Monday, March 28, 2011
Saturday, March 26, 2011
Friday, March 25, 2011
The Seeming Unstoppable Rally in US Equities
One of the things that has really struck me has been the comments of many of the analysts and guests on the financial TV this past week in regards to the rally in US stocks.
The common refrain seems to be something along these lines:
"Well Joe, this market has had TWO BLACK SWAN Events thrown at it in two week's time and it simply will not stay down. Whenever you see a market that does not respond to bad news and actually begins to shrug off that news and moves higher, you JUST HAVE TO BUY IT".
It is always fun listening to some of these analysts scratch around for reasons to explain this stock market strength especially when some of these same people will point to the poor labor markets and broken housing market as reasons for concern. Some go as far as expressing great hesitation over further strength given the sharp rise in crude oil and related energy prices. They sluff that off however and will point to the global growth factor as reasons for the rally in the US equity markets with that overiding everything else.
The simple truth is that the world is awash in liquidity and this liquidity is finding its way into both stocks and commodities. It is so massive that it just overpowers anything that gets in its way. In such an environment most traders are simply afraid of being short. What happens as a result of this unwillingness to aggressively sell is that it takes less and less volume to move stock prices higher because sellers are scarcer and price must move high enough to entice sufficient offers into the market to accomodate all the orders to buy.
Take a look at the following chart which I have posted previously here at the site but which I think needs frequent reference to remind us how important this liquidity has become to maintaining the rally in US stocks.
Note the sharp expansion in the Fed's Balance sheet near the beginning of this year and note how it just keeps on rising. It is that measure of liquidity that swallowed up the selling due to unrest in MENA and the tragedy surrounding Japan.
The Fed may be floating a trial balloon by talking about an end to QE to gauge how stock markets will actually react to such an event but one has to wonder how shutting off the liquidity spigot, based on this chart, is going to affect the high flying equity markets.
The common refrain seems to be something along these lines:
"Well Joe, this market has had TWO BLACK SWAN Events thrown at it in two week's time and it simply will not stay down. Whenever you see a market that does not respond to bad news and actually begins to shrug off that news and moves higher, you JUST HAVE TO BUY IT".
It is always fun listening to some of these analysts scratch around for reasons to explain this stock market strength especially when some of these same people will point to the poor labor markets and broken housing market as reasons for concern. Some go as far as expressing great hesitation over further strength given the sharp rise in crude oil and related energy prices. They sluff that off however and will point to the global growth factor as reasons for the rally in the US equity markets with that overiding everything else.
The simple truth is that the world is awash in liquidity and this liquidity is finding its way into both stocks and commodities. It is so massive that it just overpowers anything that gets in its way. In such an environment most traders are simply afraid of being short. What happens as a result of this unwillingness to aggressively sell is that it takes less and less volume to move stock prices higher because sellers are scarcer and price must move high enough to entice sufficient offers into the market to accomodate all the orders to buy.
Take a look at the following chart which I have posted previously here at the site but which I think needs frequent reference to remind us how important this liquidity has become to maintaining the rally in US stocks.
Note the sharp expansion in the Fed's Balance sheet near the beginning of this year and note how it just keeps on rising. It is that measure of liquidity that swallowed up the selling due to unrest in MENA and the tragedy surrounding Japan.
The Fed may be floating a trial balloon by talking about an end to QE to gauge how stock markets will actually react to such an event but one has to wonder how shutting off the liquidity spigot, based on this chart, is going to affect the high flying equity markets.
Silver Musings
Silver actually put in a good showing for the week closing up $2.00 higher while setting a new 31 year high in the process. It was unable to maintain its footing above $38 for long but did hold support near the $37 level.
Moving into next week if it can stay above the $37.00 - $36.80 level, it should be able to consolidate and set itself up for a run towards $38 once again. If that support level does not hold, it will drift down first towards $36.50 and then toward $36.
I would prefer to see it stay above $36 as that had been a major barrier to the upside and should now serve as a major support level to the downside if the market is going to press on to new highs relatively soon.
Deliveries for the March contract are picking up as expected since we are running out of days in the month. A total of 236 were issued for Monday with JP Morgan being the big kid on the sell side once again. I should note that there are almost evenly split between issuing silver for clients as well as for their own account. Barclays is once again the big stopper along with Prudential coming in second. Both of those firms apparently have clients who want to own the physical metal.
There has been a total of 1,383 contracts issued and stopped this month with 632 contracts remaining open in the March. I should also note here that the March contract remains at a one cent premium to the May. That is noteworthy.
Moving into next week if it can stay above the $37.00 - $36.80 level, it should be able to consolidate and set itself up for a run towards $38 once again. If that support level does not hold, it will drift down first towards $36.50 and then toward $36.
I would prefer to see it stay above $36 as that had been a major barrier to the upside and should now serve as a major support level to the downside if the market is going to press on to new highs relatively soon.
