Seemingly every day the market marches higher and the media reports that it is based on “hope” from a positive outcome from Europe. It sure feels as if headlines spike the market up or down on any given moment. But now the October rally is becoming “Epic” and “Historic”, and it is no longer hope of Europe driving it. Frankly, I have no idea of the kind of “deal” will be reached amongst the Euro-trash.
Have you seen recent bank earnings? Have you seen the accounting gimmicks used to come close to their earnings numbers? Have you seen their stocks, stuck in the mud? Let me be a master of the obvious: banks abroad are in trouble but the domestic banks still are too. I’m getting the sneaking suspicion that they are far worse off than we know.
Witness the “leak” last night of a new and potentially massive Mortgage Backed Security (MBS) purchases. Why would the FED do this? They say it is to help the housing market, but that is the farthest thing from the truth. There is only one type of entity that benefits from the FED buying MBS’s and that is the major banks.
FED buying of MBS does not make its way to the housing marketplace, it simply allows banks to dump securities in which there is no market for and that acts like a lead balloon on their books.
In the midst of growing protests against the banks, and when some will be forced to do “what is necessary” (like bankruptcy) the Federal Reserve is contemplating another multi-trillion dollar bailout using newly created funds INSTEAD OF SIMPLY REORGANIZING OR DEFAULTING ON THE DEBT. Can you imagine if you could do that with YOUR debt?
If the FED refused to entertain this “bank saving” measure, combined with a significantly slowing worldwide economy, the stock market would be in serious trouble. But instead the market stats for the last three weeks are as follows:
DOW up 1400/13.5% SPX up 160/15% Nasdaq Composite 350/15% Russell 2000 112/18.5% Transports 850/22%
Equity “investors” and “traders” are trying to emulate last year’s fabulous 30% fourth quarter rally that was fueled by QE2. But it did far more damage to the economy by spiking commodity price rather than stimulating the economy. And now the current rally phase is a mirror image of where it was when it began: it marginally broke down below the yearly lows and reversed. Now it appears to be breaking out of this trading range. Technicians are all excited to be getting above what are perceived to be important lines in the sand, and those technical features are what is fueling the “chase” mentality with no thought to risk. Hence, the greatest Magical Mystery Rally yet.
We are Pavlovian in our response to the promise of being saved. We drool over the near-term upward trend. It forces market participants to get on board or miss it. The market is so good and the news is so bad. When in doubt, the Central Bank/Wall Street Complex usually wins even in the face of potentially massive bank and Sovereign defaults, nationalizations and the potential economic fallout. But the hope trade is stretched, peaking and probably very premature
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Seems like there are a ton of weak hands long right now waiting to catch poleaxes to the face. Bears, for all the beatings they have taken, are some stalwarts and I think with the Euro crisis in full bloom they smell blood. Of course should the Bernanke engage the roflchopper of middle class rapery then we are all fucked and can rally another couple of hundred points.
Commodity prices do not seem to be spiking if you look at the most recent charts of metals, grains and softs. I don’t disagree with your analysis and I certainly am not buying equities here, either. It’s just been an incredible rally, for sure.
Scott, the MBS purchases amount to only $6 billion as Cain points out in his post. I read him, you, Fly and it validates my thinking. There is no there – there! Earnings reduced and then met – whoopie! Banks pretzeling themselves into appearing profitable – wonderful! No rational fix offered but just rumors in Europe – Groovy! (Like there is a rational response to an insolvable math problem.) We will just ignore China – Yippie!
We need to remember Johnny Keynes though about markets staying irrational longer than we can stay solvent.
Scott- How come nobody on this site is discussing Operation Twist – $44 billion this month versus $14 billion the previous month?
Banks / primary dealers can then lever that up. With the recent mutual fund exodus, this is the primary cash influx into the market.
I haven’t seen the schedule for November yet, but I want to warn bears to watch the POMO operations or get burned.
Twist isn’t new money. Its just reinvesting the Treasuries when they mature. It does not increase the FED’s balance sheet a dollar. Nothing to leverage. It can effect the yield curve though because they are buying longer dated Treasuries
Apocalypse is right. It’s all the same to bankers – they are reaping their fees (another form of bailout) whether buying or selling. The POMO mechanics are all there but this time fundamentals in the economy are worsening and earnings will reflect this – if not this quarter so much certainly next.
