Waiting for Goodanke

Markets are waiting to hear from Bernanke to see if he can establish a safety line which will remind everyone that all is not lost if and when any dismal economic data appears. This is of coarse a fall back strategy appropriate for the Fed's place rather than a forward attack plan which one might think would come from the current administration. Treasury has been hoping all previous measures of support would do the trick especially given the estimated 1.2 trillion dollars of liquidity provided by the Fed in loans to banks in this country and abroad primarily in 2008 and 2009.

Knowing the world depends on continued massive breast feeding from the Fed to hold together economic order is unfortunate but a reality. Normal business growth seems to be threatened by a world banking system flush with public funds but little from enterprises big and small which create jobs. These public funds provided to banks are apparently for their use only thanks to the continued cash flow from lobbyist representing the financial industry.

As for trading, more positive market internals are healing the broad indexes although tech sensitive indexes have a more bearish construction. Tech is experiencing an aging process but still attracts the same interest as other puzzling investments such as gold. Google's purchase of Motorola is an example of how the large techs look to become utilities of commerce as opposed to innovators or inventors.

Fed Starts Clock

Fed seeks exit from ‘new normal’ economy

By Barry Wood

WASHINGTON (MarketWatch) — The commitment by the Federal Reserve last week to hold its short-term interest rate at the current near-zero level for two years was a bold move.

Knowing the Fed’s aversion to setting specific time frames, former central bank official Joseph Gagnon says he nearly fell off his chair when reading the statement. “I thought it must have been a typo,” says Gagnon, now an analyst at Washington’s Peterson Institute for International Economics.

There are two main messages from the Aug. 9 move. First is the sobering but honest assessment that the economy is weaker than thought only six weeks earlier. The Fed’s forecast of 3% second-half growth has been thrown out the window and a new assessment is being prepared. Secondly, with more fiscal stimulus unavailable, by committing to two years before short-term rates rise, the Fed is pushing harder on its own stimulus pedal to revive the weak economy, especially the long-depressed housing sector. (more.. entire article)

Up Sideways

Markets had big action last week which certainly looked like exhaustion selling. The technicals, while vastly improved for the 500index, are still lousy on the NQ100 side. Fed has answered the bell again for corporate accommodation although banks may have a tough time working any profits out of the flattening yield curve.

Today's rally action is a part of a story of a world where there is no big growth for business but stocks with dividends will provide at least a yield alternative to treasuries and other paper. Higher stock prices will not do much for the economy as in years past as the austerity frenzy provides fewer jobs. Corporations will continue to squeeze operations in order to be competitive as demand will remain lousy.

If there is a Euro bank disaster then US markets will be looking at momentum plays eroding prices to test the March 09 lows. Hiding from falling equities would lead to the zero rate Fed scenario.

Sub Prime Review Credibility Test

Talk about screwing up a brand name. Standard and Poors, already suffering from a major credibility issue from its approval of all things sub prime, has almost guaranteed irrelevancy for rating agencies in the years ahead. Rating a business is one thing, but rating any government with the ability to print money, tax, and claim almost any property, is kicking a sleeping dog.

Taken from the various colossal business strategy blunders such as New Coke, the business heads of S&P may have believed by attacking U.S./Obama credibility, they might create a stronger voice among Republicans in the yet to be determined rules regarding the implementation of financial regulations of Dodd/Frank. Whatever the reason, both political parties will ultimately find it in their best interest to hastened the day where S&P will be legislated to a minor role in the credit worthiness review process for all business entities.

Fed will have to defend itself and Treasury regarding the S&P attack and will probably develop another all things easy for business plan as markets price adjust to the continuing debt rating issues.

Bailing So Easily

Market rode despair lower as world banking seems to taking a bit of hit. Imagine all those smart government subsidized bankers not being able to get figure out how to run a world with no job growth, no return on savings, and no margins to screw people.

TARP, the debt ceiling deal, and every pro business ruling by the Supreme Court, all been to the corporate world's advantage. It may be an oversight by investors to bail so easily, but being burned again seems so cruel. Ultimately, the best investments are not in cash and fixed income but in US companies who will continue to have a world of economic accommodation each time world economic order tilts.

Let's Get Long

Let's get long and volatile.

Jobs are few, stocks are down, no return on any money. Banks won't lend. Republicans look to start reign of terror over the next several years. TARP for banks and investment firms while it is austerity for everyone else.

Weakness in stock and index markets demonstrates just how vulnerable investments are today to stupid action. Gold keeps a bid as the dumbest form of investor climbs into the eventual giant bubble master deluxe gold fail-a-thon. Each day herds of gold bugs stampede up the lane to the top, merrily, merrily, etc. I thought ag bulls were the dumbest form of trader.

