It was “brown trou” (trouser) time yesterday – if you were as they say “long and wrong”. It was as if they just pulled the plug after another jolting rally. True we did have a nice 5 day rally the week before – going into the “Black Friday” shopping spree and it seem people still found some credit hiding somewhere to purchase that 40” Flat Screen TV. However – current and future news coming down the pipe is not looking rosy or that we are coming to a near turnaround anytime soon.
In the morning – the TV in the bedroom usually comes on early with a flip (back-n-forth) between Bloomberg (news) and CNBC (morning talk show). This morning while making coffee my wife started laughing, I stepped in and said what’s so funny. She said one analyst on CNBC said “If the news isn’t catastrophic it’s a buying opportunity!” – the sad thing is he is right – but only for the day.
We continue to trade (or invest) in a very volatile (I would go as far to say hyper-volatile) market. The news that continues to pour out is bad, however we have become use to bad news – what we want to avoid is catastrophic news. We rally the market on euphoria and tell ourselves – “It wasn’t THAT bad!” and then reality comes creeping back in and BAM the market gets knocked back down. There is certainly no one, and I mean NO ONE, captaining this ship (from a lamb duck president, to one in waiting, a Treasury Sec with a $700 billion gift card, a FED Chairman that has aged 100 years in front of our eyes, and a Congress that has fully run AMOK. One thing for sure – there is absolutely NO LEADERSHIP. I know when Obama takes office things will change and leadership will come to the table. He has already shown his is not playing TOTALLY into Pelosi’s hands and is willing to set the agenda – however so far that has only been talk – the true test will come at the end of January. As this nation voted on Hope and Change – let’s Hope for some Change!
The one thing you can count on (for sure) is continued volatility for the next couple months!
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Bernanke to crank up the printing presses?
Bernanke initially responded to the coming crisis with very little baby steps (25bps cuts), but as they didn’t work he started cutting faster. He opened the Discount Window to those not eligible, he bailed out Bear Stearns, he extended the Discount Window loan from 30 to 90 days, he lowered the lending standards to take ANY rated collateral (including junk) – all while promising Congress that these are ONLY short-term loans and in the history of the FED they have ALWAYS been repaid and never defaulted. Now he is choking on those words, and while true tax payers will probably have to pick up the tab down the road – in the short-term we need to fund the debt and deficit spending and treasuries are not cutting it.
Yesterday – Bernanke spoke and not with any vigor or strength – but with almost a sheepish what do I do now approach. The rates are (almost) as low as you can get 1% - they can go to 0% - the policy that Japan (when faced with a similar situation) took on. From the horse’s mouth “it is certainly feasible”. In a Bloomberg story this morning, Michael Feroli (JP Morgan economist) refer to Bernanke as “Bernanke-san” from the tone of his speech. This quantitative easing is a VERY risky endeavor – as it means injecting more reserves into the banking system than needed to keep target interest rates at zero.
Japan’s central bank is the only one to have taken this approach, but Japan is infamous in the financial world of government controlled manipulation which helped bring down their economy and stock market (just read “Tug of War” or “Vandal’s Crown” as to Japan’s heavy handed intervention). I would contend that our Fed, Congress, and Treasury have taken similar action and now we are suffering for it.
Bernanke’s weak speech yesterday was not a speech but rather an ANNOUNCEMENT of the shift in policy that the Fed is pursuing. They have already been heading down this road with a plethora of different loan programs and capital injections (many without Congressional approval – as if that would matter – since Congress is more interested in the Big 3 and their 200 pages of ear-marks and pork attached to the big bailout plan).
Some believe that Japan’s policy of quantitative easing did not stop their markets from falling and there are those that feel that it created long-term economic malaise (like a stagnant pond). Japan’s government certainly changed their manipulated banking industry into the worlds lender via the trillions in carry trade. Lending interest free money for a commission has made banks wealthy, but certainly not wise. Their economy suffers as Japan becomes the epitome of a TRUSTED FIAT currency.
The question you have to ask – are WE (the U.S.) heading down the same road? Do we become the TRUSTED FIAT carry trade? Do banks and financial institutions fine a new business model of commissions on interest free money as the printing presses run hot to keep interest rates at zero. Certainly we don’t have to look to far, just over the Pacific, to see how well that worked out. If Japan is unable to get out of the new hole they created for themselves, what makes Bernanke think he can do any better.
These are interesting times – certainly if we become the birth-place of new interest free money. The land of opportunity – for sure?
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BIG 3, UAW, and Congress
Since they are all in bed together as it is – it is just now time to get out the backscratchers for one last “What do I get out of this deal!” meeting – held tomorrow. As if the UAW can seriously bring anything to the table (other than the 100s of millions in lobbying and political contributions). The good news is that there are a handful of Congress members that are on the NO side of the fence. The trick now is to “wet their appetite” – there is no more “convincing” them – it’s time to bring on the BIG FAVORS. Remember in the Godfather (opening scene) when Brando says – “Someday I will come to you and ask you to do something for me…” - well tomorrow will be the day of “The offers they can’t refuse!”.
The deal is done and the BIG 3 and the UAW will get their money – that is for sure – it’s just negotiating the favors at this point.
The only shocker now is a delay in them getting the money .
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Futures Pre-market
After the massive sell off the market is seeing a little pop in the AM. However, the ARB traders are already selling into the futures to buy the cash at the opening. The spread is starting to narrow as I type. Expect a pop at the opening.
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Support / Resistance
We certainly blew through those pivot points and headed towards support.
INDU 8000 (8500) 9000 (A pop this morning – but do we TEST support or head back to the pivot point?)
NDX 1000-1100 / 1200 (We close just above the upper support area – not a place to get balls out long – but flatten the position and get long delta to gamma 1:1 is not out of the cards.)
SPX 800 (850) 900 (A good 16 points off the support and a bounce in the pre-market futures may mean that was the near-term support.)
RUT 400 (450) 500 (Again – near the support – would could still test.)
Those supports above are important – even though we get a pop at the opening, we could head back down and test them (certainly possible). Those are serious areas to keep an eye on – the pivot points are just that – places where the indices don’t want to stay at long and move violently up or down away from them. This is about trading action – stay alert!
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Conclusion
My wife is currently learning Mandarin, but with Bernanke’s NEW policy I think I will start having to learn Japanese. We are certainly facing life changing economic times and policies to match. The big question that hangs in the balance is what is the true faith of our currency? Inflation, Deflation, Debase, Devalue, becomes the Carry Trade? Who knows at this point. Since it is a fiat currency (not backed by anything – but faith) – it is really hard to know it’s future.
The conspiracy theories have been flying about the new AMERO for a couple of years – but they are now gaining traction. Certainly our government has talked about such a move – for investigative purposes – but could it happen? Certainly – remember back in the early 90s about the rumor of the EURO. I had friends that actually chalked up that early EURO talks as STUPID CONSPIRCACY and that nations would never agree to it. Guess what – they did. Now even the English Pound maybe a thing of the past and join the EURO.
Some of these stories that people send me are crazy, but as crazy as they sound they DO MAKE sense. The latest is about 800 million (or was it billion) in AMEROS issued to CHINA to keep purchasing our Treasuries. Sort of like collateral. Who knows if this stuff is true – there is AMERO coins floating around (designed by the same artist that did our quarters). Some believe these slipped out of the mint.
Well – one thing is for sure – these are the times that conspiracies are born and some do end up being true.
Please do NOT go out and buy ANY AMERO coins – that is foolish. I am only sharing these conspiracy stories because they are interesting and people keep sending me links about it.
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