ENJOY THE DELAY…

Did they do it? Were they successful in preventing a public run on the European banks? The fact is that there has been an institutional run and a massive liquidity pinch. Without the FED’s lines, there would be no Euro liquidity! But we don’t need to worry about that today.

Europe got into this mess and Trichet, the old French bulldog, refused to allow the same kind of intensive easing and stimulus in Europe as we have enjoyed under the tutelage of Dr. Bernanke, for fear of runaway inflation. He held the line for a few years and was just “retired”. In his place is is Draghi, a bunga-bunga partying Italian whose first move was to lower interest rates. A perfect choice for the job of Chief Bank Bailer-Outer!

So now the Europeans are on board; hook, line and sinker with another 1 full point of room to drop rates.  

The market took that news, as they have after any coordinated releases, and ran with it. Beaten down momentum stocks rallied hard on short covering. Technology partied hardy. Banks breathed a sigh of relief and commodities and materials could feel the inflation. So after a scary drop early in the week, the markets have almost made it all back and we are again bumping our head into serious technical resistance.

Don’t worry about weak consumer confidence or same store sales. All that matters are that Central Bankers the world over have things firmly under control. And remember, even in the disaster year-end of 2008, equity markets stabilized through the holiday season. The final leg down didn’t start until late January and continued through early March. Does that mean we’ve got the all clear sign? I highly doubt it, but buying “deep value” even in more volatile sectors will be the way to play the year end.

For the second time in the past 2 months, civilization as we now it has been abandoned in my neighborhood. The chateaux that I call home is without the creature  comforts of home. It is simply a storage locker where I keep my stuff.

Not only that but an ecological disaster has occurred. Every house has downed trees. It is a landscapers delight.

These may be my last musings as I am soon without power for all of my gadgets. The libraries are packed with those who need WiFi. Most restaurant’s are closed and the ones open are mobbed with people looking for something warm to eat. Roads are closed, wires are down. I don’t think I’ll have power for days if not weeks. I am in the rabbit hole and I am waiting for JCP&L to bring me the little pill that “turns me back on”.

So, until then ladies and gentlemen, I bid you adieu.

So, have you enjoyed the greatest monthly rally in our lifetimes? Maybe the best defense is a good offense and in its defense, markets have gone on the offensive.

The speed/velocity/percentage movements in the major indices and individual stocks has been record setting and yet has been confusing to Bulls & Bears alike. Most of the news has been Euro-centric as market around the world were awaiting to see if half the worlds banking system would have to declare bankruptcy or be Nationalized. Luckily for us, politicians on both sides of the Atlantic know where their bread is buttered. They know that asset prices hold the key to both inflation and/or deflation and that “saving” even mal-invested capital keeps the game going regardless of the rules or consequences. “Markets By Central Bankers” is not the kind of market that I know, but it is what it is.

The major market indices and commodities had barely corrected the excess unjustified and unsustainable prices set throughout QE1 & QE2 before most except the most perma-bullish became cautious, lightened up from being fully invested and hedged some risk and exposure. We were on the verge of what many believed were markets selling at a discount to historical norms with little regard to the fundamental situation. Apparently any deflation of asset prices are not allowed by Governments, Politicians or Central Bankers.

The “rescue” from falling prices was again greeted with the brute force of promises to create “money” in order to satisfy investors and banks needs to stay solvent regardless of mis and mal investment that cannot be made liquid or even valued. The rules were again changed and the markets were outright manipulated through the monetary policy force of “buying shit” from banks. Plus, under the threat of not “doing what must  be done” in Europe, our Central Bankers blatantly and shamelessly promised QE3. I guess nothing matters in the name of levitating asset prices to keep the banking and financial system happy and solvent.

The equity markets response to this dire situation was to correct about 10% from the highs and holding for several months. Then, when the going got tough, markets corrected another 10% at the end of last month when investors realized that there was no free QE3 presently. But that scared Them and the Jawboning began. Markets moved on every headline, both up and down. And then, like clockwork, someone pulled the switch on October 4th, the second day of the quarter, and concentrated and concerted buying began in earnest in almost every one of the world’s Bourses.

So began the seasonal end-of-the-year clockwork rally based on Euro solvency and what we are told is a pickup in the domestic economy. Remember, the fourth quarter usually packs in two quarters worth of activity, so the slight uptick we’ve had is probably worse than expected. And the Jawboning of Mortgage-Backed buying and more QE has sent traders into the usual Pavlovian frenzy as they attempt to emulate last years QE2 induced gains. In fact the rally is equal to the half dozen or so massive Bear market rallies in 1937-38 and in 1974, both times were at the nadir of economic activity. Have we just reached the lowest point of this cycle?

And no, I did not turn bullish even though I had forecast the bottom accurately. I did not foresee the speed and force of the recovery as I was thinking rationally in this circumstance. That was clearly a near-term mistake.

As you know, we live in a time of very speedy market movement. If you blink, you miss. Combine that with the over-reach of HFT and momentum trading and you’ve got a frustrating brew. We’ve agressively reached levels where technical types get excited and follow the bullish cabal. But by moving in the way it has, it is working very hard, perhaps too hard, to mask the reality of near insolvency for an entire continents worth of banks and what looks like a worldwide long-term economic morass.

The end-of-the-month is upon us and many bearish bets have been closed out. Few “investors” have the gumption to short in the midst of the ultimate in “Markets by Central Bankers”. And who can blame them? The Wall Street Complex spends most of its time winninng and when they are not, it is terror for most investors. October’s move won’t die so easily because we need to enjoy our holiday season. Unless something bad happens. And a weak economy or bad banks don’t count.

 They say the stock market has discounted 10 of the last 4 recessions. The flip-side is also true. It has also discounted 10 of the last 4 recoveries.

The Eurotrash finally got around to breaking every rule in the GAAP handbook and gave themselves $1.4 trillion. It is official that money, as we know it, it now worthless.

On the news, futures are up another percent, capping a historic October, up over 15% from the very recent lows. The overall market indices have held up exceedingly well at the high-end of the range, but the momentum stocks and many earnings disappointments are disturbing. The market is under “firm control” but the hold gets more tenuous every day.

BTW: Wait for a slug of upside volume and then sell the news…

And coincidental to another multi-trillion Dollar/Euro bailout going directly to profligate banks and governments, people are running amok in Manhattan. This has gone on a relatively long time and seems to be gaining momentum and popularity. I don’t know who the instigators are but I bet there will soon be violence on a scale not seen since Newark 1967.

Is this ADHD video-game addled generation really up to fighting for something?

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  

Most every market strategist, prognosticator and biz-media reader has been saying how markets “have discounted the negatives” of the European situation and our weak economy.

What if it was the other way around?  What if the markets have discounted some type of positive outcome from all this wrangling? What would the market do on the conclusion of the “deal”?

Knowing that many market averages have just sprinted 15-20% higher, “hoping” for a positive outcome, do you think it would be to “buy the news” or would it be the other way around?