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Morgan Stanley Confirms Fed Has Rendered Fundamentals, Valuations And "Almost Everything Else" Meaningless
Jim Caron has some truly brilliant comments this morning which should be read by all who think they have any handle on the market: "The fixation on QE comes at a price. It is that interest rate volatility will rise due to the uncertainties surrounding QE. And since the performance of interest rates is closely tied to the performance of risky assets, including gold and the USD, then it follows that volatility in those assets may rise as well. Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else. Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future...If the Fed does not follow through with QE as the market expects, then risky assets may suffer." This is putting it mildly...
From Jim Caron's note to clients
Hamlet, c. 1600 [Bernanke, 2010]
To be [QE], or not to be [QE]: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,...
We cannot help but make the comparison between Shakespeare's Hamlet and Bernanke in the quotation above. The debate Hamlet is having is whether or not it is better to trade the anxiety of the fortunes and failures in life for death; if it weren't for the uncertainty in death. To a much less grave extent, Bernanke is debating the same thing, but in an economic context. Is it better to engage in QE and create a 'Bernenake Put' that leads to outrageous fortunes in risky assets? Or, is it better to risk turmoil in the economy by not engaging in QE? Like Hamlet, Bernanke may prefer the latter if it weren't for all the uncertainty in it.
The Perversity of QE Creates a New Risk Dynamic
The market has tethered itself to the whims of the Fed. Whether or not they engage in QE, how much and for how long are virtual uncertainties that are driving risk dynamics. We have made the case that changes in the level of interest rates is a leading indicator for risky assets. Perversely, today that means risky assets may benefit near-term from modestly weaker data. The linkage is that weaker data implies larger QE, lower interest rates and more potential for fiscal stimulus - which is bullish for risky assets as long as the data is not too weak. Stronger data implies the opposite.
The fixation on QE comes at a price. It is that interest rate volatility will rise due to the uncertainties surrounding QE. And since the performance of interest rates is closely tied to the performance of risky assets, including gold and the USD, then it follows that volatility in those assets may rise as well. Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else. Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future.
The Fed is now caught between the devil and the deep blue sea. This is because if the Fed does not follow through with QE as the market expects, then risky assets may suffer. In our monthly rates report (attached), we provide a detailed discussion on QE and the subsequent risk dynamics driving the market and requisite trade ideas to take advantage of the uncertainty.
Finally, it should not be lost on anyone that Hamlet is a tragedy. To be clear, we do not suggest the same outcome for the markets, but we do suggest that investors follow our hedging strategies through buying rates volatility just in case (our core view).
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It's not like risky assets did amazingly well even with the expectation of QE. If you look at global equities and commodities they didn't move much over the last 12 months.
...especially when priced in gold.
The S&P is not at 400. So risk assets did exceptionately well IMO.
just kept the rug from being pulled out from under.
sooner or later though face meets consequence.
Gold is the fulcrum that balances the FED. A teetertotter as it were.
Rick Santelli had Liesman speechless in commenting on FEDNY President of the Currency, never-ex GS economist William Dudley. The balance sheet FED will invent did not come from a productive economy out-sourced at will for 30 years nor ever will be built from a diet of toxic credit. They have no clue how to make the middle class grow.
Rick's comment was on the ridiculosity of FED taking a survey of the Primary Dealers (think DeBeers monopoly on sighting rights) when that FED is their only source of food.
This is absolutely the next "wink,wink, nod, nod, we'll all get rich as we hold our noses, pitch in and blow the latest FED bubble so the Banks can extract our souls" biggie after dotcomness and housing in paradise, stocks Bang, Zoom, to the Moon, Alice.
pardon Jackie(Ralph) or lately, Roger.
Live Free then Die.
excellent synopsis. seems more are starting to see now.
Anyone trading on fundamentals is getting killed.
Those who are following price action are doing well.
"Price action" as in one minute momentum? As in buying at the peak yesterday? They did well? Or maybe this should be directed at Jim Cramer.
Robo has been generally right on this point. You may learn to stop hating and love his girls when you realize he is posting charts not to profess any forward looking technical analysis, but merely to demonstrate recent price action.
