PREPPING FOR THE FED
Ah, Fed day. The day when the stock market most closely resembles the Bellagio. Today will prove to be no different though the house appears to have stacked the decks in favor of Wall Street and against Main Street (i.e., the plan is to crush the dollars in your pocket while reflating bank assets).
Despite the chatter coming on the back of the RBA rate increase, the Federal Reserve is unlikely to alter their stance on monetary policy. Ben Bernanke is still fully engaged in defeating the most dangerous and devastating deleveraging cycle of the last 80 years. Unlike many nations abroad, the U.S. economic recovery is still on very shaky ground. It’s now quite clear that the great mean reversion rally has been primarily liquidity driven and that the real economy is still weak. Although the pressures are mounting for the Fed to begin implementing an exit plan, I believe their accommadative stance is consistent with Bernanke’s ongoing battle with deflation. He has vowed not to let the second Great Depression occur and he will do everything in his power to ensure that is the case - even if it means a greater risk of inflation and destroying the dollar. Ben firmly believes he can print us right back to prosperity.
With that said, I think today’s Fed decision is unlikely to be surprising and that will likely to good news for the reflation trade. Bubbly Ben isn’t removing the champagne bowl(s) just yet. In fact, he would likely prefer to spike it a little further (Wild Turkey or 151 appears to be his drink of choice – guaranteed to make you feel great in the near-term, but also guaranteed to kill you in the long-term). The beat goes on. The dollar destruction continues, stocks will likely cheer the Fed’s recklessness, bonds will get crushed and gold will cheer the move. At least that’s my guess for today’s action at the gambling tables….
So, sell into this strength or hang on?
TPC Reply:
November 4th, 2009 at 10:25 AM
I’d probably be inclined to sell the initial up move after the Fed announcement. This news is largely priced in so any rally should be sold into.
anon Reply:
November 4th, 2009 at 12:48 PM
TPC, you fucking nailed this one! Right on!
SS Reply:
November 4th, 2009 at 1:02 PM
What’s impressive is not that TPC predicts these moves, but actually ties the fundamental reasons to them.
TPC Reply:
November 4th, 2009 at 1:04 PM
All i need is a few billion in taxpayer dollars and I would rename my company “Goldmen Sacks”!!
More like Everclear, the full strength version which warns about possible blindness!
I wonder what Goldman thinks? Surely Bernanke consulted with them as to effects on the markets by Fed decision making. 1 losing day in 3 months? 3 losing days in 6 months?
Ridiculous
http://www.fundmymutualfund.com/2009/11/goldman-sachs-gs-q3-winning-percentage.html
http://www.zerohedge.com/article/absolute-perfection-goldman-loses-money-just-one-trading-day-q3
TPC Reply:
November 4th, 2009 at 10:27 AM
I saw this over at ZH. If I am not mistaken, those figures include Goldman’s market making business which basically prints money. It’s not so much a trading operation in the traditional sense. They’re just collecting pennies on every trade. It’s more like a licensing agreement than a trading operation. Can anyone confirm that their MM business is or isn’t in these figures? If so, this is not really a big deal at all.
TPC Reply:
November 4th, 2009 at 10:35 AM
I just found it on the 10-Q:
“Trading and Principal Investments. The firm facilitates client transactions with a diverse group of corporations, financial institutions, investment funds, governments and individuals and takes proprietary positions through market making in, trading of and investing in fixed income and equity products, currencies, commodities and derivatives on these products. In addition, the firm engages in market-making and specialist activities on equities and options exchanges, and the firm clears client transactions on major stock, options and futures exchanges worldwide. In connection with the firm’s merchant banking and other investing activities, the firm makes principal investments directly and through funds that the firm raises and manages.”
Hate to say it, but the blogs that are trying to make a big deal of this are blowing it way out of proportion. Goldman is a huge market maker, specialist and clearing firm. While some people might misconstrue this as “trading” it is really more akin to charging fees.
Market seems stuck in a narrow range right now. Up to 1055-1058, down to around 1030 with violent swings in between. Since the tape has been to the upside for around eight months now every attempt to move higher than does not push through suggests a change to a downward bias. What ends up proving to be the catalyst remains a mystery to me. I just can’t find it right now.
I liked your Bellagio metaphor, the mkt resembled both the fountain and the inside action…my technical indicators agree with your position, but I worry when Michael Kahn agrees with me; he has been very wrong at critical turning points…
TPC Reply:
November 4th, 2009 at 2:15 PM
Bernanke is urinating in the fountain has we speak and we’re all being forced to swim in it. What Kahn piece are you referring to? I must have missed it. Thanks.
Im very curious. You contend that Japan has been hurt by their increase in government debt ( i don’t see evidence of that in the yen or yield levels or inflation or lack thereof) and you think the US economy will suffer from the increas in debt/GDP. With the fact that the public sector deficit is exactly equal to private sector savings (its an accounting identity, not an opinion) and that the money that goes to buy bonds comes from gov’t spending, the incrase in public sector debt is doing alot to alleviate the effects of the private sector deleveraging. There is really no other way it can happen, save a huge swing in the current account – which isnt going to happen.
TPC Reply:
November 4th, 2009 at 10:12 PM
Are you implying that Japan has not been hurt by their massive debts? I am not sure I follow your question….
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