Observations on the Groundhog Day Market

Submitted By Trader Mark
Let's go over some observations on what has now become a fully subsidized economy and stock market - taking from the future to push up economic activity and stock market values today.

(1) First, a housing report came out today ... let us say we were shocked. Just shocked I tell you about the results. I mean when the same exact data point happens 32 times in a row, it is right to be shocked and drive the stock market up on the "incremental new data point". Because as we know the stock market is efficient ... so efficient that random bloggers can predict what is going to happen days in advance... as we wrote in our weekly summary.

Looking at the economic calendar for the week; even MORE housing data that we can be "surprised" by - I use the exact same quotes each of the past few weeks around the word surprise because I continue to be amazed we can be surprised by the same news each and every week. Tuesday we can be suprised by Case Shiller index & Wednesday we can be surprised by new home sales. Just remember, whatever the news - be surprised and buy stocks in joyous rapture.

(2) There was another consumer confidence survey today - unlike the one a week and a half ago, this one surprised to the upside. As we wrote Sunday, please act shocked ... and buy stocks.

Tuesday brings us another consumer confidence survey - however if its bad we WON'T be surprised since we just saw one a week ago Friday, hence you can buy stocks on that too - even if it's bad.

Boo yah - 2 for 2.

(3) Back in March and April I was noting how much of the moves in the market were overnight. Day after day we'd see S&P futures negative at midnight but between 7 AM and 9 AM they'd almost always furiously rally as "someone" wanted to buy the market to such a degree that they did not care about what price they would pay. Many days it was in excess of 1%. You see dear reader, if an institutional money manager wants to buy something he doesn't want to actually move the price... that only hurts his profits. Only one institution in the world really would want to buy in such a manner day after day after day, in a way that would drive up the price. An institution that is not viewing it as an investment but simply a way to inspire confidence. You can figure it out. Whatever the source of said buying - we are now seeing that same pattern but instead of overnight it's happening every day now in the first 30-90 minutes; almost at a 80%+ clip the past month.

In fact as I watch the market the past 3-4 weeks intraday it feels like an airline flight. We ascend up at the open (who is so eager to buy this market day after day in that hour and a half?), reach altitude by 11 AMish... then do nothing almost every day between 11 AM and 3:30 PM [The Dead in the Middle of the Day Market] as the high frequency traders milk this system. Then the free for all happens post 3:30 PM where your heart starts to race as you see the runway approaching and you always think of the worst (aka "my gosh the stock market might actually fall today!") ... but it almost always works out "correctly" and you land safely ("ahhh, another day in the green").

I .. and apparently everyone has.. has complete apathy between 11 AM and 3:30 PM. All the market does the past month, almost every day, is ping pong back and forth in a tight range after the "morning push". The "trend days" from 6-8 weeks ago have been replaced by snooze fests. Until the landing strip is in sight of course at 3:30 PM. Speaking of which.... its noon ... zzzz...

(4) What a market... what a market. I look at the market in 4 week increments - and the first 7 days of this "period" is already approaching 60% of the gains of the previous 4 week increment. Which in and of itself was the 2nd best period of the year - only trailing the "reverse off the March 6th low" period. It might feel like a helium balloon at this point as we're up nearly 20% in 6.5 weeks, with nary a pullback of >2.5%. But as always, if you look under the hood it is not quite so pretty. Speaking of those high frequency traders - volume is pathetic nowadays; it is like X amount of computers are trading with another Y amount and that's "the market". Even worse - look where the volume IS. Yesterday I read 20% of ALL volume was in FANNIE MAE and FREDDIE MAC. 2 stocks... making up 20% of all volume? That's a stock market? And THOSE are the 2 stocks? Last Friday 40% of ALL volume was in 4 stocks: AIG, FANNIE MAE, FREDDIE MAC, and CITIGROUP. My gosh - look at those names. What sort of developed 1st world country has 40% of its volume in those stocks? I know what type - the type where computers are just running the same stocks up and down, in a tight range (see previous post) all day. This is what we've developed in the US of A.

(5) You think I am being facetious when I say this is a subsidized economy and stock market. A cogent case can be made that of those 4 stocks that dominated volume last Friday than ZERO of them should even have common stock trading. In the old US of A, when a company defaulted, the company would go bankrupt. And the stock would stop trading. But we have a new paradigm; the government supported system - throw $200B at AIG, throw $100B at Fannie, Freddie, throw $300B at Citigroup - make sure NONE of the bondholders take a hit, and let the stock speculation continue on. So for the low cost of $600 Billion we now enjoy the "payoff" - thank gosh for that because if not for that $600B, 40% of last Friday's volume would not of existed.

(6) I spent some time scanning the financial blogosphere last night, specifically stock oriented websites - and I could find almost no bloggers short. Granted, almost everyone now employs a momentum oriented strategy (buy high, sell higher) but the complete lack of bearish bent is interesting. Some are bearish in concept but have given up trying. That used to be mean something (in a contrarian way) before the US markets were subsidized...

