This page has been archived and commenting is disabled.

Bernanke And His Game Of Chicken

David Fry's picture




 

 photo KarateChicken.gif 

Sometimes things can get out of control. So you have to wonder if the “taper caper” was either:

A. A deliberate ploy or trial balloon to gauge investor reaction

B. An effort to reduce speculation in extended equity and high yield sectors

C. Something that just got out of control as vigilantes showed Ben they’re still around

E. Even if Ben gives markets more QE, will they still trust him?

D. All of the above.

We’ll know more next week Wednesday when the Fed meeting concludes with a language parsing contest. In the meantime, stock market volatility is increasing as we’re experiencing alternating triple digit days now. Thursday was a combination of algos ramping a tag of the 50-day moving average, the McClellan Oscillator (NYMO) again displaying a short-term oversold -100 reading and the obligatory Hell-Sin-Wrath (WSJ reporter & Bernanke oracle, Jon Hilsenrath) blog post the Fed believes investors are over-reacting to “tapering” talk and to just calm the hell down. This combination allowed stocks to rally. 

Now markets are getting more volatile with each passing day. The IMF stated U.S. economic growth looked “modestly tilted to the downside” weaker. This followed the World Bank lowering global economic growth the other day. Most would spit on their always late opinions just as with rating agency’s opinions. Both may give the Fed cover for more QE.

Economic data Friday included a rising PPI of 0.5% vs 0.2% expected, and the prior -0.5%; the always amusing “core” rate came in at 0.1% vs 0.1% expected, and prior 0.1%; Industrial Production was flat at .0% vs 0.2%, and prior -0.4%; Capacity Utilization declined to 77.6 vs 72.9 expected, and the prior at 77.8; and lastly, Consumer Sentiment declined to 82.7 vs 84.5 expected, and prior 84.5.

One thing that pissed the average RIA or DIY investor was a story stating the ISM, (Institute for Supply Management) which releases its reliable manufacturing indexes to the public, are said to be now releasing it early enough to paying HFTs who can jump ahead of everyone else. This does and should be upsetting. But this is now controlled by Thomson-Reuters who are always interested in making a few more bucks no matter if it’s unethical or not. This is just another way to destroy trust in fair play for investors without connections or deep pockets. If this is true, drop da boyz at Thomson Reuters a note about how you feel.

Meanwhile, “bond daddy” Bill Gross stated that investors should avoid long duration income related investments: "We believe caution is warranted not just for fixed income investors, but for investors in all risk assets; avoiding long durations, reducing credit risk away from economically vulnerable companies and sectors". And, as if on cue, Detroit just defaulted on all its unsecured debt.

One thing I’ve been watching is the monthly DeMark sequential 9 counts which, even during previous bouts of QE, have proved reasonably reliable in producing a countertrend reaction. It may just allow markets to move sideways or decline. It’s hard to know since other DeMark indicators, especially from daily views have performed poorly this year. Nevertheless, we utilize them especially when markets are extended from this view.

6-14-2013 6-34-34 PM dow jones

Oil rallied once again making some wonder why given poor economic conditions. We did a short chart video on the subject and featured some analysis from a guest contributor.

As a consequence our exposure to equities is only at 30% (mostly token positions) with the balance in cash.

So down triple digits, up triple digits and down triple digits will probably freak-out many investors not liking the volatility. Most sectors just reversed course from Thursday to wrap up the week, failing to achieve the Friday follow-thru as achieved last week. If markets don’t rally after the Fed meeting next Wednesday, then it may become obvious markets are topping out.

Volume overall was lighter and breadth per the WSJ was negative flirting again with short-term oversold conditions.

6-14-2013 6-35-17 PM markets diary

You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook.

NYMO

NYMO

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

NYSI

NYSI

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

VIX

VIX

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise

SPY 5 MINUTE

SPY 5 MINUTE

SPY DAILY

SPY DAILY

.SPX WEEKLY

.SPX WEEKLY

INDU WEEKLY

INDU WEEKLY

RUT WEEKLY

RUT WEEKLY

QQQ WEEKLY

QQQ WEEKLY

XLF WEEKLY

XLF WEEKLY

XLI WEEKLY

XLI WEEKLY

XLB WEEKLY

XLB WEEKLY

XLY WEEKLY

XLY WEEKLY

XLP WEEKLY

XLP WEEKLY

ITB WEEKLY

ITB WEEKLY

IYR WEEKLY

IYR WEEKLY

IYT WEEKLY

IYT WEEKLY

PFF WEEKLY

PFF WEEKLY

 

