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Why October, 2011 isn't August, 2010
I often get the feeling that traders and investors have put too great a trust in the monetary magic of the Federal Reserve.
It’s August, 2010. The SP500 is nearly 20% from its near term high. The economy is on the verge of a recession. Fed Chairman Bernanke announces a little program at the Jackson Hole conference that ultimately morphed into QE2. The markets bottomed and never looked back.
Fast forward a year to August, 2011. The markets have suffered another devastating summer as prices on the major exchanges have fallen nearly 20% again, and in dramatic fashion. Certainly, many factors are to blame including political gridlock in Washington, the downgrade of US debt, and the European sovereign and banking crisis. Nonetheless, the markets bottom in August and September as investors find solace in Bernanke’s Operation Twist.
But October, 2011 isn’t August, 2010. Maybe it is the scope of the crisis in Europe or the lack of political will to contain it. Maybe it is the recognition that all these QE’s are just monetary steroids that have lost their efficacy. Maybe it is the lack of political will to fix our debt habit. Maybe, maybe, maybe….
It’s different because it is always different!
But here is the real reason I see differences, and it has to do with Treasury bonds and the US Dollar. Back on July 30, 2010, my trading model for the Dollar gave a sell signal; the trend was no longer bullish. A week later my bond model also gave a sell signal, and this model stayed bearish on bonds until March 11, 2011, which was only 8 short weeks before the equity market top. Back in August, 2010, there were favorable conditions for the equities markets to move higher. The Dollar was falling and bond yields were moving higher in approval. A recession was averted.
But now a year later with another QE upon us, there is strength in the Dollar and Treasury bonds. A bullish Dollar is a headwind for equities, and falling Treasury yields are a sign of economic weakness as in recessions are deflationary. These are 2 very material and substantive differences for equities, and this is why October, 2011 is not like August, 2010.
I don’t know if the Fed can engineer another “recovery”. I know they will try, and I know investors will do their very best to believe in the Fed’s abilities to make everything good. However, I cannot help but think that investors are going to the well just once too often. There are headwinds in the headlines out there. Is it the “wall of worry”? Maybe, but the equities market need to reconcile with the growing headwinds presented in the Dollar and in Treasury bonds — both which remain bullish.
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I am bullish on someone beating Bernanke up in the street with a bat very soon LOL!
Noone is making money in this market environment. Nobody. But we will'be down 20 % by Yr end..and continue in 2012.
The trend.. as choppy as it is is DN. This mkt seems to like round numbers so 1000 on the S&P by Yr end.
vc.
Sorry but a lot of people have just made 'fuck you money' in the last three months. Now they can say FUCK YOU to whom ever they want.
"Maybe it is the recognition that all these QE’s are just monetary steroids that have lost their efficacy"
QE never had any efficacy. The whole point of QE was to expand credit and hope that it flows onto the economy in the form of new spending and investment, fuelling the same credit bubble. This did not happen. Credit growth (mortgage and business lending) is still at saturation point and excess reserves at the Fed are still at blowout proportions.
Nominal Bond and stock prices have risen alongside the price of commodities. What's the real appreciation? Take a look at Asian markets (where all the real growth is) - strange how they underperformed US markets.
And as for the important unemployment figure, virtually no change, debt escalating, etc. QE is slow death (stagflation).
Do what they will in manipulating and falsifying markets to fantasy levels. On main street reality will continue to unfold a contracting global economy, growing global unemployment and bankrupt governments.
Bernanke, Timmah. GS and assorted sovereign arseholes can feed the market all the bullshit they like...tens of millions of unemployed and increasing hungry folk and increased small business closures will swamp the story of a soaring DJI.
DJI 36,000 will come at Unemployment 36% because the printing presses will have hit turbo charge.
All we have now is the international club of sovereign bankrupts working out how to lend and guarantee each other - inevitably they need to keep pumping air into the leaking balloon at ever increasing rates.
And we should dispose of our PMs?
In unfolding news:
The FBI have announced an investigation into the CFTC for collusion with banks in the corruption of precious metal markets. Senior executives at the CFTC have been taken into custody and witness protection given to a few officials to guard their lives against recrimination from certain banks and involved Congresspersons. Penalties for the alleged crimes range to 25 years imprisonment and life imprisonment for any bank official(s) involved in the corruption of a public official.
It is expected certain senior members at the CFTC will be involved in hit and run accidents before being able to appear in court to give evidence.
But back in the real world, corruption is legal if you own the TPTB and no prosecutions or investigations will occur until such time a reset button is pushed. Thus - bring on the total economic collapse so Americans can get angry enough to start to ask questions, demand answers and punishments.
aint gonna happen.
they will print money till there is no more trees and we are out of air due to lack of trees. the collapse will come unexpectedly, just get ready for more riots, stock market drama...... and so on.
time to admit it....and hate to say it.....but that's it folks, the writing is on the wall, the equity markets will not be allowed to go down anymore. Goldman has control of the Euro situation if that is not obvious, they are calling the shots including the right before market close instructions on how to influence moves in equities. The office of misinformation is in full swing. You will lose trying to fight this. I am sure that if a blog like this existed in the 30's and 40's you would hear much of the same sky is falling rhetoric from those that are losing their a$$ right now (Livermores losses were likely not accidental, he just didn't figure out "they" were on to him).
