FOMC DECISION: NO RATE CHANGE, NO STATEMENT CHANGE
At first glance this looks like a pretty dovish statement which could signal the all-clear for equity investors. My assumption was that this news was widely anticipated by the markets, but we’ll see how things play out in the coming weeks.
From The Fed’s website:
Press Release
Federal Reserve Press Release
Release Date: March 16, 2010
For immediate release
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.
That was the most predictable pop ever. This market just seems to have a never ending bid underneath it.
That’s what scares me the most about this market. If you’re long you really feel like you can’t go wrong here. 1200 just feels like a sure thing.
Yen looks like a pretty good bet here. If we get any move towards risk aversion you’ll see a nice pop.
EVERY sell-off is bought. I thought we might sell the news here this afternoon, but once the market reach pre-announcement levels it immediately surged back up near intra-day highs.
Certainly is a strong bid under this market. This is by far the most impressive part of the entire rally. A 17% rally in 27 sessions on the Russell. That’s a 230% annualized rate for anyone trying to put that in context….
Being contrarian the timing is almost always wrong, being short on a rising mkt is usually tougher than being long on a falling mkt…You need lots of patience watching the bulls partying.
Ugh, the short squeeze is so painful. Your subconscious always telling you “Infinite Loss…INFINITE LOSS….”. Not to mention the last few minutes when everyone rushes for the closing door and things start gapping. Then you think, ok 15 minutes till options trading closes – as if the spread big enough to drive a car through will magically narrow.
One has to wonder how Jesse Livermore ever did it. Then again, he did end up busting in the end and killing himself so….
I’m net short for just the second time in the last year and yes, I do not miss the feeling of seeing stocks rise on pure euphoria.
Have rules and avoid leverage on the short side. You’ll lose plenty of times, but no trade will blow up in your face with proper allocation, risk management and money management.
Oh but its so tempting to lever up when you “know” its going down. Unfortunately, timing is nearly impossible – especially when I see the market data flows that institutional traders get. Its clearly and leg up. And that’s way before we start talking about Dark Pools….
I will say this – the uptick rule suspension was a time of utter insanity. Again, not one for conspiracies but why the hell would they do that in mid-2007…..as they were jacking up 25 bps on interest rates at every meeting. So suspicious. At the same time, I was tracking what I believe to be a Black Box system hitting the big three etfs – SPY, DIA, QQQQ. This thing was immense – there’s only 2 companies I know that could have such a system and when DE Shaw posted 50% losses on their biggest Algo funds, there was only one company left (and you know which one). My calculations showed me a 5 bln intraday limit – per ETF. This system could both CRUSH the indexes and short squeeze like a MOTHER%%#$@#. Avg. run time – 30 minutes. Avg net yield (gross estimate) – 10-20 million per run. I couldn’t believe it until I realized they had an edge – they knew when the market was thin. Now tell me, how did they know that if these supposed “Chinese Walls” exist??? Total BS.
This thing almost never lost, especially if you consider no broker fees and negligible exchange fees. Even when it misjudged volume, it could still squeeze and squeeze and finally cover flat or with minor profits.
It was also the same time when I came up with a great idea (patent not even pending) – a pair of trading “guns”; a long joystick with a trigger and a short joystick with a trigger. The length of time you pull the trigger designates how many orders are placed. Since apparently these guys have hundreds of accounts, no one can figure out that the 100 lots flying buy are all from the same buyer. I bet it exists….maybe in Stevie Cohen’s layer
I’ve been around and never seen the programs run like they have during the last 12 months. We’re talking million contract buy operations right when the market is thinnest or looking vulnerable.
Of course, there is nothing illegal going on here, but it’s strange to say the least. I could really care less which direction the market is going so long as its not plunging us into a depression (that’s not good for anyone except the gold and guns crew).
But I have to say that I don’t like being short knowing that this sort of stuff goes on every day….There are a lot of people who would rather not see this market plunge.
Agree and disagree and agree.
