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Bearded Ben's Fake Rally 9.20.12

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It can be argued that the Federal Reserve is the most powerful institution on the face of the earth.  America is the center of world economy…especially as bond bears squeeze Europe and China slows with delinquent loans rising by nearly 333% since the end of 2011 all while their repressed population is starting to speak up.

The E-mini S&P 500 Index Future has had an average true range (ATR) of 13 points over the last 14 days; this is compared to nearly 25 points over the past year. Consequently, the volatility index is low too.  The CBOE’s VIX, a measure of implied volatility in the SPX, is down 40% year-to-date as a result of the small ranges that have slowly become a reality. While on the topic of options, the SPX currently has an implied one-sigma move of up or down $46 with 28 days to go in the October options. This is against, during this time last year, the October standard deviation was up or down about $99. This was however during the USA debt downgrade fiasco and debt ceiling, but the market came to the conclusion that America would still be a staple in the investment world, for rates actually proceeded to fall, proving the downgrade wrong in the short and medium term. The low ATR, VIX, and implied move in the SPX could all be a direct result of the Fed manipulating the market with their various programs not allowing for true capitalist price discovery to occur in the free market.

This contraction in volatility and price action has become a reality since the Federal Reserve started to communicate their intentions to further stimulate the economy via additional quantitative easing. More specifically, The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment; while keeping an eye on inflation, and while still undergoing operation twist…swapping out shorter term maturities for longer term (increasing the duration of the portfolio). “The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.” To the contrary the implied inflation rate is currently (as measured by the 10 year less the 10 year TIPS) 2.50%.  Perhaps the committee does not look at market prices, for they believe that they are the market.

The Fed in general has come into question. The dual mandate has been dropped by other developed areas and countries including Canada, the European Central Bank, the Bank of England, and the Bundesbank. This should all be questioned for the “wealth effect” has caused a fool’s rally, real income to fall, and confidence in policy makers to fall. The only way to fight the inflationary “Bernanke Put” is to buy gold and silver calls.

E-mail the author with any comments or inquiry…

mark@keeneonthemarket.com

Data courtesy of Thinkorswim

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A Fool's Rally 9.20.2012

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This rally has been one of the most deceptive as it has been sparked, and supported by the so called, “Bernanke Put” and NOT by healthy macroeconomic conditions.  The Bernanke Put refers to the notion that Federal Reserve intervention will save the stock market from downside risk by way of easy monetary policy.  Despite the consistent negative economic data reports, and gloomy forecasts out of the US and global economies, stocks traded at a 10-12% premium on hopes of a third round of quantitative easing.  Markets reacted positively to bad news, and negatively to good news, based on the logic that clearer signs of a weakening economy will push the Fed to act. 

Markets finally got what they wanted last Thursday when the Fed announced a third and likely perpetual round of quantitative easing in which it will buy $40 billion of mortgage-backed securities each month.  The Fed hopes to revitalize our sluggish economy by bring down mortgage rates to create housing wealth in hopes of increasing consumer spending to ultimately aid the suffering labor markets.  It is important to note that the first two rounds of QE were not very effective.  The stock market is up 2% from the announcement and is trending higher, but what has changed fundamentally?  Nothing.  The only reason for QE3 is a weak economic consisting of anemic GDP growth of 1.7%, unemployment above 8% for the last 43 months, and weak consumer spending.  I see nothing to celebrate.

 I believe this is a fool’s rally, and the opportunity is to the downside.  Stocks will most likely continue to rise throughout the election before making a hard reversal.  “The bull goes up the stairs, the bear jumps out the window.”  I would look to take some profits off the table before he jumps. 

 History proves the only thing certain with easy monetary policy is inflation.  While the annual rate of inflation from 1985 – 2011 has been tame at 2.1%, an open-ended quantitative easing policy certainly increases inflation fears.  With inflation risk on the table, accompanied by the fiscal cliff and the ongoing European debt-crisis, investors and policymakers have little to celebrate.  The end result will not be pretty.

 Ciro J. Lama is currently an undergraduate studying Finance at the Zicklin School of Business – Baruch College

 Website: CantalinoAssetManagement.com

 Follow me on Twitter:  @TraderCantalino

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Morning Rage 9.18.2012

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Metals futures continue to slide lower from Friday as well. Gold futures are down 10.80 overnight and platinum futures continue their reversal, down 12.60 points. Crude futures stayed relatively still, only losing about 0.38 after getting crushed yesterday, down about three points.

Apple (AAPL|  $699.78) continues to be the diamond in the rough as buyers pushed its price over the $700 mark in after hours trading to $701.60. This comes after another big gain of $8.50 even as the rest of the market slid downward. The sentiment in the market seems to be that iPhone 5 record sales have proved to investors that AAPL has not lost it’s obsessive fans and may not for some time.

