Reps take the House and QE Too! / Fed Statement

Reps take the House and QE Too! / Fed Statement 

By Phil of Phil's Stock World 

Now, like many Americans, the Democrats know what it's like to lose their House.

Back in the mid-1800's, the nation had another kind of Tea Party as the Whigs became a successful 3rd party, even going so far as to put  two men in the White House - William Henry Harrison and Zachary Taylor plus Millard Fillmore, who succeeded "Old Rough and Ready" who died just after a year in office but that was a long term compared to Harrison, who caught pneumonia making a long inauguration speech in the freezing rain and died of it a month later despite attempts to cure him with opium, castor oil and leeches - treatments we are likely to see again as the Republicans vow to repeal Health Care legislation.  

I don't have to talk about what happened last night, Barry Ritholtz did a great job of it in "The Tragedy of the Obama Administration" so let's just focus on the repercussions of the changeover and, of course, today's upcoming Fed decision.  The Board of Governors were meeting all day yesterday and will meet again this morning to discuss their policy decision and one would think they can't be so deaf as to see that our citizens are not interested in additional deficit spending, which is exactly what QE2 is when the Fed writes checks to paper over the Treasury's profligate spending.  

Look for new and improved ways of not taxing corporations. Like GM, which will not have to pay taxes on its next $45.4Bn of earnings despite the fact that the Government paid for their losses already and allowed the company to bust union contracts and trash benefits for the millions of retired and fired workers as they shut down and sold brands - permanently shipping US manufacturing jobs overseas.

Of course, this tax break isn't about GM.  GM just sets a good precedent for similar treatment of Banksters and others who received relief under TARP and, of course, whatever they decide to call the next emergency bailout of Big Business.  If the market breaks our tops, we are going to be loving the XLF which already owns most of the people who got elected last night.   With FAS at $22.44, we can sell the April $19 puts for $2.75 and buy the Jan $17/21.67 bull call spread for $3.10 and that's net .35 on the $4.67 spread that's starting out 100% in the money and makes 1,334% if FAS simply holds $21.67. 

See, that's why we don't fear the upside.  If the market is going to have a mindless rally, we can find dozens of trade ideas that can keep us ahead of inflation like that. This is why we can PATIENTLY wait for the market to PROVE it can move forward - our job is to preserve cash so we can participate in these mindless opportunities to make ridiculous returns while the life savings and futures of the bottom 95% is ground into dust.  

Do I feel bad about that?  Not anymore, they are going to get the economy they just voted for and that's survival of the financially fittest and we'd better get serious about it because no prisoners will be taken in the next round of "Survivor, America."  Already the commodities are flying in celebration of the return of control of the House to Republicans.  There will be no legislation, there will be no investigation, there will be no restrictions at all and oil already jammed up to $85 in pre-market trading along with gold back over $1,360 and copper back at $3.85.  Isn't that great?  $5 more per barrel costs US consumers $100M a day and there's NOTHING they can do about it. They must spend it and that's more credit card transactions and more retail spending on gas, which we'll use as data to pretend the economy is improving - BRILLIANT!

We have the MBA Mortgage Report this morning along with ADP Employment (+43,000 jobs - all service), Inventories and ISM manufacturing but nothing really matters other than the Fed, which has to ignore all the improvements in the underlying data and risk hyperinflation by jamming another Trillion dollars into the dead pool of the US Money Supply.  We like XLF, UYG (see Member chat for our plays on them) as well as FAS to play the QE2 game because, eventually, all this money will flow through them at some point. Globally, the banking sector is just a shadow if it's former self, as illustrated in this chart (click to enlarge):

It's also interesting to note that just 4 of the World's top 50 banks are US banks - this probably does not fit into the average voters delusion of US economic superiority but we love our delusional voters because they are also delusional investors who pay us premiums, aren't they?  Barry points out that the election means "Less Limits and Oversight of Banks."  If we can't beat them, we may as well join them as we gear up for round 2 of "Grand Theft America." 

It's all about the Fed today and then it will be all about Jobs on Friday.  Despite intervention on the Yen this morning that took the dollar back to 81 this morning, the overall dollars has stayed below the 77 line since yesterday morning.  My comment to Members near yesterday's close was that the market move was very unimpressive on the heels of a 0.7% drop in the dollar as they market should AT LEAST gain enough to offset the currency it's priced in and then you have the magnification as the commodity pushers move up on the weak dollar as well.  

Not seeing good action makes us wonder, how low does the dollar have to go to get us back to April's highs, when the dollar was 7% stronger?  All else being equal, we should be 7% ABOVE April's highs, not 7% below it and, if we can make 1,300% on a flat-line - imagine what we can do with a 14% pop!

Here's looking forward to a very exciting final two months...

- Phil 

Chart via The Banker, Thomson Reuters, H/tip Barry Ritholtz 

Photo courtesy of Jr. Deputy Accountant 

Addendum: Fed Statement

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Phil:  After housing starts, it had said:  "Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term." - So there is already more bank lending and they are mum on resource utilization and going ahead with QE anyway.  VERY dangerous!

