No QE, No Rally?

CalculatedRisk has an interesting chart:

The chart is suggestive that the end of the bond purchases related to QE2 may correspond with the end of the stock market rally, as it did — or appeared to — at the end of QE1.

I believe nearly anything is possible, but my best guess is that the timing of the bond purchases themselves have no relevance. They exist in plain sight. The market moves on expectations not actualizations. For instance, compare the point where Bernanke hinted at QE2 vs. the actual announcement. The announcement got a blip, but the overall rally clearly began with the rumor not the news.

Second, I’m not buying that the end of QE1 and the coincidental decline in the market was more than coincidental. That timing also coincided with trouble in Europe which pressured the dollar to rise and hurt the U.S. recovery. Ideally, Bernanke would have mentioned QE2 last May instead of September in response to the pressure Europe was putting on the dollar. Hopefully, if we see renewed pressure on the dollar to strengthen due to Europe or anything else, Bernanke will step in immediately this time and not wait for a junket to Jackson Hole.

I remain long this market and plan on viewing any significant decline before or after QE2 expires as a potential buying opportunity.

As always, don’t ever take anything I say as investment advice.

Never Forget: the Market Is a Motorhead

The mistress loves her own drama — and immediately grows bored with it.The VIX has dropped like a pebble since mid-March. It’s as if everything has changed, yet nothing has. The world remains a dangerous place. Charlie Sheen has retaken the headlines.

I remain a man who’s forced to keep an eye on the price of oil. Higher oil is our number 1 buzz-kill threat. Nothing bores the mistress more than an empty gas tank.

Wall Street Is in the Marketing Business. Finance Is for Accountants.

Sometimes I think Ren Tech is the only hedge fund worth a shit. From NYT:

In fact, the hedge fund industry as a whole did not do better than the stock market last year. The HedgeFund Intelligence Global Composite Index, which tracks nearly 4,000 hedge funds around the world, had a median gain of 8 percent in 2010, trailing the 11.7 percent rise in the MSCI World Index of stocks and the 12.7 percent rise in the Standard & Poor’s 500-stock index.

Commodities Up on Final Four Expectations

Checking my portfolio midday and, as usual, the financial headlines disorient me. Everywhere the *story* is that oil is at new highs because the war in Libya is suddenly going the wrong way (whatever way that might be). The S&P is down fractionally, so I’m surprised to see that my well-diversified portfolio is up over 1%. How can this be? What about the war in Libya, my stocks? Don’t you care?

What I notice immediately is that not only is oil up big, but so is every other commodity and so are emerging markets and so are my big tech investments. To me this means the story of the day is that global growth expectations have turned more bullish, not that the markets give a shit about which group of assholes in Libya are winning at the moment.  Like myself, I suspect the market has a wait-and-see attitude toward the outcome in Libya and isn’t quick to choose sides.

So I don’t come across as a complete jerk, I’ll point out here that I sincerely hope the rebels in Libya turn out to be good guys, particularly if they seize power, but I won’t pretend I know for a fact that that is the case at this point. That the war is proving more complicated than officially expected by official sources doesn’t mean it’s proving more complicated than reasonable market participants expected. If the war is pushing oil up over 2% is it just a fucking coincidence that agricultural commodities and industrial metals are up over 2% today also? Would it be blasphemy to suggest that oil is moving up because of global demand not your stupid fucking war?

Perhaps my intellectual detachment has suffered a setback today. Let me try to be more reasonable and suggest a CNBC friendly reason why commodities may be up.  First of all,  there are some important technical levels and bullshit bullshit bullshit there are 200 day moving averages bullshit bullshit bullshit and there is a historical correlation on the Thursday before the Final Four when a Cinderella story from Virginia is playing and commodity prices…  Bingo! There’s your story! Pay no attention to the razor wielding Occam behind the curtain.

Are Fewer IPOs Good for Bulls?

Fewer companies are choosing to go public these days and are instead opting to raise money through  private equity.  There have been some complaints that this trend will prevent the average investor from participating in the growing wealth of the nation. I find that narrative dubious. First, if there are fewer investment opportunities, the ones that do exist will get bid higher in value.  Second, if I’m right about my first point — and I am — private equity will salivate at the high valuations in public markets and launch more IPO’s.  I’ve got this theory that water always rises to its own level.

Groundhog’s Day?

Stocks up, bonds down, euro up, yen down, oil down.

Other commentators are talking about “key technical levels”. I don’t know about you, but I don’t care any more about key technical levels than I care about astrology. The mistress likes astrology, of course, but she won’t tell me her sign.

Another Straight Flush

Stocks up, bonds down, euro up, yen down, oil down.

The risk trade is clearly back.  What does it mean with all this worry in the world? It’s almost as if the market senses a put…

The Recession Is Over When I Say It Is – Pt 2

As far as I’m concerned, this is your economy:

 

This explains why you don’t have a job.

Thanks again to Calculated Risk for the chart.

 

Risk On/Risk Off and Do the Markets Have ADD?

Often these days I hear the expression “The risk trade is back on” or “The risk trade is off” meaning, in the case the risk trade is off, global equities are retreating as bonds rise while perceived flights to safety also occur in currency and commodities markets, depending on which currencies and which commodities are deemed safe this week. When the risk trade is “back on” everything reverses course, equities rise, bonds fall, etc.. We could say recently that the risk trade has been back on since March 17.

I find this view of things to be rather simplistic and therefore I like it. It got me thinking how there have been so many different events affecting the risk trade lately that there must be some overlap in the effects of otherwise independent events. What I mean by this is — to use some technical jargon:  say a “scary event” occurs in Japan and turns some risk trades off. Now imagine that at the same time a scary event occurs in the Middle East, which also turns some risk trades off. The triggering events may be independent but the markets and market participants are never independent. Therefore I imagine that two events of roughly equal scariness as far as the markets are concerned occurring simultaneously have say 1.5 times the impact of undoing risk trades as either event would separately, because of overlap. Meaning, unlike the 1, 2 knockout combination punch we might imagine such events dealing the markets, we actually end up with a net decline less than the sum of the parts. And if three scary events, say one in Europe, one in Japan and one in the Middle East occur at once, we get even more overlap in terms of risk trade impact.

You wouldn’t get that impression if you followed the play by play in the financial press, though. Journalistic rules necessitate the premise that the markets have ADD. Each new event eclipses every other event. The market behaves as if it were permanently stoned. It looks at Japan and says “Oh shit!” Then a few days later it suddenly remembers Portugal and says “Oh shit!” Then it suddenly remembers a war in the Middle East and says “Oh shit!” Then it remembers Japan again and says “Oh fucking shit!”

Stupid Financial Headline of the Day

From AP:

Oil drops near $105 on concern about Portugal

Apparently the new rule is that when oil prices rise it’s on concern about Libya but when they fall it’s on concern about Europe.