Anyone suffering from Graham and Dodd induced paralysis of analysis is getting killed.
Those willing to be dragged for short distances by a herd of fed-watching momos are doing well.
Investing is dead; trading lives. Act accordingly; stop whining.
Not junk.
"Anyone trading on fundamentals is getting killed. Those who are following price action are doing well."
That may be true, but in the end, the point is that corrupt markets trading outside of free market fundamentals cannot be good long term. One can only hope that those who "trade the price action" will get caught one morning limit down where their "stops" are meaningless because everryone has left the building.
Of course, the other side of this argument is that the majority of the players left now are corrupt pension funds, insurance companies, etc., who HAVE TO PARTICIPATE, and gladly welcome a corrupt, U.S. Treasury/Bernanke driven market that does not trade on any fundamentals at all. Most of these "managers" are corrupt anyway, so its just another day at the office. Nevertheless, one cannot help but think that this is not healthy, even for the corrupt, but who knows, perhaps the ponzi scheme game of musical chairs can be played ad infitnitum because greed knows no moral bounds and there are plenty of gamblers willing to gamble with other peoples money thus ensuring the corrupt, Fed driven market continues to function.
Not entirely true.
Fundamentals suggest yields will compress. Therefore, those who have gone after yield plays, such as MLPs and whatnot, have done well as the riskfree yield has collapsed while the spread stays mostly flat.
The FED's monetary climate is a fundamental.
Also, those trading for gold production decline or oil production decline fundamentals have done well.
Fundamentals aren't to be "traded" on at any rate, they are necessarily longer-term positions
Robo and his Commodore 64 HFT front running computer with full rear view mirrors mounted, gotta love it.
Who wants to start a HFT fund? Whose with me? I know how to program a computer but I need investors.
Come on everbody the Fed just gave us a green light. We could ride the ramp all the way to our own yachts in the Carribean.
"Looking good Billy Ray"
"Fealing good Lewis"
http://www.youtube.com/watch?v=mmMS9nvi6eg
Watch the steel, energy, and financials today. That will give us a clue to whether or not we break out of this congestion area.
Steel production is down at all time lows. IF you look at the price indexes for the things they make steel with, basement. Energy prices are gong up, yes, but does that mean actual revenue increases? ANd financials should be blowing up right now because of all the crap on their balance sheets is going to have to be revealed due to the foreclosure/mortgage problem. ALL of that has to go to and through a court.
Those are the fundamentals.
My bet is Nucor, Exxon, and JPM, BAC, C all go up.
That is price action. Nothing makes any sense whatsoever. The market is only indicating a decrease in dollar value and debasement.
That is the only thing the markets indicate. Shanky's TRech blog has the dollar sx spx and the POMO influence is quite clear.
Perfect Tyler, that sums it up well. I hold nothing but gold overnight. NFLX AMZN AAPL BIDU PCLN, not for me.
It goes up until it stops, then try and get out.
As a Princeton economist, BB would not know the effects of uncertainty on a market. Hope he reads the article.
I said the same thing the other day... All analysis is bullshit, er uhm... bitches.
There is no out... QE every 18 months, eventually it will be every 12 months, then 6 months, then 1 month, then every week, then every day, etc.
Eventually collapse.
Mako, I certainly get your point... but I'm still not convinced the Fed really ever stopped purchasing assets after QE 1.0 was supposed to end in March. And QE Lite provides a bridge to the next QE program.
We may approach collapse faster than most think... well, at least dollar collapse.
USD Index down .73 today, time to move the limbo stick, yes?
and robot, always look forward to your posts. Very informative. ty
.."Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future...If the Fed does not follow through with QE as the market expects,..."
well this is exactly what I think won't happen, dems want the crash how else would they justify another "Stimuli" eh? Either way, markets are broken, the "system" is broken but still playing US so...happy trading?!
If the Great Implosion happens BEFORE Nov 3rd, the Decepticrats are totally shafted! They're losing votes even now as 99 weekers roll off the gravy train.