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

Phil: That last bit is disappointing as the market doesn't want the Fed to have any reason to back of over 6 months.  Also, $75Bn a month is disappointing but it is IN ADDITION to rolling other securities so probably adds up to $100Bn or more.  Still, as we expected, it's not enough to support the insane expectations the market has built into this statement and down we go.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Phil: OH NO!!!!  Look what they removed: "and is prepared to provide additional accommodation if needed" - Ththththis is all folks!  

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy. 

Phil: Hoenig remains the sole voice of reason but he doesn't even get to vote next year! There's one more meeting on Dec 14th and then Jan 26th, March 15th...

So, I think this was not enough and forget the local reaction - how is the World going to feel about a possible bottom to the dollar, which is zooming back over 77 and look at TBT fly.  Why is TBT flying? Because the Fed will only buy $75Bn of Tim's trash each month and we need to sell A LOT more than that.  

Notice how this report was a disappointment and Bill Gross bolted from CNBC - when the statement goes his way he sits around pontificating for hours.  

Tonight would be a great night for the BOJ to intervene on the dollar but we'll have to wait and see.  

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Comments

[onlooker]

The US had a small quake yesterday. Not enough to shake bottles off the shelves or cause road damage, but enough to make us aware that there was a small quake.

Being watched is good for politicians and is long overdue--- Republican and Democrat alike. Are the Teabaggers the solution, probably not, but a population that is more involved is part of the solution.

We are upside down and that will continue, but, there is a demand for improvement and the masses are becoming interested in the mechanics for improvement.

The bad guys have functioned with no fear. They need to get hurt and be punished to bring fear into the land of politico/banskster/gangsters.

Hang em high.

[eatthebanksters]

Well said Onlooker

[Something Wicke...]

Meet the new boss, same as the old boss.

http://thecivillibertarian.blogspot.com/

[covert]

is he in any way related to jonathon hoenig, who wrote "greed is good, the capitalists pig guide to investing"?

http://covert2.wordpress.com

[TheMonetaryRed]

So, in other words, Ritholz is saying:

Congratulations TPers, you've met the Enemy Banksters and they are you!

ROTFLMAO!!!!

"Oh, but wait, I'm against the bailouts". Yeah, then good job voting for the party that created them.

"Oh, but wait, I'm against corrupt bank practices". Well, maybe you should have thought of that before you voted for the party that allowed them from 2000-2008, fought against every reform from 2008-2010 and now plans to scrap all the reforms that did get through.

[Azannoth]

Yes they will press as much Juice out of it as they can so the ponzi can go for another 2 years at least till 2012

[Edmon Plume]

"...despite attempts to cure him with opium, castor oil and leeches - treatments we are likely to see again as the Republicans vow to repeal Health Care legislation."

Yeah, because that's precisely what it was like immediately prior to the landmark health "care" bill that brought everyone into the 25th century of medical progressivism.

It's tough to even imagine that a government that turns everything it touches to sewage (did it touch your brain matter?) can improve anything in relation to health.  Primarily because it's already interfered with Medicare, which accounts for a significant amount of the projected $100T in entitlements owed by the government over the next few decades.  In other words, we have an empirical model for the utter failure of government to cost-effectively manage a specific health entitlement.

[Azannoth]

Let me tell you all about the 'great' socialised healthcare in Europe, today I had a small operation done at a doctors office, I needed a few pocket tishues after and asked the doctor for them, I didn't know how many I needed so I planned to take 4 or 5, before I finished pulling the 2nd out the doctor violently pulled the dispenser away from me obviously not wanting me to get more!??! They frigging would not let me have pocket tishues, this is what you get with socialized medicine imagine you needed a kidney transplant or something not just a cosmetic operation if they 'save' on pocket tishues how knows what they would be saving on cutting <you up

[Montgomery Burns]

Here in the obviously superior US system they let you take as many as you want, then charge you $200 for the box.

[eatthebanksters]

Montgomery, if you want to be taken seriously you should be factual and not an emotional fucktard.

[chopper read]

http://www.ncpa.org/pub/ba649

Fact No. 1:  Americans have better survival rates than Europeans for common cancers.[1]  Breast cancer mortality is 52 percent higher in Germany than in the United States, and 88 percent higher in the United Kingdom.  Prostate cancer mortality is 604 percent higher in the U.K. and 457 percent higher in Norway.  The mortality rate for colorectal cancer among British men and women is about 40 percent higher.

Fact No. 2:  Americans have lower cancer mortality rates than Canadians.[2]  Breast cancer mortality is 9 percent higher, prostate cancer is 184 percent higher and colon cancer mortality among men is about 10 percent higher than in the United States.