My earnings plays for today is FedEx (FDX| $87.53). FeDex reported a rate increase for 2013 amidst an earnings report down once cent from last year for this first quarter. Revenue and operating income grew 3.0% and 1.0% respectively from last year but net income was down 1.0% from last year for this quarter. FedEx has dropped its forecast for annual earnings to $6.20 to $6.60 from $6.90 to $7.40. The stock fell in after hours trading almost 2%. The Sep ATM straddle suggests the stock will move around $2.50 by Friday and a little more than $4.00 by Oct expiration. I am going to wait to see what direction it moves in today and possibly play a spread in that direction for October.

Later today, a housing market index report will be released around 10:00 am EST. Last month, the index rose 2 points reflecting sales of new homes, expected sales in the next six months, and prospective buyers. Expected sales may jump higher because of QE3, so the information may be distorted higher.

Alex Kalish has a master’s degree in economics from Suffolk U.

Questions, comments and suggestions welcome: alexk@keeneonthemarket.com



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Market Recap 9.11.2012

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Metal futures and crude oil futures were mostly flat all day with gold up about 3 points and crude up less than half of a point. Natural gas gained 6.61%.

AIG ($33.03 | – 0.81%) had the highest volume of the day trading 217 million shares. Today’s volume is a result of the US Treasury selling off its stake in AIG reducing their stake from 53% to 16%. The Treasury gained $15 billion in profits from the sale of AIG stock. AIG has been trading between 30 and 35 since mid-August. 

Since the poor report on jobless claims last week and drop in exports in the international report this morning, speculation about a QE3 has increased. An asset purchase could improve exports by reducing the value of the US dollar. 

Important news besides Apple’s (AAPL | 660.59 [-2.15]) iPhone 5 debut tomorrow (possibly available for purchase by September 21st) is Facebook (FB | 19.43 [+0.52]) CEO will speak publicly since the IPO debacle. Facebook has continued its climb up the fourth day in a row hitting prices it hasn’t seen since August 24th.

Texas Instruments Inc. (TXN) announced second-quarter revenue of $3.34 billion, net income of $446 million and earnings per share of 38 cents. The stock stayed even today, slightly down $0.09, but the after-hours announcement caused the stock to surge $0.39 in after hours trading. TXN 52 week low and high is 25.60 -34.24 respectively. 

Some big economic events this Thursday include Jobless claims, Produce Price Index, and Bernanke’s Press Conference. 

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All That Glitters… 9.11.2012

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 Whether or not the Fed announces QE3 or not they will continue to ease as they have been for years now so the announcement really doesn’t matter a whole lot unless they announce a huge new program.

 ….Is Gold

 Regardless of what the Fed announces Gold is going to go higher.  It will go a lot higher eventually.  There may be some bumps in the road, some pullbacks, but eventually gold will be a lot higher than it is today.

 I don’t know if it will be next month, next year, or in five years, but the world’s current monetary policy will send gold to at least $3000 an ounce.  It would not surprise me in the least to see $5000 gold at some point in the next ten years.

 Why Gold?

 There are several reasons why gold will continue to go up but the main reason is the global debt fascination.

 United States

 The United States is in debt up to our eyeballs.  The debt is somewhere currently around sixteen trillion dollars.  If you take into account the unfunded liabilities of social programs it is estimated to be anywhere from seventy to one hundred trillion dollars.

 There is no political will to address the funding of future social promises.  One side will never agree to raise taxes and the other will never agree to cutting benefits.  We will remain at a stalemate until it is too late.

 Europe 

As our economy flounders for the next couple decades because of all our debt, the government will continue to print money in order to “stimulate” the economy.  This is what they call monetizing the debt.  We will print money to pay off our debts.

 Europe is just in the beginning stages of monetizing their debt.  The European Union is a disorganized mess so it is taking them a few years longer than it did the United States to all come together and agree to print their way out of their financial mess.

 Portugal, Ireland, Greece, Spain, Italy, and the list goes on.  It will only be a matter of time before France and Germany’s economies are affected.  Some of those countries have over twenty percent unemployment. Europe will continue to go down the path of bond buying programs in order to prop up the unstable countries.

 Gold Will Shine

 In the end gold will be where it’s at.  In order to protect your purchasing power you will need to own gold in some form or fashion whether it be through gold coins or shares in mining companies.

 I’ve owned physical gold since the $800’s and don’t plan on selling it anytime soon.  I also own plenty of gold and silver mining companies.

 Shares in the miners have risks not associated with the gold market such as labor issues, input costs, and poor management.  Right now I would say the best way to accumulate gold is through the ownership of gold coins or bars either in your physical possession or through a company with allocated storage.

Get it now before it is too late.  These folks are going to print our way into a deeper mess someday.

-Ben Hoben