Bernanke gave more testimony on Wednesday emphasizing and defending all Fed policies. He successfully parried all questions about QE and ZIRP risks and made no mention of any policy exit dates. Bulls translation, the printing press will be on “auto” to infinity.
Interesting testimony tidbits were:
“Fed could go some time without sending profits to Treasury,” (Fed is allowed to be a deadbeat).
“Savers will benefit with economic recovery; savers won't get strong returns in a weak economy,” (So not in my lifetime?).
Not to be outdone, the ECB’s Draghi made equally curious comments:
“We do not act to help banks or governments,” (nose growing).
“Things are going much better in Germany than in rest of Eurozone,” (duh!) .
“We see significantly lower than 2% inflation next year,” (when you make up the data).
“Our monetary policy remains accommodative, and far from point where we can have an exit in mind,” (you starting to see central bank joint talking points yet?)
“Pre-Crisis people were living in a ‘Fairy World’, thinking spreads reflected reality,” (now they’re living in our “Fairy World”).
Little mention was made regarding Italy even as Berlusconi patronizingly stated:
“Italy needs to keep finances in order and needs to reform public institutions to ensure political stability. (Stating the obvious clearly—he’s a reformer dammit.)
Most of all this just confirmed to Bulls that all systems were “go” to rally. Algos jumped squeezing whatever shorts were in existence since you can’t fade these central bankers—at least not yet. It’s as if nothing negative happened Monday as everything reversed course. Gold (GLD), the dollar (UUP) and bonds (TLT) fell. Commodities (DBC) also plunged, as energy prices were weaker along with precious metals. Stocks exploded, helped in part by better data from Pending Home Sales (4.5% vs 3% exp. & prior revised up to -2% vs -4.3%) and a mixed bag for Durable Goods Orders (-5.2% vs 4.6% and prior & ex-Transportation 1.9% vs prior 1%). If you’re interested, we did a brief video analysis of homebuilder (ITB) today.
Meanwhile, China stated it was searching for ways to promote stock prices by allowing some state organizations, previously restricted from owning stocks, to buy them. Eurozone Economic Confidence (this is before the Italian vote) rose to 91 vs 89.5, which means the confidence level was high but after the vote may not be so.
Headlines were screaming that “stocks were reaching all time highs,” which while gains were impressive, we still have a ways to go for that—ask any dotcom holder. Leading markets higher were transports (IYT) with just about all other sectors following in line. Evidently bulls aren’t one bit intimidated by sequester but remember that we’re also nearing month-end window dressing. Apple (AAPL) disappointed shareholders at their meeting by not announcing anything regarding their cash stash. Overseas markets weren’t as enthusiastic especially in higher beta sectors.
Since it’s Wednesday, our colleague David Gillie wrote his usual brief but targeted ETF Mid-Week Peek, which should add to your assessment of conditions.
Volume was light overall as has been the routine on recent melt-up days. Today’s volume in SPY was more than 100M shy of Monday’s sell-off. Breadth per the WSJ was again quite positive.
We’re still maintaining a 40% cash position but long other sectors as noted where applicable.
Thursday is Jobless Claims again, GDP and Chicago PMI among other things. The last of the earnings will feature mostly retail as is customary. J.C. Penney (JCP) reported a crummy report and the stock is down 13.75% in after hours trading as of this writing. Groupon (GRPN) also reported a stinker of a report driving the stock down by 26% also after hours. These are the kinds of stocks which investors can choose to ignore and leave on an ice floe somewhere to die.
Lastly it seems all the hoopla about the sequester is fading making it a non-event except for those with soap to sell.