This market seems very odd to me lately ever since mid december(DEC 21 LTRO Progam) the market just continues to drift higher with no real sellers insight. News data doesn't really matter we just drift higher. Its obvious LTRO and Fed SWAP cut was huge stimulus to the market and LTRO is basically indirect QE. This Market seems just like it did trading during FED QE. Gap UP's with slight morning pullbacks met by buyers, then drift higher all day. Just blow through technical resistance doesnt seem to matter. NY Fed is just hitting the bid constantly! LOL. As we come into resistance 1310-1320 spx it should be interesting. This move is getting pretty parabolic. The always know realization that sucks to believe is that the powers that be control all, and will preserve the status quo at all costs even if it means financial and fiscal insanity. It feel like the Fed is just outright buying futures and there just is no sellers. The other thing is how all the sudden we just stopped correlation EUR/USD moves lower and our market moves higher? DX Rising usually a headwind for risk assets, ever since LTRO the EUBSC (3 Month Swap) has rallied dramatically as obvious bank stress has eased at the ECB taking on all the soverign (garbage) as collateral, which is just indirect QE. Big question: At what point does the ECB (and Other cental banks) balance sheet expansion begin to lose creditbility? They will lose it when the people and instutions turn there back on them. Revolution just like history has shown us many times in the past. My fundamental view is more bearish because is the massive amount of debt/deleverging that will have to be delt with. I have been reluctant to buy this market because of the view of how can we sustain growth in this enviroment? It's not sustainible because peoples living standards are rapidly decreasing and are just trying to live. Buying discretionary items will be more difficult and difficult to do. So basically theory is just buy all risk on any pull back, watch the credit markets closely and hedge accordingly if credit markets signifcantly deteroriate then you should be short risk. Then buy when central banks launch another bonehead program which they will continue to do.
Now severely overextended SP500 still leads the pack and it really wants to rollover. http://stockmarket618.files.wordpress.com/2012/01/2012-01-18_dow_wk2.png
Investors rotating out of the Eurozone and bidding up dollar assets, including U.S. equities. I will grant that this dynamic doesn't seem all that sustainable, even in the short term. Expect back and fill.
No question the rollout of the Eurozone has been a big factor...Although this is the second time since those early October lows where I can most definitely see a panicked backstopping to keep stocks rolling. The day BAC traded under $5 is when we started this relentless climb.
Printing trumps all. 1 trillion QE3 is just around the corner: S&P 2000 here we come! Fed's Latest Easing Could Cost $1 Trillion: Economists CNBCCNBC â 57 minutes ago The Federal Reserve is likely to step in with $1 trillion worth of easing that could be announced as soon as this month, according to a growing consensus of economists who see the recent uptick in economic growth as unsustainable.
Ah, memories of Bob Prechter calling the top a couple years ago, explicitly stating "Don't buy this breakout!" He was recommending a maximum leverage short position to his subscriberz. He opened my eyes to the fallacy of gurus.
I think it would be very difficult for the Federal Reserve to step in with that kind of QE especially at these price levels. It is politcally opposed and will be difficult to implement and would most likely wreck Obamas chance of re election. Not to metion that commodities would soar on that type of QE amount. That would only inhibit further growth as headline inflation would be rapid and consumer discretionary spending would be very weak and at this point would contribute to no futher growth. The only way that we can get to further growth is some how force consumers to take on more loans and debt. First off its difficult to get loans and secondly people are reluctant to aquire more debt at this point. The market needs panic and selling in the equities and commodities sector. I think if we get anyform of QE it will probably be in the late summer after growth is anemic and equities and commodities start crashing lower. You have to have lower commodities cost to get QE or inflation will be to high and will kill any chance of growth. Not to metion that taking on additional stimulus at this point is likley to have any real effect on the economy. I think the more probable situation is that they will try to boost the housing market at all costs. If peoples real estate values start increasing then they can take loans against the homes again, OR sell for some type of profit and use that capital to expand debt further. That is most likley the FEDs angle try to get values of homes to go up so people will either buy because of the increased housing market or people will have more capital to expand their own personal balance sheets once again. DEBT GROWTH >> ECONOMIC GROWTH >> ASSET PRICE GROWTH THEN BACK TO DEBT GROWTH Its a triangle. Without debt growth you will not get economic growth nor asset price growth. The problem is when you aquire so much debt, servicing the debt becomes so expensive you cannot take on more debt to try to aquire more assets.