Interesting discussion with Art Cashin on yesterday's break back to 10,000 for the Dow.
Here's a question to ponder: Could it be that the US Fed has been buying the market in an effort to cheer up sentiment on the economy? Could this be one of the reasons that they don't want an audit?
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Hi Danielle,
I honestly wouldnt be surpirsed if the fed is buying up the market. All i hear is that there is alot of money on the sidelines, so who keeps buying? Since all this government intervention began, there really is not a true market anymore it seems. Over the last few months there always seemed to be someone coming in and taking the markets off its lows or to higher highs on a daily basis. At what point does all this come to an end is what i would like to know? And what will the markets look like then. Do you still see us testing the march lows?
Thanks,
Parm
An even more interesting question to ask everyone…How would you react if you found out that the Fed was buying into the market? Would you be in favour? I bet most would say yes. It's the equivalent of finding a rigged roulette wheel set up for laundering money. Most wouldn't report it if they also could siphon off some profits. We have been well trained to ignore the Moral Hazard signs as we drive the pedal to the metal.
P, I dont think we can take the possibility of a re-test of March completely off the table here. I do not see it as a base case scenario, but the longer we get parabolic prices on low volume and no follow through on revenue growth, I think the downside risk looms larger. For those who are feeling pressured to buy into this rally, I would suggest that we remember nothing grows straight to the sky. Pullbacks of the 10-20% variety would be a very normal part of the recovery story. If we see some relapse to negative GDP quarters ahead then deeping corrections would be reasonable. My advice is hope for the best but prepare for the worst, have a downside protection plan.
The main problem with the low volume of this rally is that a few players can bid the market up without real belief by the masses.
For an interesting reminder of this see “Operation 1100” on the Big Picture today:
“During options expiration week, the dealer community’s desire to “pin” the market to certain key levels renders all other thoughtful analysis moot. Options traders, like all traders, seek liquidity, and liquidity is in the big round number strikes – SPX 1100 for example. (Why buy SPX 1095 calls – or SPY 109’s – when any kind of size is going to move that market adversely?) Dealers typically have a hedged book but if they do have exposure it’s at the big round numbers. Pinning the market at those levels (which is a collective act, and doesn’t necessarily imply untoward activity) is a profitable enterprise for them, with investors taking the losses.
During expiration week it makes sense to step back from the news flow and remind ourselves that the stock market is not just a marketplace in which buyers and sellers meet to exchange interests in businesses. It is a den of speculation and the goal is profit – the shorter term the better. Of course, it isn’t only the stock market in which these games are played. How else could one explain Goldman Sachs’ $6 billion in revenues last quarter from Fixed Income, Currency, and Commodity (FICC) trading alone? As a final thought, keep in mind that SPX 1100 lines up almost perfectly with the downward sloping trend line formed by the October 2007 and May 2008 weekly closing highs. (source: Bloomberg)”
http://www.ritholtz.com/blog/2009/10/operation-1100/
As long as we are shining the light into dark corners…I was surprised to hear that Mr. Bernanke has the right to directly manage his own portfolio. I think that piece of information was revealed when he sold his Canadian bonds. Wow, doesn't he have “inside” knowledge? This brings up the question of Mr. Geithner and the key people that work under him. Are they also able to trade their own portfolios?