Don't you just love the Fed? Are you not glad they provide such a calming, soothing, effect on our finanical markets? Are you not glad they are there to provide balance to the unruly animal spirits that send prices careening wildy in one direction or the other?
The above questions are obviously meant to be highly sarcastic, filled with a strong measure of contempt and disgust towards these pestilential meddlers.
I submit that the Federal Reserve is the source of the all the wild volatility and the cause of these nearly incessant mad buying and selling binges that have left the general public suspect of the US stock market and opting against investing in it.
The Fed simply cannot keep its mitts off of the market as it announces one thing or another, resulting in panic buying and panic selling by traders/investors as they seek to protect themselves from adverse price movements based on the whims of a few unelected bureaucrats who supposedly have our best interests at heart.
In my opinion, what we are witnessing has nothing to do with FREE MARKET CAPITALISM and everything to do with taming markets that have the audacity to go in a different direction than that which is desired by our Central Planners.
I have been opposed to this idiocy known as QE ever since the word found its way into our modern vernacular for the one reason that it is nothing but a device employed by a privileged few to oppose the market forces that are necessary, nay, essential, to clearing excesses built up in an economy (which by the way were created by the same Central Bank interest rate policies in the first place).
The Fed blows the bubbles and then spends the rest of its time trying to deal with the fallout from its own stupidly shortsighted policies.
In so doing, it is constantly interfering in the process that the economy must go through in order to wring out excess or malinvestment and provide some stability and normalization.
Thursday, January 3, 2013
Fund Money Flows Continue Wreaking Havoc
In yesterday's post I mentioned to not put too much into a single day's price action as hedge funds are allocating money into various markets and yanking it out of others to start off the New Year.
The result so far has seen gold giving back all of its gains from yesterday, plus some, with silver surrendering nearly all of its gains as I write this. Silver looked shaky to me yesterday given the fact that the other base metals were so strong. In that environment, it should not have faded 50 cents off its best level of the session.
Even copper is surrendering some of its sharp increase from yesterday along with palladium, which is getting smacked. Platinum however is going the other way and that is up.
Don't forget that we are now in an age in which the word "SUBTLE" is unknown amongst the giant hedge funds.
They come crashing into and flying out of markets in the blink of an eye (check that - faster than that thanks to their algos) with very little regard if any to the disturbances that their buying and selling create in the markets in which they decide to play. This positioning is going to continue into tomorrow but maybe by the time the dust settles on the trading floors at the close we will have a better indication as to what to expect the start of the first FULL week of trading next Sunday evening/Monday morning.
Part of the weakness in gold and silver today is coming from two fronts - the first of which is the lowering of projected gold prices for 2013 and 2014 by analysts at some of the major investment banks. The chatter on that front is that the economy is improving enough to reduce the FEAR FACTOR that has supported gold prices. With that removed, returns on stocks look promising to many hedge fund managers and that has them looking more at equities and the base metals rather than the precious metals. Apparently the minutes from the latest FOMC meeting, in which there was some debate among the various governors about the duration of the QE3 and QE4 programs has gotten some looking for a cessation of the easy money policies of the Fed sooner than the market was expecting.
I do not buy into that notion since the only thing propping up the economy has been easy money policies but as said before, everything nowadays in these markets is ultra short term thinking. I have jokingly told some friends that a LONG TERM TRADE in these new normal is 60 minutes!
The other reason is the inability of the gold shares to sustain any sort of upward momentum. Yesterday, the HUI gapped above resistance at 450- 452 but then immediately began to attract selling. Today, that selling has intensified as the index has been steadily sinking lower since the start of the session.
I am going to refrain from too much on the technical analysis front today for the above-mentioned reasons but let's just say for now that the $1700 level is now become reinforced as a formidable overhead resistance level that MUST be breached for a trend to begin in gold. Prior to that however, gold must clear and STAY ABOVE $1680 if it is going to go anywhere in US Dollar terms.
Gold in Euro terms and in Yen terms looks significantly better right now than it does in US Dollar terms.
The Dollar is experiencing a sharp rally higher today and that is bringing general selling pressure across the commodity sector but oddly enough, if this were a RISK OFF trade, the bonds would be moving sharply higher - they are not! Iinstead they just fell apart as I wrote this.