There is ZERO risk buying the stock index's for now ZERO NONE NADDA. It's all rigged to the upside till the election.
exactly whiskey.
as much as anyone i dislike all this b.s. intervention, but it makes it a heck of a lot easier to make money. we all have been told the gameplan. all we gotta do is follow it (or better said: get in front of it).
before only certain insiders got heads up info on individual company tidbits and could take advantage. the fed has now basically whispered to us all what is going to happen. it's a phony ramp job, sure, but easier to trade as it is visible to all. it will be this way until it isn't. imo.
TPTB may want downside action just as they got in 2008 pre-election.
I wasn't following Zh back then, but always believed that the $550 BILLION exiting in under two hours on the 17th of September was deliberately done just to get the current regime in place. I'm very disappointed that so few sheeple even knew what had happened muchless, suspect it was intentional.
The dollar is a "risky asset." Used to be that would have been crazy talk.
I think we should muzzle more accountants and shoot more messengers, because reality bites.
If present insanity prevails, by Christmas, Apple will sell for $2,000/share and every cabbie and church lady will tell you about short sales, stop losses, and conversions. Markets reach a tipping point. When enough people know the truth, the market behaves as if "everybody knows." Turn up the Leonard Cohen and enjoy the show.
Its like the headless chicken, it does not know it is dead and continues to run around, but it really is dead.
By the pricking of my thumbs, something wicked this way comes.
Yes, I know, it's not Hamlet.
Here's one vote that there will not be QE2. This is for the simple reason that just the threat of QE2 will increase the velocity of money and therefore mission accomplished.
Correct you are!
Stop spouting monetarist horseshit as if it is gospel.
The problem is not velocity; the problem is he basic mathematics of debt-based money.
The problem is EXACTLY velosity, and diffusion. Think about what would happen if the rest of the world panicked and ran for the exits to get out of roughly $100 Trillion worth of cash, bonds, stocks, RE, and other foreign owned assets. But they would only do that if they preceived the dollar as degrading beyond the risk of the loss that they would have to take getting out. Or if the rest of the world was panicing. Tipping point anyone?
First one out of the pool wins. (Shhh...Don't tell the sheeple, that would only give the middle class a fighting chance.)
I believe youre exactly right, theres only the effect of Q/E jibber jabber, but an actual Q/E would blow the wheels right off this jalopy and they know it full well.
You can only put so much water (liquidity) in the gasoline (trying to rev the engine, I guess!), before the engine just stops running completely. Corporate earnings only mask off the US Economy, i.e., those sales are NOT coming from the USA.
It is not a Stock Market it is a Fed Controlled Monopoly.
Taleb's Black Swan was made for moments for these. Something's about to give. Always does.
Maybe a sovereign debt problem. As John Taylor said, euro at these levels just confirms the states' bankruptcies.
My map (Vicious Cycle) says one (or more!) of the PIIGS, then the sub-prime eastern European countries, followed by France and Germany. Buckle in and hold onto the ripcord (saved by silkworms!)
One must ask oneself whether it is nobler to bequeath upon the masses a royal assfuck, or have pity upon them and offer them a shit sandwich!
Also, what ever happened to the "double dip now officially confirmed" crew? They disappeared?
Look at the range this year, we are merely where we were at the start. In the interim there has been substantial outperformance of beta, and commodity linked assets. The one left to go is oil, this started earlier in the week. After that, we're done, I think.
clearly MS has a firm grip on the obvious.
Something preverse about the Market and Traders rejoycing over the Destruction of the United States Dollar. They say they hate Taxes and do not want their Tax Rate to go up yet they rejoyce at the Devaluation of the Dollar that is a Hidden Tax.
Also, what makes Traders rejoyce on higher Oil prices for Gasoline and Heating Oil? What about the increase in Food, corn, wheat, cotton, sugar, etc.?
It is like they take great pleasure in the Destruction of the Middle Class and their misfortune. The Middle Class will get squeezed even futher with higher Oil and food costs.