Deliveries for the March contract are picking up as expected since we are running out of days in the month. A total of 236 were issued for Monday with JP Morgan being the big kid on the sell side once again. I should note that there are almost evenly split between issuing silver for clients as well as for their own account. Barclays is once again the big stopper along with Prudential coming in second. Both of those firms apparently have clients who want to own the physical metal.
There has been a total of 1,383 contracts issued and stopped this month with 632 contracts remaining open in the March. I should also note here that the March contract remains at a one cent premium to the May. That is noteworthy.
Long Bond a Casualty of Fedspeak
A very slight upward revision to 4th quarter GDP along with "hawkish" talk by select FOMC governors may be pushing the Dollar higher but it is not helping the US bond market on the long end of the curve.
It has dropped back within the former trading range or congestion zone that was once in place dating as far back to December of last year. You will recall that the long bond had broken out of this range to the downside in early February only to rise, Phoenix-like, from the flames by the surge in crude oil prices as unrest spread across MENA as well as events in Japan.
Since that time however, the bonds have been steadily moving lower. Keep in mind that Bill Gross of PIMCO, who sold his Treasuries because he felt yield was way too low, is undoubtedly being copied by many others. There are also many commentators and analysts rightly asking the question - "once the Fed supposedly stops buying all these Treasuries at the end of June, just who is going to step up and buy all of this US debt especially at these low yields".
While the Fed mouths may be talking up the Dollar and talking down Gold, they also are risking a rise in yields on the long end of the curve. No doubt this is not good news for the beleagured real estate market.
It has dropped back within the former trading range or congestion zone that was once in place dating as far back to December of last year. You will recall that the long bond had broken out of this range to the downside in early February only to rise, Phoenix-like, from the flames by the surge in crude oil prices as unrest spread across MENA as well as events in Japan.
Since that time however, the bonds have been steadily moving lower. Keep in mind that Bill Gross of PIMCO, who sold his Treasuries because he felt yield was way too low, is undoubtedly being copied by many others. There are also many commentators and analysts rightly asking the question - "once the Fed supposedly stops buying all these Treasuries at the end of June, just who is going to step up and buy all of this US debt especially at these low yields".
While the Fed mouths may be talking up the Dollar and talking down Gold, they also are risking a rise in yields on the long end of the curve. No doubt this is not good news for the beleagured real estate market.
Federal Reserve Officials talking the Dollar up - Gold down on Cue
It is no secret to those attuned to market action that the US Dollar's technical chart picture is horrendous. It had broken through a critical support level near 77 on the USDX last week and had further descended down towards the tremendously important 75 level. No matter what appeared to be happening in the world, the US Dollar could not get much if any of a safe haven bounce.
Currency traders had been moving to the Swiss Franc as their choice of a safe haven. The Aussie has been making new highs and the Canadian Dollar has been very strong as well.
Now, it is also obvious that the US would dearly love to see the Dollar stay weak to help it deal with its massive debt load but the ugly truth is that the Dollar was on course for a major crisis if it violated the 75 level.
Enter the Fed officials today and yesterday. Apparently the strategy was to get several of the FOMC governors to hit the airwaves talking about ending the QE program. Since it is QE that has been partly responsible for Dollar weakness - along with the abysmal fiscal condition of the nation - something had to be done to prevent a Dollar crash. This is the reason we are getting a sudden rash of Fed officials looking for microphones and venues to talk about ending QE.
Result? Up goes the Dollar and down goes the precious metals market. Coincidence? I hardly think so. If you understand what I wrote earlier this week explaining the antagonism of Western Central Bankers against gold, then you can easily understand that its rise to a new all time high is testifying against the steady debauchment of the US currency by the Federal Reserve.
As a kicker, they also manage to further knock down the Japanese Yen saving themselves and the rest of their pals at the G7 from having to actually pay to undergo another round of currency intervention.
You have just witnessed a shrewdly hidden round of verbal intervention camoflauged as normal policy discussions.
Currency traders had been moving to the Swiss Franc as their choice of a safe haven. The Aussie has been making new highs and the Canadian Dollar has been very strong as well.
Now, it is also obvious that the US would dearly love to see the Dollar stay weak to help it deal with its massive debt load but the ugly truth is that the Dollar was on course for a major crisis if it violated the 75 level.
Enter the Fed officials today and yesterday. Apparently the strategy was to get several of the FOMC governors to hit the airwaves talking about ending the QE program. Since it is QE that has been partly responsible for Dollar weakness - along with the abysmal fiscal condition of the nation - something had to be done to prevent a Dollar crash. This is the reason we are getting a sudden rash of Fed officials looking for microphones and venues to talk about ending QE.
Result? Up goes the Dollar and down goes the precious metals market. Coincidence? I hardly think so. If you understand what I wrote earlier this week explaining the antagonism of Western Central Bankers against gold, then you can easily understand that its rise to a new all time high is testifying against the steady debauchment of the US currency by the Federal Reserve.
As a kicker, they also manage to further knock down the Japanese Yen saving themselves and the rest of their pals at the G7 from having to actually pay to undergo another round of currency intervention.
You have just witnessed a shrewdly hidden round of verbal intervention camoflauged as normal policy discussions.
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