsys is now tilting on the latter side, what's this mean for financial markets?
Well, first of all, it seems clear the rally's mission = accomplished. According to TrimTabs, August's "ratio of insider selling to insider buying hit 30.6," the highest it has ever recorded, with $6.1 billion in insider sales during the month and a record $105.2 billion in the last four months. In addition, investor optimism is at exuberant levels, courtesy of the liquidity-fueled rally supporting the inane green shoots V-shaped CapEx-less, revenue-less recovery (fallacy discredited here): "51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007." Such a crowded trade only allows for contrarian profits; indeed, the S&P fell over 54% from December 2007 to March lows.
And now we enter fall... the season of gloom in equities (see 1929, 1987, 2008 for examples).
Treasuries are up and rates have been declining since June/July, with the 30yr now down to 4.21%, even as equities roared higher. Corporate spreads, especially junk spreads, are widening. Credit/bond markets are often better forecasters than equity markets (and definitely were for both the large wave down 07-08 and the rally in 09). The unemployed Art History major in tens of thousands of debt down the street isn't daytrading bond futures to go with his daily AIG, CIT, FRE, FNM, and C common.
The point is, anyone with a brain is moving to cash/bonds(/gold?). To add to the three bears I wrote about who called the equity collapse of 07-08 as well as the current rally, Doug Kass has called for a market top after calling a "generational low" back in early March. And with the Fed's concerns shifting to keeping Tsy demand at sufficient levels and not angering China/Japan too much, liquidity has stopped entering the market.
The retail investor (or should I say trader) is the bagholder.
Don't believe me? Look at China.
China's equity markets are back in bear mode, down over 20% from their August highs and down almost 6% overnight as I write this post. China led American equity markets on the bear front in 07/08 and again for this rally (Shanghai's low was placed in November 08, S&P's in March 09).
This bodes very poorly for equities (and commodities) going into fall.
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I've decided that barter is the wave of the future so I've moved into liquid assets....vodka mostly.
You nailed it!.
For everyone that enjoyed the last 5 months, I hope they have now cashed in and stepped of the ferris wheel.
China has been dropping for a week+ and the spreads have been widening 2 - 3 weeks. All the signs are apparent. Cash-in and be happy or sink with the TITANIC.
wont the $ go up for a bit?
everyone is predicting a september fall ( even me)...that scares me...the market has a tendency to prove people wrong..
"POMOs are drawing to a close (for now)"
No they aren't, not even close. The 300 billion treasury repurchase is only but a part of the 1.75 trillion POMO. There is like 400-450 billion in agency mbs left to buy, and (not suprisingly) the head of the NY FED, William Dudley, told CNBC this morning he doens't think the FED will prematurely curtail the remaining POMO purchases.
Fed's Dudley: early to mull curbing security purchaseshttp://www.reuters.com/article/politicsNews/idUSTRE57U20620090831
The FED bought 25 billion in agency debt from August 20-26.
http://www.newyorkfed.org/markets/mbs/
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Your theory is appealing but I'd be careful with the suggesting liquidity is drying up and/or the POMO is done.
Yep... loolma is correct... the POMOs are far from done, especially as it pertains for agency MBS.
Now what we are likely to see is the Fed pull back from Treasury purchases... at least until they get new authorization under QE 2.0.
In the meantime, my guess is that naufalsanaullah's "cause and effect" is roughtly correct-- there will likely be a "flight to quality" move this fall to help support the Treasury market as auctions will undoubtedly continue.
"Likely" is the key word, though. There is nothing getting in the way of the Fed continuing to manipulate the markets, even though the evidence from an insider selling standpoint is very compelling.
QE 2.0 would catapult stock prices and the indexes into outer space.
Let part 2 of the double V begin. Time for everyone to get long on treasuries again
I'm the only one here that has a real problem with Doug Kass
Yes, only you
China doesn't have Goldman to keep bidding up their markets every time the market is on the precipice of a large selloff
+100
The centralized Chinese economy is more reflective of the true state of the global economy than the greatest so called "free" economy if the West.
DAX will crater after federal elections in Germany this September. There's some sort of truce and peace agreement between the ruling party and banks to sit tight. Selloff at this stage could hinder the reelection bid for Merkel and the banks would not know the next devil as good as the current one.
They will never go after the reconstituted BCCI, only small fry get skewered.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Big Ben got what he wanted (job reappointment / Bank recapitalization) so there is not as much reason anymore to hold up the markets... Now that the losers (aka The rest of us) have bought all this crap, now he can let reality set back in....
"(/gold?)"
What? Is there some shame in that?
Yeah where's your sense of conviction? ;)
GOLD!
Looks like a bubble to me.
definitely not a bubble. it's a bubble when you see front-page news about gold everyday and it's all even the mainstream media is talking about, a la last summer's "oil/energy crisis".
gold will be a bubble once interest rates start rising and excess reserves are unsequestered and inflation actually creeps into goods and the real economy. until then, deflation reigns king, the only inflation is in equities as banks lever their reserves through fractional reserve into risk-free equity market speculation, and gold's strength comes from a inflation expectation (hardly a bubbly thesis) and flight to quality, soaking up what would have bond inflows but weren't due to reckless deficit spending.
no one is momentum chasing gold. the only bubble right now is in equities/commodities, particularly junk zombie stocks (C, FRE, FNM, AIG, CIT, ETFC) and copper/zinc.
actually I thought the same thing when I saw the chart haha
fundamentals for gold are great, i own bullion myself. very volatile and intervened market however, and though i'm sure the $1000/oz barrier will be broken soon enough and that the next deleveraging period "should" lead to a flight to quality to gold over Tsys because of our reckless deficit spending, never underestimate the powers that be.
gold is in a great symmetrical triangle right now in the context of a super-looking inverted head and shoulders. but everyone sees it and everyone's a bull. if we break out, i'll be glad and be looking for much higher prices, but if we breakdown i won't be surprised, and i'll definitely be picking up some physical coins/bullion, GLD/UGL, and shares in junior miners at anything under $850/oz.
/agree
If the symmetric triangle breaks down I see a decline to $800-850, at which point I will load up the truck with maples. If it breaks out I think we are headed up to $1000-1200 and higher. My target is $1200 by end of year, with possible short-term decline when equities crash and price recovery when deleveraging is completed and capital flees for its true home.
The best reason for letting steam off equities and commod is to prepare for the big steroidal-stimulus ramp-up next year's mid-term elections. But don't be fooled, the vampire squids have more reasons to keep market up than down, so they can sell more stocks. Anyone has any illusion this would be anything more than a 10% blip a-la-July roundabout, just see what happened to the spike in euro, which was widely anticipated in the market yesterday - almost every fx trading forum had a thread on that euro ramp from Asian hours yesterday am. Talk about pumping!
I think this nice young man writes very well, articulate if you like. But he sure knows how to suck the fun out of a room.
Equities are going back up tomorrow. Don't fall for the "September" head fake. This dip was a buying opp. Shorts have to cover faster these days.
Anyone caught trying to go short tomorrow looking for a "Serious" September correction and an easy pay day is in for a real sobering surprise.
Some smart money has to go in. Dumb money always goes in. The only safer bet than going long anything is going long LVS, where the last vestiges of dreams are broken and fall straight to the bottom line.
USD is still bullish.
VIX index is now bullish too.
More info at link.
http://www.zerohedge.com/forum/market-outlook