The other dilema is that all of this QE stuff is being paid with Tax Payer Money as it is their Taxes that will go up to pay for the Debt and Interest on that Debt.
Just cannot see how this is something to be joyous about.
Understand everyone is now brainwashed into thinking rising prices is a good thing, falling prices are a bad thing.
Yet, they will turn around and want the Financially pinched Consumer to go out and spend. With what? They took all of their disposable income away.
With what?
More debt.
What do you think all those excess reserves are sitting at the Fed for?
Can anyone (reggie middleton are you there??) tell me what the dollar impact is on JPM as it pertains to their massive naked silver/gold short position with respect to the upward price move of gold/silver in the past month???
Don't worry about todays econ reports, the Fed will make sure they "beat" estimates.
OH ANCIENT LAND OF HEROES GONE…TO BAIL OR NOT TO BAIL
(Adapted from William Shakespeare’s Hamlet)
(WilliamBanzai7)
To Bail, or not to Bail, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous loss of fortune,
Or to take arms against a sea of financial trouble
And by opposing end them. To die—to sleep,
No more; and by a sleep to say we end
The heart-ache and the billions of market shocks
That investor hubris is heir to: ’tis a consummation
Devoutly to be wish’d. To die, to sleep;
To sleep, perchance to dream—ay, there’s the rub:
For in that sleep of death what dreams may come,
When we have shuffled off this volatile market coil,
Must give us pause—there’s the respect
That makes calamity of so long life.
For who would bear the whips and scorns of time,
The devious financier’s wrong, the proud man’s contumely,
The pangs of write offs, the law’s delay,
The insolence of office, and the spurns
That patient merit of th’unworthy takes,
When he himself might his quietus make
With a bare quill? Who would Fiscal restraint bear,
To grunt and sweat under an ordinary life,
But that the dread of something after death,
The undiscovere’d insolvent land, from whose bourn
No traveller returns, puzzles the will,
And makes us rather bear those ills we have
Than fly to others that we know not of?
Thus conscience does make cowards of us all,
And thus the familiar hue of resolution trust
Is sicklied o’er with the pale cast of thought,
And enterprises of great pitch and moment
With this regard their currents turn awry
And lose the name of rational action.
Exquisite, wb!
Strong recommendation: Hamlet 2000 (starring Ethan Hawke, with additional great cast). It brings our current situation into glorious focus by setting the play in a modern context in which the Kingdom is the Denmark Corporation. Mind boggling in the temporal translation and cutting edge modern in its production, very Tarantino-like.
Not to be missed by anyone with an interest.
Well done.
All hail Edward de Vere, true author of the Shakespeare canon.
See Shakespeare by Another Name for the greatest literary hoax/conspiracy of all time.
.
Well played, William!
Seamless.
Wow. Let's see what happens to the market now. I stick to PMs because the Fed pays me to.
ISM is poor and this pump is weak
Let me guess sentiment from Michigan is bad, oh well, can't wait till Sunday night when the index futures gap up on the open.
Please understand the economic data is irrelevant until November 4th. The stock indexes will rise, sure there may be some knee jerk reactions to bad data, but it will rise again that you can bet on.
Not so sure its a guaranteed bet at all. Sept market pump mania has caused a drop in Obama and Clowngress approval #'s, so Oct obviously needs a famous surprise. Id get away from the FED Russian Roulette and hand grenade jugglers quickly. As Obamas advisors are saying, what he needs now is spectacular terrorist attacks.
Give me some of that old time outrageous fortune ... Give me some of that old time outrageous fortune.
Curse you sea of troubles!
It's tough to get used to the churn. Lots of money to be made if one can get the timing right but the logic is George Constanza. Momentum w/ stops, unless flash crash etc. Money to be lost. Rip Van Winkle opens his eyes every six months and says, what's the fuss about?
The EURUSD levitates to the higher end of its range as European manufacturing slows. The Irish pay more to the banks, pay higher yields, have higher unemployment and lower GDP and now lose more competivity as EURUSD goes to the top end of the range. The true engine, Germany is also slowing. BUT, China miraculously increases manufacturing ... Oh wait, its all about QE2. Rinse, repeat.
