Market recap: Stocks cap a two-day rally to wipe out last week's losses, as investors seem confident Bernanke will assure everyone at his press conference tomorrow that the Fed is in no rush to taper its bond-buying program. The Dow's 138-point gain marked a sixth straight day of triple-digit moves; the small-cap Russell 2000 closed at an all-time high. The dollar rose vs. the yen; Treasury prices inched up. [View news story]
Since 1994, a large percentage (like over 50%, but I can't find the reference) of gains have occurred in the three days leading up to Fed announcements. Almost immediately after the announcement a lot of profit taking has taken place. This is the best kind of "buy the rumor, sell the news." Will the same thing happen this Wednesday?
Stocks give up more than half of their earlier gains 75 minutes before the bell, the S&P 500 (SPY +0.4%). It's those interest rates again. Quiet for most of the day, rates began turning higher (TLT -0.4%) just after lunch, and the 10-year yield is now up 4 bps to 2.17%. Favorites of the dividend players, health care (XLV) and utilities (XLU) underperform - just flat on the session. [View news story]
Coincidentally what happened in Europe near the end of their close today.
Weighing The Week Ahead: A New Direction For The Fed? [View article]
Jeff - Good point to CI. Of course, it's important to remember that Bernanke has a bit of power to make his economic forecasts come true, whereas Mauldin doesn't. And half (or more) of economic and market forecasting these days is predicting the Fed's behavior along with that of the other CBs.
I agree with your statement that "the idea that stocks have been moving up and down violently every time the subject is broached is sort of silly." But I would like remind you that stocks reacted in an equally large very silly way every time the possibility of QE was mentioned over the past few years by Bernanke or Draghi (prior to its actual implementation). I didn't listen to the silliness then, but I am now.
Interesting article. However, I remember thinking a few years ago (after TARP, which was ridiculous enough) that there was no way the Fed would embark on this insane QE program (2,3 and infinity) and yet they did. Boy, was I wrong. As you have pointed out, they have now painted themselves into a corner from which it is difficult to spot a decent escape route. Just as cornered badgers sometimes behave quite erratically (and viciously) I would not put too much reliability into trying to predict the Fed's behavior.
The discussion of tapering was initiated for a reason. Some number of Fed members are interpreting dangers in QE-forever. Also Bernanke's desire to be more transparent about Fed policy has forced him to discuss these opinions. He may be awhile activating the taper, but (just as the QE rumors turned out to be true), I am paying active attention to what the Fed is saying. Where there's smoke, often there's fire. Despite all rational analysis to the contrary.
Weighing The Week Ahead: A New Direction For The Fed? [View article]
rsh389 - I agree. I think that the talk of tapering is an attempt to smooth out the earlier exponential rise of the market. Just as Draghi's promise to do "whatever it takes" was more than adequate to save Europe for the moment, talk is often very effective. Bernanke's hope is likely that throwing a little confusion into the market (but clearly communicated confusion) will be adequate to prevent the asset bubble that has been building and forestall the need for any action before he's ready. I guess we'll see if the Fed feels the talk has been adequately effective or if they need to let off some more steam. My main point is that all of this talk is more about manipulation than it is about fundamentals and has been for quite some time.
Weighing The Week Ahead: A New Direction For The Fed? [View article]
For those who are interested, here is the link to John Mauldin's complete article (free): http://bit.ly/17QtvKi
What I don't understand is that if what Jeff says is true that "The reality is that the Fed has had a modest impact on both interest rates and the recovery in stocks." then why are stocks moving with so much volatility every time the dreaded taper is mentioned. It seems pretty clear that at least half of the rise in equities since March 2009 has been fueled either by Fed activity or by the response to rumored activity (I believe the analysis shows that over 70% of the increase in the market over the past few decades has occurred in the three days leading up to fed announcements). So why wouldn't they drop equally on rumored tapering of the Fed's activities?
An Economic Shocker Is In The Cards This Week [View article]
I love this statement "What the broader market would do depends on how severe any economic reconsideration is." This implies that it is more important for the Fed to report a number that's 'just right' for the markets rather than report a number that has any accuracy. When did the U.S.A. become China or Russia? Let's all admit that these numbers are just made up with little or no basis in reality and that markets are reacting to vapor rather than actual news. What's important is what the GDP growth is not what anyone (even the Fed) expects it to be. Of course, the algos don't know this and will continue to trade on rumor and opinion. No wonder it is so hard to entice the retail investor back into this game.
Forget talk of a dividend bubble; it's a "golden age" for dividends, ClearBridge's Hersh Cohen believes. Dividend stocks got extended in this year's run-up, not overpriced, he says. Besides, while price is important, "investors lose sight that their income can double in nine years" with dividend payers. Hersh can still find nicely priced examples, particularly in energy, such as Chevron (CVX), Shell (RDS.A) and Total (TOT). [View news story]
If bull markets climb a "wall of worry" do crashes slide down a "slippery slope of glee"?
