ROSENBERG: 10 REASONS NOT TO BE SHORT IN FRONT OF THE FED DECISION
The usually bearish David Rosenberg of Gluskin Sheff is sounding bullish on the basis of more expected Federal Reserve action. In today’s research note he explains why he believes the Fed will act more aggressively than investors think and says the S&P 500 could even rally to “at least” 1250. He provided 10 reasons why investors don’t want to fight the Fed today:
1. Just go back to August 9th. The Fed was supposed to make a more emphatic comment in the press statement about “extended period” as it pertained to the length of time the Fed would stay ultra-accommodative on the rates front. Bernanke went much further than anyone thought with his pledge to keep rates at the floor to mid-2013.
2. Ben Bernanke has shown repeatedly that he is willing to take risks and be very aggressive.
3. Everyone knows the Dow finished the August 9th session with a huge 430 point gain after the FOMC press statement was fully digested. Not only that, but when Bernanke held his two day meeting in Mid-December of 2008 and unveiled QE1, the Dow soared 360 points. And last November, the day after the two-day meeting when Bernanke made it clear in his Washington Post op-ed article how key it was to ignite the stock market, the Dow jumped 220 points. It may all be just for a near-term trade, but in an industry where every basis point counts, who wants to be short in front of that?
4. At that August meeting, we know both from the statement and minutes that additional rounds of unconventional easing were discussed. And Mr. Bernanke made it very clear at Jackson Hole that they would be on the table again the coming meeting.
5. The Fed would like to be out of the picture during the election campaign (especially if Rick Perry ends up winning the GOP nomination).
6. The Fed has cut its GDP forecast at each of the past three meetings.
7. The stock market is actually little changed from where it was at the last meeting and we know based on the Washington Post op-ed, that it is equity valuation (specifically the Russell 2000) that Ben wants to see rally. Sanctioning lower bonds yields is just a means to that end.
8. There is no fiscal stimulus to bolster the economy, with the odds very high that the Obama jobs plan – some in his own party object to – will be dead on arrival on the House floor. The Fed is the only game in town.
9. Financial conditions have tightened nearly 100 bps since the spring and deserve a policy response.
10. Bernanke announced at Jackson Hole that this coming meeting was going to be a two day affair, not one day. The last time he did this was back in December 2008 and that was when he invoked QE1. There has to be a reason why it is two days, and it must be because he wants to build the case for three dissenters. The Board is being sequestered for a reason!
Source Gluskin Sheff
I don’t think today is as predictable as some seem to think. I think politics have creeped into the Fed’s mindset more than usual. Nevertheless, I covered all positions today. Couldn’t get an order fill if I wanted to anyways.
Damnit, if Rosie is bullish then I am VERY nervous about being long before the Fed…
Any investor who listens to an economist that makes market calls based on perceived reaction to economic data will ultimately lose more than 1000 /yr subscription fee for said services. I’ve had the greatest success keeping it simple. Rosie is a great read I feel because of his plain speak! However, I’ve yet to meet an economist that can ultimately seperate the mounds of info they have to digest and it’s correlation to market movements. I’ll stick with Ben Graham thank you!
You have to hand it to Mr. Rosenberg. Just when everyone was beginning to think that this afternoon will be a dud, here he comes with the opposite view. Always a contrarian.
Rosie also pointed out something interesting in his piece today which came up somewhere else after Rosie pointed it out. We normally get our market and technical data days before Rosie. This has never happened for us.
Rosie pointed out Utilities.
“The recession-prof Dow Utlities index is up in six of the past seven days, and just hit new cycle highs(best level in 3 years). The ratio of the utilities o the transports is breaking out and just reached the same level it wa in Aug. 07. If memory serves us correctly, a recession hit 4 months later”
Around March we noted a divergence between treasuries and the SPX. I said it fortold some bad stuff coming. Well the same thing is happening with Utilities.
New High Divergence pointed the cyclical top in 2000, 2007 and is doing the same here 2011. The charts are eerie similar to the divergence we saw with treasuries and the SPX. The SPX went on to get hammered and while in 2000 utlities did hold up until Dec. 2000.
Also..the day of the announcments have on average moved up .53% since 2009.
The next day was down on average and next 5 days positve slightly.
I understand not being short ahead of this but it appears a bigger data set to take notice is the divergence here in the Utilities as another sign of what many here have posted to possible weakness in the markets.
Good call on Dave’s part – he should be a trader.
Either you are blind or being sarcastic.
lmfao wrong again.
IMFAO you are right. I have been pretty hard on Mr. Rosenberg here, but he just seems to make it so easy….He’s doing something right though, getting paid for his opinion….
OMG an edit feature! TPC does it again! lol
Yeah glad I didn’t listen to Rosie and cover my position in SH… sold some out of money Oct calls into this sell off today. No long positions for me yet.
Munger’s mantra to stay within your circle of competence seems apt here.
Did Rosenberg drink the MMT kool aid ? Does he really think the FED can bolster the US economy and markets ? It more looks like the markets bought the rumour and sold the news. Dow Jones down 2%.
The FED can only increase or decrease liquidity. But Mr. Market decides what the new hot “”long”" game is going to be where all that new liquidity is being spend on. Currently the Treasury market is the only hot “long” game in town. Until Mr. Margin starts knocking on doors/the silver-gold ratio starts break down (again). And then the gig is up for the FED.
What’s he think’n.
No. 11: Don’t stand in front of things that can crush you like a bug.
??? trust me i’m no.
damnit, rosie is never right.
Well that’s one way to discredit oneself, I surely will not be taking this guy’s comments/analysis seriously going forward. I’m surprised CR decided to put this up on the day of the announcement since it goes pretty much opposite to all his views.
I just wanted to provide an alternative view….Rosie being bullish seemed noteworthy….
Rosie is consistent, I’ll give that to him – consistently wrong. Glad I slept through the announcement while my shorts worked for me.
ROFLMAO!
What else is there to say?
That said, Rosie puts out great work and is also a genuinely nice guy.
Congrats to all who held shorts during the fed announcemnt. I worked mine the few days ahead (did fine) but I’m sure you made more than I did. I’ve had my teeth kicked in on things that seemed (to me) to be surer bets. I like to see trends before I get in, but that’s just me. And now I’m seeing it run away…
Great to read rosemberg a smart investor has to respect a lot his views. But most of the time when economists take views on short term trading and positioning you better listen to a trader or a HF manager. The other way arround works as well.