I am watching the price action in the long bond with EXTREME INTEREST right now as it is right on the verge of a major breakdown. As of now, I am not clear what message this is sending but I find it ironic that long term rates on Treasuries are moving higher today after all the backslapping and self-congratulations we witnessed among the political class yesterday after their "triumph" of avoiding the fiscal cliff, for two months. Maybe, just maybe, the larger market is getting sick and tired of the dysfunctional government in the US and their inability to GET SPENDING UNDER CONTROL in a serious, adult-like fashion. Could it be the markets are sending a message to "GET YOUR HOUSE IN ORDER OR ELSE"?
Again, I am not sure but if these bonds do break down, all bets are off as to the US economy in the months ahead. The last thing that policy makers or the economy wants to see at this juncture is higher long term interest rates.
By the way, as I am finishing this commentary up, the FOMC minutes suggesting that the bond buying program, especially QE4, might end sooner than the end of the year, just wiped out the floor of support under this market. If the FEd is not going to buy these worthless IOU's in the quantity that it first announced for that duration that it also announced, then one has to wonder who in their right mind would want to hold them given the fact that interest rates are just too damn low on them. Rates will have to rise if the Fed no longer sucks up $40 billion a month of these things.
That Dollar rally is probably coming as a bit of relief to the currency with traders thinking that those same FOMC minutes are supportive to the currency, given the thinking that the Fed might not be proceeding to debauch the currency at the same rate as previously expected.
Let's see what tomorrow brings...and how long any of this lasts. It could all be forgotten by the time New York opens tomorrow morning for all that any of us know.
I am reminded of that famous scene in the Original "Planet of the Apes" in which Charlton Heston, cries out, "IT'S A MADHOUSE, A MADHOUSE". He must have been talking about today's financial markets.
The result so far has seen gold giving back all of its gains from yesterday, plus some, with silver surrendering nearly all of its gains as I write this. Silver looked shaky to me yesterday given the fact that the other base metals were so strong. In that environment, it should not have faded 50 cents off its best level of the session.
Even copper is surrendering some of its sharp increase from yesterday along with palladium, which is getting smacked. Platinum however is going the other way and that is up.
Don't forget that we are now in an age in which the word "SUBTLE" is unknown amongst the giant hedge funds.
They come crashing into and flying out of markets in the blink of an eye (check that - faster than that thanks to their algos) with very little regard if any to the disturbances that their buying and selling create in the markets in which they decide to play. This positioning is going to continue into tomorrow but maybe by the time the dust settles on the trading floors at the close we will have a better indication as to what to expect the start of the first FULL week of trading next Sunday evening/Monday morning.
Part of the weakness in gold and silver today is coming from two fronts - the first of which is the lowering of projected gold prices for 2013 and 2014 by analysts at some of the major investment banks. The chatter on that front is that the economy is improving enough to reduce the FEAR FACTOR that has supported gold prices. With that removed, returns on stocks look promising to many hedge fund managers and that has them looking more at equities and the base metals rather than the precious metals. Apparently the minutes from the latest FOMC meeting, in which there was some debate among the various governors about the duration of the QE3 and QE4 programs has gotten some looking for a cessation of the easy money policies of the Fed sooner than the market was expecting.
I do not buy into that notion since the only thing propping up the economy has been easy money policies but as said before, everything nowadays in these markets is ultra short term thinking. I have jokingly told some friends that a LONG TERM TRADE in these new normal is 60 minutes!
The other reason is the inability of the gold shares to sustain any sort of upward momentum. Yesterday, the HUI gapped above resistance at 450- 452 but then immediately began to attract selling. Today, that selling has intensified as the index has been steadily sinking lower since the start of the session.
I am going to refrain from too much on the technical analysis front today for the above-mentioned reasons but let's just say for now that the $1700 level is now become reinforced as a formidable overhead resistance level that MUST be breached for a trend to begin in gold. Prior to that however, gold must clear and STAY ABOVE $1680 if it is going to go anywhere in US Dollar terms.
Gold in Euro terms and in Yen terms looks significantly better right now than it does in US Dollar terms.
The Dollar is experiencing a sharp rally higher today and that is bringing general selling pressure across the commodity sector but oddly enough, if this were a RISK OFF trade, the bonds would be moving sharply higher - they are not! Iinstead they just fell apart as I wrote this.
