Wednesday, November 28, 2007

WTF Wednesday

I just bought the Comcast NFL Network. It is $4.99 for 3 months, then $7.99 if you keep it after that. It comes bundled in a Sports Package that includes soccer and speedvision. I do not really care for any of that, but I really want to see the HUGE game tomorrow night between the Green Bay Packers and the Dallas Cowboys. Does Brett Favre have a big game left? I believe he does, and the game tomorrow night promises to be a great one. So $15 for one game? I did it. Stinks it's not free though.

WTF Wednesday
Today was one of those days that I got to look at the market from a distance. First, I was in meetings all morning, and second my computer was being upgraded the rest of the day. I had no real time information about where the markets were or what was going on until the ride home. The local news read off the closing numbers, and I shut it off before I heard any analysis so I could think about what may have caused the ripper today. Here's what crossed my mind as possible causes:
  • Existing home sales posted some wonderful number (it would be revised away later, but hey)
  • Some weird country invested some amount in Countrywide
  • Some FED head went out and stated more rate cuts on the way
  • Another Warren Buffet rumor

That's a list of my usual suspects. I came home, ordered comcast NFL network, and then hit the headlines:

AP

Stocks Soar Along With Hope for Rate Cut Wednesday November 28, 5:42 pm ET By Madlen Read, AP Business Writer
Stocks Soar, Dow Gets Biggest 2-Day Gain in 5 Years As Investors' Hopes Grow for a Rate Cut

Well there you go. A rate cut on the way! Whooppeeee! A rate cut is already priced in by all indicators, and a "forward looking" mechanism like the stock market saw something today that was surprising? Color me unimpressed. I read on:
NEW YORK (AP) -- "Wall Street barreled higher Wednesday for the second day in a row, giving the Dow Jones industrial average its biggest two-day point gain in five years after a Federal Reserve official hinted that the central bank may lower interest rates again.
Investors' renewed hopes for a rate cut added to their relief that companies that made losing bets on subprime mortgages, such as Citigroup Inc. and Freddie Mac, are coming up with ways to raise cash. The market was clearly optimistic that at least some of the damage from the months-long credit crisis was finally being mitigated."

There it was in all its beauty, a hinted rate cut and off to the races. Did the hawkish testimony from two FED heads yesterday really scare anyone? I love the "coming up with ways to raise cash" line as well. I guess selling off 5% of the company is a good thing? Diluting shareholder value is a way to make up for losses? Cutting dividends is a great move? I digress, and move on:
"The market's perception of whether the Fed cuts or not really changes by the day," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "We still have more data to come."
"Plunging oil and gold prices also lifted investors' hopes for a rate cut -- if inflation is in control, policy makers have less reason to keep rates high. The Fed's Beige Book of economic activity around the country said with the economy expanding at a reduced pace, most core prices are stable or down slightly."

Perception changes by the day huh? Ok. I love the "plunging oil and gold" line. Oil goes from $95 a barrel to $90, and Gold moves from around $820 to $800 and that's a huge hit? How come when Oil and Gold are rising, that has no implications for inflation, but when they go down inflation must be moderating? If you can answer that one you are one of the few, the proud, the mentally challenged wall street collective.

What was curious today is that a rate cut was not seen by the dollar or by gold. This is a very recent divergence, and honestly I do not know what to make of it. To borrow a term from the always wonderful Minyanville community "Dollar deflation and asset class (stocks) inflation" has been the standard for a while. Again, the three possibilities are:
  • Rate cut(s) already fully reflected in dollar/gold price
  • Rate cut(s) are not going to happen on the 11th of December
  • Massive manipulation is occurring in the currency/gold markets to set up said cuts

I have a new poll question up which asks you the readers this question, please vote!

As the title of this post clearly states, today was WTF Wednesday. The volatility of this market is extreme right now. No rational participant, thinking clearly saw anything market moving today, yet another massive rally ensued. The market went up because it wants to go up. I know that's simple, but I also think its the plain truth. The end of the year is going to be wild.

On a closing note, I see from the traffic counter that I get quite a few hits here. By all means please leave a comment! I need feedback ti improve the site, and any help is appreciated. Also I am always looking for post ideas, so let me know what topic you find interesting and I will do my best to bring in some content.

Have a good night.

5 comments:

Anonymous said...

"What was curious today is that a rate cut was not seen by the dollar or by gold."

This may be due to Japanese intervention on the Yen and a re-starting of the carry trade, also part of it is just good old fashion profit taking. All of the currency's, gold and oil have had tremendous runs and no tree grows to the sky. The equity markets were also over sold and had large short positions so it didn't take to much of a goose to get the short covering going. I think most market participants have already baked a rate cut in regardless of what they say how ever when they do cut the correction in gold and oil will be over and I imagine they will take off to test the old highs. If the FED does in fact not cut rates this correction in commodities has just started.

Just my HOP
Kevin

Anonymous said...

I really like your site. I try to stop by daily. I think a lot of your comments are right on.

Debbie said...

I love your blog. Sorry I haven't commented, yet. I was trying to select an option in your poll and was unable to do it... they're all plausible, but I have this feeling that something big is playing behind the scenes that us little peons can only guess at, let alone predict. I moved on to the next blog I read every morning and he has a really interesting take. I'd love your opinion of this: http://www.oftwominds.com/blog.html
Anyway, it all makes me feel like a tiny little shrimp bobbing around in an ocean of sharks, you know?

Anonymous said...

Credit conditions are far tighter than they were before the Fed began cutting interest rates, and financial markets are warning of real economic damage. The Fed must act quickly to avoid a recession.

http://www.bankcreditanalyst.com/public/index.asp

These guys are usually pretty accurate in the years I've been following them.

Kevin

getyourselfconnected said...

Welcome Debbie. I am ecstatic that you stop by to read. I read Charles Smith's blog every day. He has a wonderful writing style that can easily explain complex issues in the economies today. I envy his writing skills very much. I get the same feeling that you have sometimes. It is like when you go to a carnival and play those games to try and win a small stuffed animal. You know the games are rigged up front, but you play anyway for the fun of it. It seesm lately like the markets are rigged, but its not so much fun playing. Please check on back.

Kevin,
great site recommendation I will check it from now on. I think you are probbaly right about the gold/oil/currency situation. The 11th was not a big deal to me a few days ago, now it has a larger weight in my mind. Always interesting.
Thanks to all for commenting.