This Market Is Artificially Being Held Up And Ben knows It's true

March 27th, 2012
in Gary's blogging, midday post


Midday report. The DOW and the 500 have remained flat today on low volume. The DOW is at 13242 and the 500 is at 1417. WTI oil is at 107, Brent at 124, gold at 1684 and the USD at 79.22. SSO is at 59.02 and SPY is at 141.52.

The problem with everyone's predictions lately is that they are built on non-validated data because of low market volume. There isn't one single person out there, outside of Dr. Ben and some very high level money managers, that know what is going on or what is going to happen. Most of the price and volume movement we have seen over the last 2 months is coming from the HFT crowd and their manipulation.

I see the market correcting "someday", but when is anyone's guess at this point. Right now, it seems, investors and traders alike are hovering and waiting for a Black Swan event. None of my colleagues are doing anything but sitting on their hands – waiting. When the pull-back does happen then you will see the 'true' levels of the markets, but until that time in space you are guessing like the rest of us.

Buying or shorting should ONLY be done during the current session and settle for whatever meager profits you can glean from a 'fixed' market place. At some point in the near future, there are going to be a lot of folks that are going to get burnt VERY badly. That point may be as close as next week and then the buyers of today will not be able to catch the falling knife. 

The Gap Between Reality And Consensus Is Growing Fast

With today's less than stellar consumer confidence number and continued path of missed expectations on key macro data over the past few weeks, it is perhaps wondrous that our brain-trust of analysts and economists continue to forecast higher expectations across the board.

While this may not come as a surprise to readers used to comprehending the magic of the Birinyi ruler's extrapolation and the inevitable and clockwork 'miss' of turning points of any and every educated talking-heads model, this chart from Deutsche Bank's asset allocation group should contextualize where we are actually versus where LaVorgna and friends see us going.

The sad truth is - we have seen this play out again and again and as the printing-press-pressure drives up asset prices (providing confirmation bias upon anchoring bias for any and every economist or long-only manager quoting the 'recovery' or decoupling), the truth is that as prices (and expectations) distend from value and actual reality, the central bank's efforts to 'maintain' the status quo simply create a larger and larger vacuum for asset prices to fall through when sad reality is finally peeked.


The market today is artificially being held up and Ben Bernanke knows that. Sad, very sad indeed.

Fed Policy: Bernanke Is Warming Up His Helicopter

“Economists cling to statistical data like barnacles in order to have some kind of anchor to explain what is going on in the world. They will try to cram the square data peg into the round holes of economic "laws" rather than abandon them when they are obviously wrong. Which is not a very satisfactory way to explain things. You might begin to think the data you measure is just coincidentally correlative for the period measured if it falls apart at some point. Instead of trying to stretch the data into what you think it should be, then maybe you might think that you've got it all wrong.

Chairman Ben Bernanke is not letting a data inconsistency get in the way of his prior conclusions about unemployment. In his speech today, he says that he's not sure why we have such high rates of unemployment, some may be just cyclical, some may be structural, but whatever it is the Fed will be available to print money to "support demand and for the recovery." Somehow QE1 and QE2 were not enough.

Bernanke Decrees: Gold Rips, VIX Slips, And Volume Dips

Gold managed a 1.8% surge [yesterday] (back above $1690 and its 200- and 100-DMAs and its largest jump in 2 months) from Friday's close thanks to the combination of the ECB on Friday and Merkel and Bernanke today assuring the world that anything more than a 2% dip in stocks will not be tolerated.

While Silver outperformed Gold from Friday's close, based on its 2-3x beta of the last year this was a notable 'underperformance' as Gold outpaced everything (beta adjusted). Perhaps importantly, the S&P 500 when priced in gold met and rejected resistance at a key level [yesterday] - even with its nominal 30pt rally off of Friday's S&P lows. Volumes were abysmal with stocks well below YTD average and the S&P futures 20% below average and among the lowest few days' volumes of the year.

Credit markets did not participate as exuberantly (though HY outperformed IG as you would expect) but the day seemed split into 4 segments: pre-Bernanke (quiet/sideways), Bernanke to US Open (rampfest, Gold outperforms, TSY rally), US Open to EU Close (TSY selloff notably, equities sideways, Gold rips), and then from EU Close to US Close (Equity/Gold/TSY rally as USD leaked lower).

In FX, JPY was relatively stable at its lows after Bernanke's speech as the rest of the majors strengthened versus the USD (as EUR broke above 1.3350 once again). Oil managed a small rally on the day but underperformed the USD's 0.5% weakness from Friday as Treasuries were very flip-floppy today - ending the day with a small twist around 7Y (30Y +3bps). VIX made new lows and closed there as the term structure flattened further to its flattest in almost 4 months (with the largest six-day flattening in 8 months).


Written by Gary

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