EMB WEEKLY

EMB WEEKLY

LQD WEEKLY

LQD WEEKLY

BWX WEEKLY

BWX WEEKLY

IEF WEEKLY

IEF WEEKLY

UUP WEEKLY

UUP WEEKLY

FXE WEEKLY

FXE WEEKLY

FXY WEEKLY

FXY WEEKLY

GLD WEEKLY

GLD WEEKLY

GDX WEEKLY

GDX WEEKLY

SLV WEEKLY

SLV WEEKLY

DBB WEEKLY

DBB WEEKLY

XME WEEKLY

XME WEEKLY

DBC WEEKLY

DBC WEEKLY

USO WEEKLY

USO WEEKLY

XLE WEEKLY

XLE WEEKLY

DBA WEEKLY

DBA WEEKLY

EFA WEEKLY

EFA WEEKLY

IEV WEEKLY

IEV WEEKLY

EEM WEEKLY

EEM WEEKLY

EWJ WEEKLY

EWJ WEEKLY

AAXJ WEEKLY

AAXJ WEEKLY

ILF WEEKLY

ILF WEEKLY

GXC WEEKLY

GXC WEEKLY

...

 

Bulls couldn’t do an instant replay from the previous week. Perhaps now we’ll just remain sideways until the Fed meeting or bears will force the issue before then.

It’s upsetting that reputable economic index providers would stoop to sell their services to allow HFTs to front run everyone else. What’s next? Will the Labor Department start sell employment data?

Next week is important obviously as all eyes will be on the FOMC.

Happy Father’s Day!

Let’s see what happens.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 06/15/2013 - 11:04 | 3660770 Lumberjack
Lumberjack's picture

Speaking of the retiring Bernak...

 

Larry Summers, Don't Blame Iris Mack If You're Not the Next Fed Chairman

http://www.imackgroup.com/mathematics/1892115-larry-summers-dont-blame-iris-mack-if-youre-not-the-next-fed-chairman/

Eight reasons not to hire Larry Summers for Fed chief (MUST READ).

http://www.intrepidreport.com/archives/9793

[snip]

Eighth: Summers fired a derivatives whistleblower at Harvard. After suffering Enron’s collapse:

Iris Mack, a derivatives researcher, sought a quieter life. Mack joined Harvard Management Co., a privatized company which managed the university’s endowment fund in 2002. To her surprise, she found the Harvard endowment fund was not so staid. In fact, it was involved in the same speculative trading as her former employer, Enron. Worse, after she spoke up about it to Harvard President Larry Summers’ chief of staff, Marne Levine, she was fired four months later for raising the subject. No academic freedom in finance, I guess.

Sat, 06/15/2013 - 09:17 | 3660641 involuntarilybirthed
involuntarilybirthed's picture

And just maybe Ben Bernake and company are just academically reshuffling stuff from history books hoping it works.  Maybe the mixed chicken signals from the Fed indicate what I just said.  maybe not.

Seems all they do is buy (more or less) treasuries/bonds, MBS or like stuff or don't buy it?  What is so hard about it?  My wife makes tougher decisions grocery shopping with coupons and gets no media coverage doing it.

Sat, 06/15/2013 - 08:18 | 3660593 Go Tribe
Go Tribe's picture

Well, I had to look it up, Tom Demark Sequential, since the videos didn't link...

TD Sequential indicator consist of two components. TD Setup is the first one and it is a prerequisite for the TD Countdown – the second component.

1.TD Setup
TD Setup compares the current close with the corresponding close four bars earlier. There must be nine consecutive closes higher/lower than the close four bars earlier.

TD Buy Setup - prerequisite is a bearish price flip, which indicates a switch from positive to negative momentum.
– After a bearish price flip, there must be nine consecutive closes, each one less than the corresponding close four bars earlier.
– Cancellation - If at any point a bar closes higher than the close four bars earlier the setup is canceled and we are waiting for another price flip
- Setup perfection – the low of bars 8 or 9 should be lower than the low of bar 6 and bar 7 (if not satisfied expect new low/retest of the low).

TD Sell Setup - prerequisite is a bullish price flip, which indicates a switch from negative to positive momentum.
– After a bullish price flip, there must be nine consecutive closes, each one higher than the corresponding close four bars earlier.
– Cancellation - If at any point a bar closes lower than the close four bars earlier the setup is canceled and we are waiting for another price flip
- Setup perfection – the high of bars 8 or 9 should be greater than the high of bar 6 and bar 7 (if not satisfied expect new high/retest of the high).

http://practicaltechnicalanalysis.blogspot.com/2013/01/tom-demark-sequen...