Explain how he is right. What I said is factually true. Explain it. Otherwise as your name implies what you are saying is shit. There is more to investing than blaming the FED. There is no fucking “fees” to reap on Treasuries. Interest income yes but banks fixed income profits are down. Fees aren’t leverage anyway. Leverage was his claim.
Let me be precise. The fees are negligible. when it comes to market affect. A few billion every few months is meaningless when it comes influencing equities.
Primary Dealers are not moving the market here.
Look – honestly I don’t know how it all works – only THEY really know. The primary dealers are definitely getting exorbitant fees handling these transactions. I figure it’s in the range of 2-3%. On $44B of transactions, that’s about $1B. Lever that just 5 times and you have $5B. Well, with all the bulls throwing their money in too, they can easily outpace the $5.9B in mutual fund outflows that were reported for last week. They can keep this up as long as more money is coming in and as long there is not some massive market moving event like soveriegn default or a Lehman that occurs.
That said, you can take issue with what I say but let’s be courteous about it. Yes I’m a bear and I have been expecting for this rally to get to the 1260 area – much beyond that and I will be have to cover like so many others recently.
I was making a play on words. Sorry if I offended you.
Who cares? If everyone in the market is going up and POMO is pushing the market up forcefully, then who gives a shit why the market goes up. The point is to take advantage of the opportunity given.
If the market goes down I will bet as much, but there is no point worrying why it goes up or down, only that it does, and instead of prejudging what it could do, why not consider what it does do?
It is fine to be a trend follower. I am one myself. It is another to divorce yourself from reality. LOL. Wow – The IBD line. Are you WON? Talk about the obvious.
POMO isn’t pushing shit BTW. That was kinda the point. Too Funny.
I agree with you, but this last week feels different. Up one day, down the next, then up the next, then down…
It seems there is some sort of manipulation going on.
I’m not the expert here. Got any theories?
WON? Sorry, not sure I follow.
Add to it that we are in an industrial recession right now. Check out
http://www.semi.org/MarketInfo/Book-to-Bill
and note the Sept. figure and click on the Historical Data.
As of September, the new order bookings have now fallen 40% y/y and 47% off the high. In the past the “market” has ALWAYS crashed long before this data series deteriorates like this. Also, look at the Series in July/Aug/Sep of 2010 when everyone was worried about the onset of another recession. No recession occurred as supported by this data. Now look at Jul/Aug/Sept 2011 – that says recession to me. Whether the “market” will ever recognize this I don’t know – the fraud is so big and so deep. For now we Twist higher.
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What is with this Twist shit? It is not driving this market.
a sneaky suspicion something may explode this weekend…..i hope so
The Bernank seems like too nice a fellow to proceed with any foreclosures. What is he gonna do with MBS’s? You gotta kick the dead beats out and re-sell the collateral. It could look ugly on TV.
“We are Pavlovian in our response to the promise of being saved. We drool over the near-term upward trend. It forces market participants to get on board or miss it. The market is so good and the news is so bad.”
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BRAVO, Scott !!!
BRAVO … indeed !!!
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Let’s jump to the end of the storybook. UN Agenda 21 DEMANDS a complete restructuring of not only the economy and banking system, but all of the rest of society.
That people still ignore UN Agenda 21 despite that it was created by the UN is beyond me.
Consider it a testament to how little men think for themselves, and how they follow the crowd out of fear for their own safety.
Fuck the UN. A lot of their shit gets ignored.
Wow, time to put my tin foil hat on now to protect me from the alien waves.
Nice post Scott.
I’m with Yogi. Where’s my Reynolds Wrap. Sheesh.
I’m hanging on by the skin of my teeth here. Humiliated the fuck out of myself by stating I would chop my balls off and play craps with them at Mandalay Bay if the S and P cracked 1235.. Tell me blood will flow soon Scott..
http://ibankcoin.com/scott_bleier/2011/10/18/so-housing-sentiment-is-up-you-say/#comment-4171
Looks like someone had insider info …
http://www.theatlantic.com/business/archive/2011/10/obama/247272/
None the less my USG as well as LPX are working just fine, thank you!
So Horrible It’s Great, Again…