Fact No. 3:  Americans have better access to treatment for chronic diseases than patients in other developed countries.[3]  Some 56 percent of Americans who could benefit are taking statins, which reduce cholesterol and protect against heart disease.  By comparison, of those patients who could benefit from these drugs, only 36 percent of the Dutch, 29 percent of the Swiss, 26 percent of Germans, 23 percent of Britons and 17 percent of Italians receive them. 

 Fact No. 4:  Americans have better access to preventive cancer screening than Canadians.[4]  Take the proportion of the appropriate-age population groups who have received recommended tests for breast, cervical, prostate and colon cancer:

• Nine of 10 middle-aged American women (89 percent) have had a mammogram, compared to less than three-fourths of Canadians (72 percent).
• Nearly all American women (96 percent) have had a pap smear, compared to less than 90 percent of Canadians.
• More than half of American men (54 percent) have had a PSA test, compared to less than 1 in 6 Canadians (16 percent).
• Nearly one-third of Americans (30 percent) have had a colonoscopy, compared with less than 1 in 20 Canadians (5 percent).

Fact No. 5:  Lower income Americans are in better health than comparable Canadians.  Twice as many American seniors with below-median incomes self-report "excellent" health compared to Canadian seniors (11.7 percent versus 5.8 percent).  Conversely, white Canadian young adults with below-median incomes are 20 percent more likely than lower income Americans to describe their health as "fair or poor."[5]

Fact No. 6:  Americans spend less time waiting for care than patients in Canada and the U.K.  Canadian and British patients wait about twice as long - sometimes more than a year - to see a specialist, to have elective surgery like hip replacements or to get radiation treatment for cancer.[6]  All told, 827,429 people are waiting for some type of procedure in Canada.[7]  In England, nearly 1.8 million people are waiting for a hospital admission or outpatient treatment.[8]

Fact No. 7:  People in countries with more government control of health care are highly dissatisfied and believe reform is needed.   More than 70 percent of German, Canadian, Australian, New Zealand and British adults say their health system needs either "fundamental change" or "complete rebuilding."[9]

Fact No. 8:  Americans are more satisfied with the care they receive than Canadians.  When asked about their own health care instead of the "health care system," more than half of Americans (51.3 percent) are very satisfied with their health care services, compared to only 41.5 percent of Canadians; a lower proportion of Americans are dissatisfied (6.8 percent) than Canadians (8.5 percent).[10]

Fact No. 9:  Americans have much better access to important new technologies like medical imaging than patients in Canada or the U.K.  Maligned as a waste by economists and policymakers naïve to actual medical practice, an overwhelming majority of leading American physicians identified computerized tomography (CT) and magnetic resonance imaging (MRI) as the most important medical innovations for improving patient care during the previous decade.[11]  [See the table.]  The United States has 34 CT scanners per million Americans, compared to 12 in Canada and eight in Britain.  The United States has nearly 27 MRI machines per million compared to about 6 per million in Canada and Britain.[12] 

Fact No. 10:  Americans are responsible for the vast majority of all health care innovations.[13]  The top five U.S. hospitals conduct more clinical trials than all the hospitals in any other single developed country.[14]  Since the mid-1970s, the Nobel Prize in medicine or physiology has gone to American residents more often than recipients from all other countries combined.[15]  In only five of the past 34 years did a scientist living in America not win or share in the prize.   Most important recent medical innovations were developed in the United States.[16]  [See the table.]

survey by the United Nations International Health Organization. Percentage of men and women who survived cancer five years after diagnosis:

  U.S.              65%

  England        46%

  Canada         42%

 Percentage of patients diagnosed with diabetes who received  
 treatment within six months:

  U.S.              93%

  England        15%

  Canada         43%

 Percentage of seniors needing hip replacement who received it  
 within six months:

  U.S.              90%

  England        15%

  Canada         43%

 Percentage referred to a medical specialist who see one within  
 one month:

  U.S.              77%

  England        40%

  Canada         43%

 Number of MRI scanners (a prime diagnostic tool) per million people:

  U.S.              71

  England        14

  Canada         18

 Percentage of seniors (65+), with low income, who say they are in  
 "excellent health":

  U.S.              12%

  England        2%

  Canada         6%

[I am more equal...]

...opium, castor oil and leeches - treatments we are likely to see again as the Republicans vow to repeal Health Care legislation.

Better than Hopium and socialism.  I'd least I'll be too high to care and crapping regularly.  As for the leeches, better ones that I can burn off than ones that burn me. 

[Cleanclog]

What do you make of temporarily dropping the 35% rule - the one where the FED can't own more than 35% of any single issue/security?  Dispensed with for the time being.  

Hmmmmm.  And now FinReg will be rolled back too so more more more shenanigans by the banks (even if only 4 of the world's biggest 50 are here).

[tinfoilhat]

Phil sure has an "interesting" view of reality.  [where interesting means fucking twisted]

[chopper read]

yawn.  he's a loser.  his commentaries offer nothing.

but we love our delusional voters because they are also delusional investors who pay us premiums, aren't they?

...says it all, doesn't it?

[Bearster]

+3

interesting=envy/victim/entitlement/socialist