Agree – these programs are unbelievable. The guys running them have dual PhDs – finance and Computer Science. They “tweak” the x,y,z factors and watch it run. In at 8, out at 4:30. Walk by them and you wouldn’t even know the guy does what he does.
Disagree – legality. If there’s a breach of “Chinese Walls”, its patently illegal. ie. If the traders know the broker volumes, there’s a very big legal breach. Forget front running, that’s for amateurs. But with size, you can run the mkt with this info. Of course, they call it “Chinese Walls” but usually both sides sit within 20 ft of each other…..even if there isn’t an explicit breach of conduct, you can sometimes just simply hear what others are talking about
Agree – so scary being short; if you’re short, you got brass balls. Then again, its soooooo tempting. How cheap are OTM puts these days with VIX/VXN at the bottom.
“If a dime bag gets sold in the park, I want IN” – Walken, King of New York
Pretty much agree. There have been several days in which the market is down, and then in the last 2 hours of trading it goes back up.
The official ‘down’ days are pretty much something like 1 point or half a point off(S&P500)
USD getting shredded, hence market must go up. VIX is way too low – I’d be hedging longs here (sell OTM calls buy OTM puts above cost basis). Do it right and you can make a free hedge into a paying one.
See TPC, I know stuffs. FYI, appreciate the last comment – respect.
Very much agree with your outlook here. Sentiment is absolutely wildly bullish. I’m still constructive on H1 outlook, but buying up here is just blind ignorance in my opinion.
I know you know your stuff. Nothing I write here is meant to be taken personally. I have lots of opinions and I know they are often wrong. I have tons of friends like yourself who work their asses off and had nothing to do with the crisis so please take the “banker” generalizations with a grain of salt.
Yeah. Did you see the article on Corp Debt due in 2012? $534 billion – ouch. And just about none met their mark. Plus they have to compete with record US Treasury issues at the same time. 2012 may be Armageddon, except not for the reasons the Mayans thought.
I appreciate the follow up. Like I said, I’m not perfect…and SOME banks DEFINITELY had a lion share of the guilt – along with those who they lent to. Unfortunately, as you’ve stated – nothing has changed. That kinda sucks. I will say this though – compensation practices have certainly changed but I’m not so sure they’ll have the intended effect. In fact, I’d say they’re borderline unfair in many regards. Just like Corporate America loves a recession (to squeeze existing/new employees), they are showing a bit of lust for these new rules. Remember, anything that means that they have to pay less is a good thing. So long as everyone follows suit, the best of the best are corralled into their respective pens. This, however, changes nothing in the market other than having a bunch of pissed of market operators who just care less….
At least that’s my $0.02
We went totally parabolic at the end of the day. If you’re trying to gauge just how irrational this move is look no further than any retail chart. The retailers have all gone parabolic in recent weeks even though the consumer is flat on his back.
How do we insert an image?
I think the big pullback (3-5%) everyone is expecting won’t occur until early April (from a higher level {1200+} unfortunately.) Probably the main thing to predicate the pullback – a sudden jump in mortgage interest rate as Fed officially exit the market. Yes I know that this is a known item but I think it will be an excuse by some to take profit. I think that should present us with a final blowoff top when people realize that the interest rate is not going up as much as everyone thought. Again, I believe that all the market axioms will perform their magic this year (January Barometer and “Sell in May and Go Away”). I plan on scaling into longer term puts once we get to 1250-1280 area.
The smart money bought the dip. The momentum buyers bought the move over 1100. The shorts covered over 1115 (positive YTD) and the dumb money bought over 1150.
The question is – how much more dumb money is in this move?
Spot on. Buying long in Feb 2008 was the best move I’ve ever made – of course, I had to dollar cost avg for a few months as I mis-timed the bounce.
Except its actually not so dumb to buy the squeeze. The problem is, there’s apparently no one left to squeeze (according to VIX). So…..how’s…it…going…up….?
I know you’ve been around so how funny is it that EVERYONE in the mkt was talking about “the biggest double top of all time”….and then it happened. My question is, I haven’t really heard many saying “the biggest head and shoulders of all time”, have you? I’m not one for conspiracies but this one strikes me as very suspicious…