Everyone says don't fight the fed.. but as yet we have no idea what it is they are actually attempting to do, or what the possible results might be. When that happens, it causes volitility to the downside. It may be followed by some upside, but only due to currency debasement. As far as the 70 p/e crap.. you can play the dash for trash, but don't get up from your chair to go to the bathroom during the day (or night, for that matter).
I just watched the /ES nose dive on MASSIVE volume only to see it immediately fully recover and then some ON NO FUCKING VOLUME AT ALL!!!!!! I'm ready to toss my fucking monitors out the window, open a bottle of tequila and call it a day. THIS IS A FUCKING JOKE!!!!!!!!!!!
Forget your bias and just go with the flow. Be flexible, watch what you feed your mind.
I did go with the flow. I went short the /ES on heavy volume and a break below 1142 but the flow turned ON NO VOLUME. It has since gone proper and I have now put away the gun, the tequila and closed the window....but I'm covering soon and calling it a day. This bullshit is almost too much to bear.
NOTE: just covered at 1135. Done for the day. I'm shutting down the trading platform.
Sadly, it can also be an addiction. I feel that pull, but I'm staying out of the water. More power to you for your balls! Or weakness, as the case may be.
Good luck with Lady Luck!
They've taken over the computers. The POMO pump process is so exhausting for them, they decided it would be easier to just make the markets totally virtual.
As Mr. Banzai7 might say today, "printing is all".
(King Lear, Act V, Sc. II)
Edg. What. in ill thoughts again? Men must endure Their going hence, even as their coming hither: Ripeness is all. Come on. Edg. What. in ill thoughts again? Men must endure Their going hence, even as their coming hither: Ripeness is all. Come on. Edg. What. in ill thoughts again? Men must endure Their going hence, even as their coming hither: Ripeness is all. Come on.The stock index are right were they were Monday at this time.
Yea except oil is up about $7 and gold is testing new highs daily, dollar testing new lows daily since Monday too.
FED trying to keep the water level up so we cannot see who is swimming naked.
The cow Banks are in heat before the election, the FED Bulls are lean and well-rested, ready to transfer the message. Things need to be easier to chill the rage against all the perp incumbents that were the FED enablers save a few like Alan Grayson. My Rep. was invisible throughout, except for TARP I apologies.
Pumping markets is only pissing off the insolent peasantry all the more.
I agree. The more they print the more the outrage by average Citizens. As if the Tarp and all of the other programs that they have used to transfeer the Wealth of the United States to the Banks. This all comes at a cost to the Average American thru Debt and Interest that they will have to pay. As Charlie Munger says: Americans will just have to suck it up. Why should Americans have to suck it up that all of their future income and Wealth being given to the private Banking Industry thru the Federal Reserve?
Taking the fruits of ones labor used to be called Slavery.
I get the impression that a good number of Americans have no idea about what's going on and couldn't careless, so long as their TVs are still working.
Ready to transfer the message...
http://sidedish.dmagazine.com/wp-content/uploads/2009/07/bulls.jpg
"I feel your pain!" :>D
"Expectation is the root of all heartache."
William Shakespeare
Keep in mind at this point equities have to pull out a near full 1% up move daily just to break even?
Keep in mind- This market pumping activity for election happiness is having the opposite effect since Sept 1 the 800 point pop has resulted in -4 Obama approval numbers. So this idea theyre pumping for elections is ridiculous.
The happy pump didnt work, so now they go to 'fear and panic' technique for elections by mid Oct.
Tyler what was the title and date of this report?
how can one ,man who looks like a garden gnome be this powerful?
Cant fight them, join them.
"may invite greater risks in the future" I think that is a certainty considering the level on intervention right now: unprecedented.
QE = Quantitative easing.... KY = Quantitative easing... Humm??? either way were...
Certainly it is not "an educated" guess for the hofjuden with their hands up the shtadlan's, Reb Shalom Bernookystein's, ass. When is the kehilla, a.k.a. USofA, going to wake up to this fact? That's what I want to know.