Stan Druckenmiller on investing in government-driven markets devoid of price signals: "The importance of my skills is receding. Part of my advantage, is that my strength is economic forecasting, but that only works in free markets, when markets are smarter than people. That’s how I started. Today, all these price signals are compromised and I’m seriously questioning whether I have any competitive advantage left." One wonders where that leaves less talented investors. [View news story]
The irony is that the most stridently anti-socialism country in the world (that I'm aware of) is more dependent on government support and intervention than almost any other. Though admittedly it's corporate socialism, not the kind that does the average person much good.
A Major Market Turning Point May Be Struck Next Week [View article]
I suspect that the Fed will say something along the lines of "It is our intent to taper the QE programs providing that neither the market crashes not unemployments soars, in which case we'll resume QE-infinity, until we feel we can taper it a bit again and so on until everybody just calms down." Of course it will all be in Fedspeak and will prove that even the new, more open Fed can find a way to obfuscate when being clear could be detrimental to the markets.
Standard & Poor's affirms its AA+ long-term and A-1+ short-term credit ratings on the U.S., and revises its outlook on the long-term rating to stable from negative to indicate its current view that the likelihood of a near-term downgrade is less than one in three. [View news story]
Market recap: Stocks cap a two-day rally to wipe out last week's losses, as investors seem confident Bernanke will assure everyone at his press conference tomorrow that the Fed is in no rush to taper its bond-buying program. The Dow's 138-point gain marked a sixth straight day of triple-digit moves; the small-cap Russell 2000 closed at an all-time high. The dollar rose vs. the yen; Treasury prices inched up. [View news story]
Are You Ready For The Fed To Move The Market? [View article]
Stocks give up more than half of their earlier gains 75 minutes before the bell, the S&P 500 (SPY +0.4%). It's those interest rates again. Quiet for most of the day, rates began turning higher (TLT -0.4%) just after lunch, and the 10-year yield is now up 4 bps to 2.17%. Favorites of the dividend players, health care (XLV) and utilities (XLU) underperform - just flat on the session. [View news story]
Weighing The Week Ahead: A New Direction For The Fed? [View article]
Will We Be 'Talking Taper' Soon? [View instapost]
Don't Fear The Taper [View article]
The discussion of tapering was initiated for a reason. Some number of Fed members are interpreting dangers in QE-forever. Also Bernanke's desire to be more transparent about Fed policy has forced him to discuss these opinions. He may be awhile activating the taper, but (just as the QE rumors turned out to be true), I am paying active attention to what the Fed is saying. Where there's smoke, often there's fire. Despite all rational analysis to the contrary.
Weighing The Week Ahead: A New Direction For The Fed? [View article]
Weighing The Week Ahead: A New Direction For The Fed? [View article]
What I don't understand is that if what Jeff says is true that "The reality is that the Fed has had a modest impact on both interest rates and the recovery in stocks." then why are stocks moving with so much volatility every time the dreaded taper is mentioned. It seems pretty clear that at least half of the rise in equities since March 2009 has been fueled either by Fed activity or by the response to rumored activity (I believe the analysis shows that over 70% of the increase in the market over the past few decades has occurred in the three days leading up to fed announcements). So why wouldn't they drop equally on rumored tapering of the Fed's activities?
An Economic Shocker Is In The Cards This Week [View article]
An Economic Shocker Is In The Cards This Week [View article]
Forget talk of a dividend bubble; it's a "golden age" for dividends, ClearBridge's Hersh Cohen believes. Dividend stocks got extended in this year's run-up, not overpriced, he says. Besides, while price is important, "investors lose sight that their income can double in nine years" with dividend payers. Hersh can still find nicely priced examples, particularly in energy, such as Chevron (CVX), Shell (RDS.A) and Total (TOT). [View news story]
Stan Druckenmiller on investing in government-driven markets devoid of price signals: "The importance of my skills is receding. Part of my advantage, is that my strength is economic forecasting, but that only works in free markets, when markets are smarter than people. That’s how I started. Today, all these price signals are compromised and I’m seriously questioning whether I have any competitive advantage left." One wonders where that leaves less talented investors. [View news story]
A Major Market Turning Point May Be Struck Next Week [View article]
If BlackBerry 10 Fails, Can The Company Survive On Services And Software? [View article]
Standard & Poor's affirms its AA+ long-term and A-1+ short-term credit ratings on the U.S., and revises its outlook on the long-term rating to stable from negative to indicate its current view that the likelihood of a near-term downgrade is less than one in three. [View news story]