Yes the markets and MSM are rigged, you know it, I know it, and with governments now the largest hedge funds with tax dollars and printing presses, do you really think they will lose? Come now. The only thing that will make the shorts any money now will be an event, terrorist or otherwise, that is truly unexpected.
Bear market, recession RIP.....it's an election cycle, year end bonus, bad is good, headline driven, rumor mongering world, being jammed down your throat until you give up. A very effective version of virtual waterboarding that all will eventually succumb and become once again good servants of the empire. A sad and unfortunate truth.
Just sayin....no lie
Goldman has such control now that they are losing money. Anything Goldman is trying can be undone with one Iranian silkworm missile into a passing ship.
A prosperous economy needs a medium of exchange to operate. Most people obtain medium of exchange by producing something. The banks acquire medium of exchange by printing it. The fed prints medium of exchange & lends it to commercial banks at 0% interest. And what do the banks do with the free medium of exchange? They gamble on all manner of exotic financial instruments - derivatives, CDS, CDO. MBS & on & on which produce nothing. This has been a disaster. The "free market" should supply medium of exchange - they produce everything else.
To grow an economy you don't consume all you produce. You save some production to use to build facilities to increase production. To get savers to save requires that interest be payed on savings. And who should set interest rates? The "free market". It is evident that the fed has been a disaster at setting interest rates.
LOL- that's so cute.... You're a finance major, aren't ya? I think you just saved the stock market- congrats!
THe walll of worry is a tsunami, and they don't get climbed.
I dearly would like to buy some equities, but I'm shaking in my boots over Europe and USA "solutions".
Bernanke thinks he might like to try monetary policy to control "bubbles".
http://www.cnbc.com/id/44947356
Every time they try to make things better it just gets worse.
Even the bean counters are starting to blush from the bankster accounting schemes.....and they are bought and paid for !
http://www.reuters.com/article/2011/10/17/us-usa-tax-bank-accounting-idUSTRE79G70U20111017
SCREAMING IN CAPS IS THE LEAST OF OUR WORRIES!!! AT LEAST WE KNOW WE ARE ALIVE, AWARE, AND UNWILLING TO GET FLUSHED DOWN THE TOILET! BACK TO THE SWAMP WITH YOU FOR A MAKE OVER!
The Fed will do everything to remain the 'last' CB standing in order to keep the FRN the reserve currency.The EU may be the 1st to fall and then the Fed has to outlast China.
To me it seems somewhat like 2007 as we headed into the 2008 election cycle. There will be some type of meltdown of some sort. OWS may morph into real civil unrest. Difficult to know exactly what triggers the tipping point. Will 'They' be dumb enough to institute martial law?
The Fed is on hold for now because Bernanke knows he will need all his fire
power for the upcoming collapse of the financial markets.
It's not Ben that's gonna do it. It's the bought and paid for Congress. We have real advantages over the Europeans. The U.S. has the best Congress money can buy.
http://www.opencongress.org/bill/112-s1671/show
And, it won't create 2 million jobs either, but that's what they're telling ya.
Advantage in the price tag. EU whores cheaper, but doing much more damage.
No worries. Ben can do anything. Fed now just comes right out and says it manipulating markets...
http://www.cnbc.com/id/44947356
The FED doesn't control anything, and they make little or no effort to do so. All the FED does is follow the 90 day T-bill rate. In the charts below we can see that there's been a little more variance in FED rates under Bernanke than Greenspan (i.e., Ben is more proactive than his predecessor) but not much:
Here's an older chart with a more long term view. A key takeaway from this chart is that "over the time covered, the average gap is 29 basis points...": http://www.tradersnarrative.com/long-term-chart-fed-funds-minus-90-day-t-bill-rate-1714.html
And here is a more recent chart through Jan 2011 that shows how close the correlation is: http://1.bp.blogspot.com/-slSMryVzjUQ/TcF7_eSgyWI/AAAAAAAAAIY/ZKD5lohltso/s1600/all%2Brates%2B2000%2Bto%2B2011.bmp
As you can see rarely does the FFR dip below the 90d T-bill, and as should come as no surprise to anyone, the FED does nothing to control inflation. It's akin to driving the Autopia at Disneyland--a single metal rail controls the direction of the car, and the driver has very little control over acceleration or braking.
It's part of their charter, to you know, control everything real well. We should all kiss the arse of our bearded overlord, and thank him for the reassurances. Free market? Whutz that?
These stimulus packages are like pouring raw, unvaporized fuel down an engine's throat, to keep it running. Eventually, fuel contaminates the lubricant enough to risk catastrophic failure. Another analogy would be that the drug eventually kills the addict, if he doesn't kick the addiction.
http://georgesblogforum.wordpress.com/2011/10/13/fiat-addiction-update-1...
These stimulus packages are like pouring raw, unvaporized fuel down an engine's throat, to keep it running.
Better hope it's nitromethanol and they don't overfuel it. Hydraulic lock is explosive!
Knock off the screaming all bold it's as offensive as all caps.
Fonts can hurt.
It might not be 2010, but it sure in hell is 2008, and it looks to be going into May of 2008 right now to be specific. This would place some degradation of the market towards the end of the year and a total ass kicking around March of 2012.
it will get much worse, this might be the economic demise of the entire northern hemisphere.
http://expose2.wordpress.com