David Fry's Market Outlook for Friday

Who are we to argue with government policy? If the powers that be believe printing money like a Kinko's on steroids will cure whatever ails the markets, so be it. The fact is that's just what they're doing.

Today another $20 billion ["your tax dollars at work"] gets injected to the primary dealers. That makes $57 billion in two days!

Oh, and by the way, there is still no current program trading statistical from our friends at the NYSE. The delay mystery continues.

Looking back at some history, we can view the end of the dot.com bubble showing the final burst higher from the fall of 1999 to spring of 2000. From there we had a rebound into the summer that was, from the lows, substantial. Position trading was impossible then. Prior to the bubble collapse, the Fed was raising interest rates. When recession loomed, they started cutting rates dramatically. But those actions did little to prevent a nearly 3 year bear market that began in earnest in the fall and was followed by a recession. Of course, as we all know now, we have substituted a dot.com bubble for one in housing.

Fast forward to today, where we have a popping housing/mortgage bubble that is unfolding in similar fashion to what occurred in 2000 with tech. Bulls who believe rate cuts will be bullish may be disappointed should they occur.

Is it different this time? Yes, to the extent an aggressive Treasury Secretary and Federal Reserve Chairman believe they can shower the markets with money to stimulate them in the direction they desire. Will that work? Beats me.

Let's go back to a quiet pre-options expiration Thursday. The economic news today was crummy at best. But investors were able to put any concerns aside and still bid prices higher on the belief that yesterday's low was a selling climax. Further, primary dealers also had to focus on how to deal with an extra $57 billion of cash. I wonder what they did with it since some of it has to be returned tomorrow. Silly of me to ask, don't ya think?

The week overall was a minor loser but sure contained plenty of drama and entertainment for bench sitters.

Again, let's just focus on the charts that are moving markets one way or another.

Meanwhile the usual suspects from overseas are just trending along with mainstream U.S. markets.

Tomorrow we'll be treated to more "investment entertainment" as the CPI is due [think "contained" and "no worries" language] and quadruple witch [March options and futures et al expire]. Given the volatility of the past few weeks there should be some unusual activity as investors try to square-up positions, which can cause odd price movements.

No one except our friends in officialdom and perhaps some insiders at the primary dealer network know what comes next with another money helicopter drop. But "thus far" [emphasis added] it seems to be arresting market declines. The downside of all this money expansion is monetary inflation, which should be attracting gold investors. But, gold investors seem both confused and rather weak-handed. Plus, there might be some serious producer forward gold selling occurring combined, with the 400 tons that may be sold by the IMF at some point.

So, we'll see what tomorrow brings to close out a pretty wild week.

Have a great weekend!

Disclaimer: Among other issues, The ETF Digest maintains positions in: MidCap SPDRs ETF (MDY), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF), streetTRACKS Gold Trust ETF (GLD), iShares MSCI Japan Index ETF (EWJ) and iShares MSCI Australia Index Fund (EWA).

Comments

[Lance]

One of the best graphics I've ever seen with a market commentary.

You rock, sir, as does your reasoning ability. Rock on.

[Britishsteel]

wallstreetexaminer.com... click on link, not to say that you are wrong but who can we believe?

[David Fry]

$19.75 billion expired, $20.25 billion was re-added, for a net total of $43.5 billion in repos.

[David Fry]

That is a net total still outstanding. Remember one thing that's important, "sometimes" these repos don't get repaid, and when that happens money is created out of thin air. We don't know when this happens or not...and they're not telling.

[David Fry]

Oh and Lance, I haven't rocked in decades, but thanks for the positive comment.

Dave

[David Fry]

And, if you'll notice there's a sizable amount of Treasury repos aside from Fed activity. Thanks for the feedback.

[Saul Sterman]

David,

Would you be kind enough to run a comparison and see if the average all ETF portfolio that you manage has faired better / equal to / worse than the S&P 500? I suspect that a fully diversified ETF portfolio has not provided any noticeable benefit in the current correction.

See usmarket.seekingalpha....

Then again, I am always willing to learn something new. Keep up the good work; enjoy your articles and insight.

Thanks
Saul Sterman
CrossProfit
www.crossprofit.com

Disclosure (SA requirements): For the two main portfolios managed by CrossProfit, as of 03/07/2007 portfolio A is 100% cash and portfolio B is 80% short + 20% cash. This is the first time in years that any portfolio has exceeded 60% short and even more years back where a portfolio is short with no longs. As previously disclosed on 2/22/2007 portfolio A was 70+% cash and 30-% long and portfolio B was 50/50 long/short.