(7) Turning back to the economy and it's subsidization I have no idea what is going on anymore since every economic report has been bastardized by massive waterfalls of money. Industrial production up? Really? Is that what happens when I stoke auto production via handouts? Yes. But what now America? We wake to a new dawn on car dealerships this morning... my expectation is the next 8 to 12 weeks car dealerships will not only be back to pre cash for clunkers level but worse. Since we brought in many months of demand into a 4 week orgy. I can almost hear the drumbeats (circa Thanksgiving) demanding a new cash for clunkers program because dealers are suffering. Extrapolate that example to our entire economy - where the government is doing handouts - we see "green shoots galore". Where they are not - we see the truth. It's the subsidized economy and let me tell you Wall Street loves it... Wall Street could care less about long term costs; it just wants the "awesome" gains today from layering on more debt onto the future generations. They lauded Alan Greenspan for all the steps he took to try to erase the business cycle - and give them nearly free money in the process to speculate. He was the Maestro... for the NYC crowd. Unfortunately for Main Street there was a price to pay for the emporor having no clothes

(8) Speaking of which, the announcement came down from Mount Olympus that Sir Bernanke will be reappointed. I am flabbergasted the stock market did not gap up 5% on this news. Bernanke is Greenspan 2.0. When Wall Street barks, he jumps. Because the last thing you want to do is "upset the markets"... that would "wreck confidence". I am not picking on Bernanke specifically - it is the whole institution and concept. The brainwashing we've undergone - where we think a "group of wise (wo)men" sitting in a room together once every 6 weeks, pulling levers and pushing buttons to direct an economy, is correct? Didn't we call that communism / socialism in the day? Central command directives? But in the Fed's case we applaud it, and worship the players in fact. They are so wise! Even though they completely missed this downturn and even when faced with it said it was "contained" in 2007. They said unemployment would "jump" to 6% in 2008... they said... ah nevermind. All I know is when a regulator completely messes up - the sensible solution is to expand their powers. Which we are doing. If it's Ben or Larry or Tom the plumber... it is irrelevent. The Fed is the bank to the banks, and it is acting that role. Everything it has done has been a godsend to the banks - so on that charge they have fulfilled their mission. Wall Street should be thrilled it has a bigger, badder version of Greenspan now - a person who promised 2 years ago almost to the day he would not bail out institutions from bad decisions. Then spent the next 2 years furiously doing the opposite. Reward that man.

If indeed you live on Main Street you should not be so joyous. Well I should couch that - if you enjoy spending over your head and borrowing you should be thrilled. Especially if your vision for the future lasts out no longer than 18 months. You can borrow money at very low rates - our "lever of prosperity" (leverage) remains intact. If instead you either (a) care about the future out past 18 months or (b) are a saver - you should be crest fallen. Point (a) speaks for itself in the myriad of posts we've put up over 2 years. Much like Greenspan was once lauded, in fact worshiped at the time - because he made Wall Street hum and Main Street spend... without any fallout.... so is Bernanke today. But mark my words, when we look back in retrospect and the current bubbles forming burst in the future - the same opinion of Greenspan will be handed to Bernanke. For point (b) I am just sorry to say - the days your parents or grandparents enjoyed where savers were rewarded in this country is over. And has been for a decade+. Putting money in a CD and getting (gasp) 5-6%.... we cannot do that anymore. Because your fellow citizen is NOT a saver - he is a borrower. And the majority rules.

And let me put out a special note of condolence to the last group - he in the bottom 30-40% of America. I realize you don't read this blog, because it would be fanciful for you to actually have money saved over to invest with your jobs being shipped away, and inflation eating away at your buying power year after year. But I'm sorry to say that the man reappointed today first and foremost wants to make sure your cost of living increases even further. Sure, if one makes $60-$80K its not really much skin off their nose to pay 8% more for healthcare, 9% more for university, 4% more for food, 7% more for energy. But since the median wage in America is $36K and you Mr. 30-40% of America are obviously below that - Ben Bernanke and his institution ... so lauded by Wall Street for the speculative fervor they constantly fund, is quite possibly your worst enemy. Unfortunately you will never see this but I will be thinking about you in the years to come as Wall Street roars with glee over the success of the new bubbles the Fed is creating. There is a cost to said glee, and you in the bottom third will feel it most directly as the powers that be are hell bent are maximizing the most regressive tax on the consumer there is.

Until then - hey the stock market is up, and as you know Mr/Mrs Bottom 30-40% "Wall Street = Main Street" - a market rallying means good times are here again. Surely you know this even as you don't have time to read the blog as you try to survive the day to day. See you at the used car lot - what's that? Used car prices have gone up due to taking 750,000 of the cars you used to buy off the market? Oh well, the economy is not run for you. Sorry.

(9) Swine flu. I was shocked to read yesterday that half of America might be hit with Swine Flu in the coming season. Black Swan? Who knows - depends on how prevalent and what version we get. Another story I read said some universities are segregating entire dorms just for future swine flu victims. Knowing how the US media works, this could set up for quite a mania... if indeed anything serious happens on this end, I can only imagine the hysteria. Won't be quite so bullish for consumer discretionary - retail, travel, and the like. Might even hit GDP although "Cash for Swine Flu Victims" would surely follow.

(10) China down 5% overnight before rebounding to only fall 2%. Not a problem. Baltic Dry Index all the way back down to early May levels despite a few trillion dollars spent by worldwide governments to create prosperity. Not a problem. (Insert any issue here) Not a problem. The Fed has it covered... see point 8.

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