Jobs number on Friday does not have any fans, and in part, some of the Bear action has already been played in the first two trading sessions of this week. Stimulus by the Fed is being designed from some scientific invention which will be put into the food chain for economic consumption.

Chicken De Fault II

Continuing on the default scenario, business have an odd relationship with government. Big banks, investment firms, and the corporate world have relied on the government for business, innovation,(Nasa, government research at universities,etc), and of coarse bail outs. The mere fact of a potential governmental cutoff in payments to the world is going to create a trading market death dive possibility.

However you may be saved. A story yesterday in MarketWatch had a headline that Apple was better than Gold. Now that says it all. Performance in itself by two overpriced entities reflects the push of investment dollars into those lemming flow manias which have the least resistance to selling because of a psychology about their value. It is always about the money. Apple and gold share a racing card where choices are narrowed into the ever so human habit of trading on a popular concept. The concept for gold is that it is an alternative currency. The concept for Apple is that it will forever be without peer in producing gadgetry. Gold is a medal popular in making jewelry and no one will ever use it as a currency. Every Apple product has an already functioning substitute. Sell them both.

Given the appallingly low confidence the world has in its economic future it is no doubt that investors should believe that by limiting their choices to just a few stocks or commodities, they are avoiding making bad investments. All in is always all bad.

As for stocks in general, default is like catching a cold when your immune system is already compromised with another disease. The species will survive but you may not.

Chicken De Fault

Default by the US will make interesting case studies for all the econ/business folks. At first, markets will try to determine where the next information edge will emerge from any default/recovery trading or any almost default action. Secondly however, world economic confidence in US governance and its ability to grow a recovery will slow things a bit.

You have to admire the Republicans, which is always hard to do, but at least they playing the risk side edge to the max in order to place everyone in a game of political chicken. Now the game of chicken in game theory would not just be who blinks first, but also who loses the least when no one blinks and a true collision occurs. The Republicans obviously figure they will lose the least in a default although that runs against what news talk folks are saying. But they are probably right. Since the worst possible outcome in this game is default, the least worst, if you will, is for the party not in the White House. Voters will remember the event as a leadership issue which is why the president is working so hard to avoid the default. Fair or unfair, when you are at the top, they blame you.

Forget what Geithner and everyone else is saying about the default. Everyone will line up to get paid a bit later. If we have learned anything is the last few years, the power folks always get paid and everyone else feeds on watered down economic opportunities.

Where Happiness Lives

Apple knows how to make money and game expectations on earnings. As mentioned several times on BaseOp2, analysts covering Apple are always surprised by the powerful earnings which they themselves always seen unable to anticipate. There motto should be, " if its news about Apple, its news to us."

Anyway, the tech sector has the greatest brand names which makes it easier for the forever hopeful investor to give it a shot. Debt talks yielding anything which raises the national tab will be viewed as favorable with the market Bears turning again to the Euro Zone and US jobs. A foul up on debt talk would of course scramble the nervous and the market would be playing with an unknown radical factor with weird negative volume and volatility.

There are some unusually negative indicators in the stock indexes which have been running all year. This year more than ever, every trading house of size and experience is committed to the momemtum play, running money infront of each second of opportinity. This has created an odd techinical profile which holds extremely negative downside potential if energy from the momentum lemmings decide down is where happiness lives.

Total Investment Serenity

There is a virtual drug formula which now allows the investment in all things of great potential and the same time permits one to forget about any risk. This formula, while quite simply, has been worked on for several years now by various world financial institutions, each contributing their own great thoughts to enable its completion. This drug formula will not be unveiled in any grand ceremony nor by any particular group. It is rather meant to be plugged into a central computing network to bring about Total Investment Serenity. TIS true. No more worries ever again.

The first to receive this new vaccine against economic disaster is Greece. While several drug companies have filed patents on similar notions, TIS is an attitude not a real drug. It makes you feel as if you can invest in anything stupid. Roll it all on any social network or any sovereign country debt without any unpleasant morning after effects. TIS is particularly affective on Credit Default Swaps. When used properly, TIS will create a feeling, no an obligation, that all things financial should be saved. This break through is believed to help corporations who might have given you a job feel better and also has proved affective in trial uses on the other guy who actually got the job but lives in another country. Similar trials are now being done to see if TIS works on bringing home off shore income with no taxes.

Side affects may include nausea, empty account syndrome, foreclosure, dizziness, and rash judgement.