Jun
22
Vigilantes, from Victor Niederhoffer
June 22, 2008 |
One should interpret all this negative news as nothing more than the foundation for the Fed to do something very bullish for stocks.
George Humbert replies skeptically:
- During the BSC take-down, DC actors wished to inflict the maximum pain on equity holders. Is their bloodlust sated?
- It is an open question whether or not a given flow of rate moves and rhetoric can/will drive US equities. The Bearded One, foolishly, tried to talk up the dollar, and failed. He did succeed in wrong-footing the forward rate curve, triggering unknown billions in losses around the world. Is it likely he'd get stocks right?
- Are rallying equities in the Fed's interest? The one area where Bernanke has really excelled is in extolling socialist nostrums, providing rhetorical cover for State expansion, and specifically growing the Fed's book of administrative powers. Would not a Black Monday 1987 redux strengthen the case for more and more Fed control over capital markets?
- No doubt, looking back in time, the best equity returns followed doomsdayish dramas such as those we've seen in the past few days. I merely wish to note that the interests of actors inside the Beltway may be in a cycle more exceptionally inimical to capital than those seen in prior episodes.
Victor Niederhoffer notes:
Two other bearish memes before the Fed meeting: the Case/Shiller index and consumer confidence will be announced today (6/24). The latter is 100% correlated with S&P last month and the former is even more consistently bearish than the weekly financial columnist. But is this good or bad before the Fed meeting?
Comments
13 Comments so far
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I’m not sure WHY “one should” do exactly that, Vic…
One thing I note, of late: Commitments of Traders (C.O.T.) have indicated ever-growing appetite for risk on behalf of speculators. The carry-trade, totally extinct by Q1 end - is fully back on, just one quarter later. Specs are short Yen and long Aussie. Treasury safe-haven has been utterly abandoned: Open Interest in 2y, 5y and 30y Treasury futures is near 52-week low, 10y’s near 2-year low! Even most current C.O.T. released Friday afternoon: show Small Specs increasing their net long S&P futures and net short 10y Treasury futures positions.
Questions abound assuming the federal reserve wants to help the market rise, what steps would they need to take to do so. Paulson has been ineffective in jawboning the dollar so would a rise in the federal funds rate be in the future to shore up the greenback? Keeping in mind that the US real estate market is in dire straits notably California, and Florida the #1 and #4 most populated states in the country. Forget Ed McMahon middle america is facing foreclosures every day and the 3 year and 5 year ARMS have not worked their way fully through the system. Toll Brothers executive Robert Toll was interviewed on TV last week lamenting the fact that essentially his company was treading water and inventories need to be worked off which may take 10 months or more. The average price of a Toll home is $500,000. He says he communicates regularly with such other builders as Centex, KB and they are seeing similar markets. I know from my contacts that the publics view now is why should I buy this home now when it will be cheaper in the future. I will wait till they lower the price more. Or I will construct a short sale directly with the bank. There are many shoppers but intermittent buyers.
Financials continue to be mired in losses. Merrill reported last week and the stock is way down to the mid 30’s. I sold my Merrill last year at 93. They are in the midst of layoffs and early retirements. Citigroup is halfway through their layoff schedule. WAMU is in single digits. Even very high quality banks Fifth Third and Suntrust stocks are being hammered.
With summer doldrums and a malaise on the part of traders and investors. It is hard to see them exhibiting any enthusiasm to trade at this time and injecting meaningful liquidity into the market.
Politically, Obama leads in general election numbers but the electoral college math is very fuzzy. Critical swing states Ohio, Pa. and Florida are being watched and courted by the two parties. Even VA. is being included in the mix. Will the South rise again for the Democrats. Many questions abound.
sl.
Hi spec friends,
Normally i just read all of the interesting comments because i love the game but i am not nearly as good as anyone here.
But for me personally, not to be simplistic, i love when everyone is so negative. If you have the cash and time why not buy now? The only way ive ever made money is by going against. No one knows when the winds change and when they do we dont know until after the fact.
I live in Israel where the real estate market is very strong. I bought an apartment 22 months ago 2 seconds before the lebanon war. i bought in an area that had a not so good reputation, but i couldnt figure out why as its 3o minutes from tel aviv located on the mediteranean and my apt had a huge wrap around balcony, located next to a large shopping center with beautifull views of the mediteranean and surrounding mountains. Everyone without exception said real estate has been goin down there for 10 years your gonna loose your ass. I sold the apt 2 months ago with 3 bidders in the first week for a 50% profit. This area is red hot now.
