Thursday, November 1, 2007

Warning Shot Across the Bow

Well, November 1st comes around and all hell breaks loose!
On the surface, it was a pretty bad day for the markets overall. The DOW closed down 362 points at days end. Why on earth would that have happened? Lets ask Yahoo Finance, Ya?:

Stocks Plunge; Dow Drops More Than 360Thursday November 1, 5:55 pm ET By Joe Bel Bruno, AP Business Writer
Wall Street Plunges on Fears That Interest Rate Cuts Will End Even As Economy Is Weakening
NEW YORK (AP) -- Wall Street plunged Thursday, pulling the Dow Jones industrial average down more than 360 points as investors found themselves confronted by two uncomfortable prospects: an end to interest rate cuts and a slowing economy.

There you have it. Yesterday I had noted the wild gyrations of logic that passed for financial analysis, and today one of the listed memes comes to roost:
"The FED Sets the FED Funds rate, Unless the Market Does"
I commented yesterday that I believed a market downturn could not happen (in the next calendar year) because of the overall sentiment of the market. Today does not qualify as a downtrend for the market. What is does signal is a move by the market to force the FED's hand on more rate cuts.

"I want a party with room fulls of laughter. 10,000 tons of ice cream. And if I don't get the things I am after...I'm going to SCREEEAAM!!! "- Veruca Salt from "Willy Wonka and the Chocolate Factory"

Over at the Big Picture, Barry Ritholtz has a great quote from James Paulsen, chief investment officer at Wells Capital Management:
"It's like monetary policy is being affected by the tantrums of Wall Street As every parent knows, the worst thing you can do is give in to a tantrum, because then you get five more of them."
Veruca Salt and James Paulsen show what is now happening. The one dissenting vote on the FED, the adding of commodity price concerns to the FED statement, and the fact that a FED meeting does not happen until December really started to itch the markets. The idea that further rate cuts may not be forthcoming simply will not be tolerated in the current atmosphere.

The market today repeated a regular pattern that it has been using since August. Go down a large amount, but not enough to trigger any automated selling programs. The magic number seems to be the 375 point mark on the DOW. Go back and notice when selling has been done in the market (a rare event) the stoppage of the slide is always around 350-370 on the DOW. This must be the magic number. Enough to cause a stir, but not enough to do any damage to yearly returns.

The talk yesterday was about how housing is 5% of the economy, and the economy is very robust. The global economy is booming. Rate cuts were needed to help the credit markets, but all was well. Today, all the headlines conveniently include a new "US consumer slowdown" concern as well as a "Slowing Economy" meme. Yesterday the GDP number was hailed as a great testament to the US economy, today it is dog poop which was pushed higher by a rigged Price Deflator component (it was in truth, but since when did that matter?). I understand a 24 hour news cycle, but I have whiplash after the car crash of a change in economic discussion.

The market is firing a warning shot across the bow of the FED. Rate cuts are being demanded, and the market is resorting to childish tricks to get them. Perhaps another down day is in the works for tomorrow, but then expect a long rally based on, you guessed it, rate cut expectations!
After the market has rallied on the rate cut expectation "baking into the cake" trick, the FED will have no choice but to deliver the goods. After, the FED is responsible for "market expectations" is it not?

This is not the "Big One" sort of speak. This is not the start of the Economic Disconnect beginning to unravel. It is a threat and a demand being made on the FED. The downward movement today was so fake and so non-alarming that it cannot pass the smell test of validity.

The Big One will come if the FED ever grows some balls and says to the market no way, no how, no more, no mas! Again, "Willy Wonka and the Chocolate Factory" gives us the exchange. Substitute the FED for Wonka, Hanky Panky Paulson for Granpa Joe, and the market for little Charlie:
Willy Wonka: Wrong, sir! Wrong! Under section 37B of the contract signed by him, it states quite clearly that all offers shall become null and void if -- and you can read it for yourself in this photostatic copy -- "I, the undersigned, shall forfeit all rights, privileges, and licenses herein and herein contained," et cetera, et cetera... "Fax mentis incendium gloria cultum," et cetera, et cetera... "Memo bis punitor delicatum"! It's all there, black and white, clear as crystal! You stole fizzy lifting drinks! You bumped into the ceiling which now has to be washed and sterilized, so you get nothing! You lose! Good day sir!
Grandpa Joe: You're a crook! You're a cheat and a swindler! How could you do a thing like this, raise up a little boy's hopes and then dash all his dreams to pieces? You're an inhuman monster!
Willy Wonka: I said good day!

It will never happen, but one can always dream.

Football Time!
Tonight I will compare the defenses.
Like the US prosperity, the Indianapolis Colt Defense is largely an illusion. The defensive line, while fast, is extremely small. The leading tackler and best run stopper for the team is Bob Sanders. Bob Sanders is a safety! Indy likes to use allot of 8 man in the box fronts to stop the run and to pressure the QB, usually from a lead. Put 8 men in the box on Sunday, and all hell is gonna break loose. The Colts will have to play a broader nickel and even dime package on Sunday, so expect the Patriots to run allot early. The Colts are one of the worst rushing defenses, when teams run, of the past 5 years.
The Patriots have a proven, veteran defense. Adalius Thomas is going to make a difference in this game. With a high powered offense, the linebackers will be set loose this game to go after Manning. The Pats' secondary is about average, so expect some long plays from Indy. The Patriots mission on defense: 3-4 stops. That could be turnovers, punts, or downs. There will be no repeat of the dog poop "prevent defense" (it only prevents you from winning) to slow drives down like in last years AFC title game.

Have a good night.


Anonymous said...

Willy Wonka and The Chocolate Factory is one of my favorite movies.(Gene Wilder is my hero!) I know this is going to sound odd but does anyone else think the CNBC female anchors are hot? Maria Bartiromo & ERIN BURNETT can give me market reports all day long!!!

Well everyone I am out sick and don't have TV at home so I missed all the squawking so here goes.

Everything is FAKE.

The people that we watch on TV in the movies are all fake personalities (actors). So would it be a stretch to say that the things they say are also FAKE? I mean when I am at a party and some guy starts talking about investments and mentions how much he likes Jim Cramer my remaining hair falls out!

When the cookie crumbles and the dust settles we will see who's left and who blew away in the collapse. A solid weekly 4 hour program is over at Those guys have a great program and hit the nail on the head so consistently it scares me.


PS Keep up the great work and I am starting to like the conversations with the other posters/members.

Anonymous said...

Well everyone I am out sick and don't have TV at home so I missed all the squawking so here goes.

The best thing to do to a TV is is throw it out in the street and hang some garlic on it. I would probably shoot it a couple of times with silver coated bullets for good measure.


Anonymous said...

Ah you made my night!!! Hope metals drop Friday and the weekend is quiet.

Be safe everyone.


getyourselfconnected said...

Glad you had seen the original Willy Wonka, Anon G. I expect today to start a little shaky, but the market should rally. The dollar is taking another dip this morning, so the stock market will go up. (Dollar devaluation vs asset class inflation from Minyanville. Almost all channels today have hottie woman as anchors/hosts. I can't find the study this morning, but a study of over 10k people, both men and women, responded strongly to atttractive females on news shows. They needed a study for that?
Have a good day.