 

Sat, 06/15/2013 - 07:12 | 3660542 de3de8
de3de8's picture

Gold,silver,cash,real estate, and don't forget lead.

Sat, 06/15/2013 - 06:27 | 3660519 eddiebe
eddiebe's picture

Look, the banksters will raise interest rates because they want to extract more. They are not there to help anyone but themselves, certainly not 'us, we the people', and our representatives are in with the banksters anyway. So they will' taper', which just means they will fuck all the bond holders, that have been making money for the 30 year or so bull. Of course they will say they are doing it because if they don't it will be calamitous for this or that reason, or they will simply say it was force mejeur. They have been able to buy US IOU's for next to nothing with digi bucks and money they've been printing. Now they want a raise for all the hard work they've been doing.

Sat, 06/15/2013 - 04:38 | 3660464 fijisailor
fijisailor's picture

I looked at all those charts and fully understand what they all mean. /s

Sat, 06/15/2013 - 04:35 | 3660459 ricky663
ricky663's picture

Gotta love the video at the top (kid "egging on" the chicken and getting his ass beat). We have chickens, and they run scared from us!

Anyway.... I have been bearish on the economy since 2008, and was positioned incorrectly in the markets for a long while, and paid $$$ for it.

Like the OP, I am now mostly cash, watching my accounts, and am very nimble with whatever positions I have on.

After the Nikkei crash last Thursday June 13,  I figured this was a Black Swan event (or the beginning of one), but there was no follow through in the US markets... in fact they rallied ~1.5% in Thursday's action.

What's the point? There is no reason that I can see that "this time is different." Bernanke will win the game of chicken based on empirical observation (and being pounded for being short).

Just sayin'

 

Sat, 06/15/2013 - 10:36 | 3660711 disabledvet
disabledvet's picture

See comment below. The most glaring "omission" from the Fed's stated goal is "inflation." instead of higher prices there have been massive asset bubbles created. Taper Talk is the Fed's job. "nothing gold can stay" and that's why they get "the big bucks that all of Wall Street laughs about." so sure...game of chicken...but that's Wall Street pushing the envelope not the Fed. Oh and...how about a little War Talk for shits and giggles. Listen...the Bucky looks weak relative to the euro and franc all of a sudden...but in the meantime the rest of planet earth's equity and debt markets have blown up and their currencies and markets have completely collapsed. I'm sorry but that's not an all clear to go hog wild in the EZ. They're up to their eyeballs in EM debt and the Fed could wish a simple raised eyebrow put an end to the entire Arrifice Ridiculii. (and Europe knows it. They've gone out of their way to state emphatically that do not want to see the Fed taper.) events have already been set in motion folks. "some trades can't be unwound."

Sat, 06/15/2013 - 01:56 | 3660399 ebworthen
ebworthen's picture

Without the FED the markets are 100% overbought and overvalued.

Period.

Sat, 06/15/2013 - 01:42 | 3660392 q99x2
q99x2's picture

Boycott Bernanke.

Dudes a fucking moron and needs to be locked up.

How can you look at yourself in the mirror after listening to the fuck up as if his words meant anything except chaos and destruction.

Arrest Bernanke and end the FED.

Sat, 06/15/2013 - 10:49 | 3660748 translator zero
translator zero's picture

Dude does what he is told to do.

His masters are cashing in ... and getting bailed out.

 

Sat, 06/15/2013 - 01:17 | 3660376 Yes_Questions
Yes_Questions's picture

 

 

 

Benjamin!  Leave that chickn' alone!

Andrea! get Benji off that yard bird.  Al's asleep, he won't know you're gone.

NOW GIT!

Sat, 06/15/2013 - 00:45 | 3660341 Number 156
Number 156's picture

Why did the Bernank cross the road? ...

 

Sat, 06/15/2013 - 00:23 | 3660315 Meremortal
Meremortal's picture

C is the closest to a correct answer. The problem is that answer implies that the Bond market was 'under control' at some point. The Bond market is bigger than the Fed and is never under control.

Bernanke saw the signs that bond yields were headed up and knew he had to react.

The charts were helpful, thanks.

Sat, 06/15/2013 - 00:17 | 3660310 nathan1234
nathan1234's picture

Ben talks through his a$$hole.

Thats why the shit is hitting the fan.

Fri, 06/14/2013 - 23:58 | 3660293 BeagleOne
BeagleOne's picture

We are so fucked...

Do NOT follow this link or you will be banned from the site!