Same with the NFL. I always recommend taking the team with a few bad outtings, they lost there qb the line goes up another 2.5 or 3 points and eveyone says there gonna get cremed.
so to me it seems like the same story, summer doldrums, elections, banking crisis,fuel oil crisis etc etc.
i just bought LVS and Wynn an industry i know well. Gambling has been around a long time and is expanding rapidly globally. Gamblers dont stop gambling but i here everyone talking about vegas is a ghost town, there gonna go out of business etc etc.
time tells of course but im always gonna take the opposite side of the popular opinion.
Best regards
The FED never leads the market in terms of foresight, instead its playing catch up constantly, therefore it simply can't do what you are asking for (even if they wanted).
Why not kill two birds with one stone?
The stock market generally seems to be responding negatively to two main things - the prospect of interest rate increases down the road (so why go up?), and the visible signs of distress breaking out as a result of high energy prices (e.g. truck plants closing down and airlines going back to their financial arterial-bleeding ways).
Politicians in the U.S. are already loudly sabre-rattling over high energy prices - and social unrest storm-clouds are building on the horizon around the world. What better way to come to the rescue of both “the consumer”* (I hate that term for all of its over-use) and Wall Street than have a go at evil speculators?
I think something’s cooking, and fairly soon we’re going to see some kind of announcement (or timed string of announcements) that tanks the oil market. Oil goes down, stocks go up … election can proceed.
Cheers,
George
* The other term that sets me off is “best practices”. What a crock of s&*t that is. Especially in the environment where it’s the most over-used and actually plays out as the exact opposite - government.
The banks need the handout of all handouts and that’s not going to happen unless everyone is writhing in pain. Whether the moment of max pain is days, weeks, or months ahead…it will come. The complacency in CDS spreads, VIX, P-C is the stuff that makes a bear salivate.
I have played both the long and short side of these markets over the past 12 months and I can’t get past the complacency I see to take any serious longs yet.
The Trichet/Bernanke double-team on steepners was pure evil!
This decade has rewarded fighting the Fed, maybe because we’re in a deflationary environment. A credit contraction, an economic contraction, and a financial market contraction are all deflationary if the currency is sound. Still no insider interest. http://www.insidernewswire.com/companybyofficers.php
For several months we have been discussing the Grey Man and what was it telling us. Rather than repeat those observations one can review that on this site. What value does research have? The old saw in a good market nobody needs an analyst and in a bad one nobody wants one. Goldman Sachs yesterday reversed their opinion on financials. They had a buy when the financial index was at 31 then they threw in the towel and issued a sell at 21. They switched their positive view to technology. Richard Bove, top banking analyst is now with Landeburg Thalman. My relationship with Bove extends back to 91 at Dean Witter and he tends to be correct, he just seems to be early. S&P/Case Shiller reflect grim results and pervasive:The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year. http://biz.yahoo.com/rb/080624/usa_housing_caseshiller.html In giving the appearance that they are actually working and not running for reelection or looking for steroid abuse in baseball, Congress with the lowest approval rating possibly ever, is working on nine bills to try and help bring down oil prices. None to my knowledge include offsore domestic drilling, opening up ANWR or approving new nuclear facilities/oil refineries. To Mark's question if you have the money and the time, that is true go long. The question becomes do you have the stomach to endure. From 8-00 the market went straight down from 1500 on the SPX to 10-02 when it hit its nadir of 800. It then made a bear rally and fell back to 800 on 3-03. From there it made its 4 1/2 year run to 1550. 7 years to get back to the beginning. Remember Keynes famous quote about markets staying irrational for long stretches of time. My only rhetorical question is how is it that the Wall Street executives like Thain justify $50M in compensation while stock drops by 2/3.
plunge team ordered into the market at 13k, reading this as fomc hawkish tomorrow.
If one extrapolates the recent trend in the BKX (bank index), the market cap of all US banks will be zero by October 9, 2008.
For those inclined to Martingale theory, this seems to be a good opportunity on the long side. No prediction. Just a fact. Oh, and be sure to size your positions appropriately. We really could be at ZERO!
Rocky,
I tried a martingale type strategy in craps once in Vegas. Did great in theory and in testing, but not at the tables - go figure …
Cheers,
George
The way which can be taken, is not the way.
Federal Reserve issued their statement and left interest rates alone, as most anticipated. There was one dissenter who wanted to raise rates. I watched CNBC and a plethora of wonks came out to debate the news including Bill Gross, who suggested the Fed was jawboning and has no intention of doing anything with rates until the end of the year. Another had the quote of the day: "There was nothing in it for everyone." sl.