I am watching the price action in the long bond with EXTREME INTEREST right now as it is right on the verge of a major breakdown. As of now, I am not clear what message this is sending but I find it ironic that long term rates on Treasuries are moving higher today after all the backslapping and self-congratulations we witnessed among the political class yesterday after their "triumph" of avoiding the fiscal cliff, for two months. Maybe, just maybe, the larger market is getting sick and tired of the dysfunctional government in the US and their inability to GET SPENDING UNDER CONTROL in a serious, adult-like fashion. Could it be the markets are sending a message to "GET YOUR HOUSE IN ORDER OR ELSE"?
Again, I am not sure but if these bonds do break down, all bets are off as to the US economy in the months ahead. The last thing that policy makers or the economy wants to see at this juncture is higher long term interest rates.
By the way, as I am finishing this commentary up, the FOMC minutes suggesting that the bond buying program, especially QE4, might end sooner than the end of the year, just wiped out the floor of support under this market. If the FEd is not going to buy these worthless IOU's in the quantity that it first announced for that duration that it also announced, then one has to wonder who in their right mind would want to hold them given the fact that interest rates are just too damn low on them. Rates will have to rise if the Fed no longer sucks up $40 billion a month of these things.
That Dollar rally is probably coming as a bit of relief to the currency with traders thinking that those same FOMC minutes are supportive to the currency, given the thinking that the Fed might not be proceeding to debauch the currency at the same rate as previously expected.
Let's see what tomorrow brings...and how long any of this lasts. It could all be forgotten by the time New York opens tomorrow morning for all that any of us know.
I am reminded of that famous scene in the Original "Planet of the Apes" in which Charlton Heston, cries out, "IT'S A MADHOUSE, A MADHOUSE". He must have been talking about today's financial markets.
Just how Bad is it?
I highly recommend the following article for those who are trying to keep up with the nation's financial condition. It is a very good summary of the enormity of the problem that is rapidly coming down the traintrack.
http://www.nationalreview.com/corner/336777/it-s-spending-problem-yuval-levin
Sadly, because the problem of growing US indebtedness is not a flashy one, nor one that tugs at the heart's emotions, it is generally ignored by the useless mainstream media. For that part, it is also way off the radar screen of the vast majority of the American citizenry who are far more knowledgeable about what is going on in "Pawn Wars" or "Gator Boys" than they are in the bakyard of their own nation.
I pulled the chart out of the article to highlight the extent of the catastrophe coming our way. Do yourself a favor and read the entire article and then reflect on the fact that the so-called "FIX" to the problem that our wondrous leader and the Congress came up with does absolutely NOTHING to even put a dent in it.
Do any of you remember that experiment which was conducted some time ago when chimpanzees were used to pick stocks for investments? If I recall correctly, they threw darts at a dartboard containing the names of various stocks and then those were chosen to make up a trial portfolio which was then compared to another portfolio chosen by the "experts". There was no measurable difference in the end result.
http://www.marketwatch.com/story/dart-throwing-chimpanzee-still-beating-funds
Maybe we should bring on the Chimpanzees and vote them into office to guide our nation's policy. They surely cannot do any worse than what we now have....
By the way, the chart below is drawn AFTER the FIX passed by Congress yesterday and signed, (by auto-pen from Hawaii) from the once again vacationing Golfer in Chief). Feeling better yet??
http://www.nationalreview.com/corner/336777/it-s-spending-problem-yuval-levin
Sadly, because the problem of growing US indebtedness is not a flashy one, nor one that tugs at the heart's emotions, it is generally ignored by the useless mainstream media. For that part, it is also way off the radar screen of the vast majority of the American citizenry who are far more knowledgeable about what is going on in "Pawn Wars" or "Gator Boys" than they are in the bakyard of their own nation.
I pulled the chart out of the article to highlight the extent of the catastrophe coming our way. Do yourself a favor and read the entire article and then reflect on the fact that the so-called "FIX" to the problem that our wondrous leader and the Congress came up with does absolutely NOTHING to even put a dent in it.
Do any of you remember that experiment which was conducted some time ago when chimpanzees were used to pick stocks for investments? If I recall correctly, they threw darts at a dartboard containing the names of various stocks and then those were chosen to make up a trial portfolio which was then compared to another portfolio chosen by the "experts". There was no measurable difference in the end result.
http://www.marketwatch.com/story/dart-throwing-chimpanzee-still-beating-funds
Maybe we should bring on the Chimpanzees and vote them into office to guide our nation's policy. They surely cannot do any worse than what we now have....
By the way, the chart below is drawn AFTER the FIX passed by Congress yesterday and signed, (by auto-pen from Hawaii) from the once again vacationing Golfer in Chief). Feeling better yet??
