If you still wonder why Occupy Wall Street is getting more supporters by the day…
Gallup surveys in China and the U.S. reveal Chinese are struggling less than Americans to put food on their tables. Six percent of Chinese in 2011 say there have been times in the past 12 months when they did not have enough money to buy food that they or their family needed, down significantly from 16% in 2008. Over the same period, the percentage of Americans saying they did not have money for food in the previous 12 months more than doubled from 9% in 2008 to 19% in 2011.
Below daily chart of SPX. Note how the index makes turning points, with tails at “extreme” levels. As we wrote earlier, this is a mean reverting market, and today might just have been that reversal day, so many shorts have been praying for, but now majority have covered. The ones doubling down all the way up, will cover at the first move down, so we could expect fast moves to the downside. Welcome to Greed and Fear Market.
While the shorts struggle, some of the FED members are thinking of QE3….
Meeting participants expressed a range of views on the potential efficacy of policy tools tied to the size and composition of the Federal Reserve’s balance sheet. Many judged that these policies could provide addi- tional monetary policy accommodation by lowering longer-term interest rates and easing financial condi- tions at a time when further reductions in the federal funds rate are infeasible. However, a number saw the potential effects on real economic activity as limited or only transitory, particularly in the current environment of balance sheet deleveraging, credit constraints, and household and business uncertainty about the econom- ic outlook. Participants noted that a SOMA maturity extension program would not expand the Federal Re- serve’s balance sheet or the level of reserve balances, and that the scale of such a program was necessarily limited by the size of the Federal Reserve’s holdings of shorter-term securities so that it could not be repeated to provide further stimulus. A number of participants saw large-scale asset purchases as potentially a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted. Some judged that large-scale asset purchases and the resulting expansion of the Federal Reserve’s balance sheet would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated.
Full reading FOMC minutes.
Markets surging yet another day. Many “smart” shorts have been brutally run over by the bulls during the past week. SPX is still within the trend channel we outlined a week ago, but as we start hitting some decent resistamce levels, it could be time to put some shorts on. Remember, this market is still in Mean Reversion Heaven.
|In the course of our research many reporters and industry professionals have asked us to define what a “Mini-Flash-Crash” is. We cannot think of a better explanation than the event shown below. Furthermore, while usage of the term “Mini-Flash-Crash” is now discouraged by regulators, we also cannot think of a single term that better describes the event.
On October 11, 2011, the stock AMJ plummeted from $34.90 to $32.61 (a 6.5% loss) and then recovered, all in just under 4 seconds. This was not an event caused by news or a fat-finger error.
Guest Post by Macro Story.
- From a book on Jesse Livermore’s trading style
Without a doubt one common similarity between the current market and the fall of 2008 is heightened investor emotions. There are plenty of other similarities from bank nationalizations, a deteriorating global economy and government intervention.
There were wild swings and volatility that whipsawed traders out of positions and saw paper profits appear and disappear in very short order. Traders then as they are today were simply exhausted and decisions were more influenced by emotions than macro data, technical analysis or convictions.
- For long-term investors, meaning those prepared to stay invested for three, five and even 10 years, who can endure volatility, we believe equities can offer attractive returns.
- In an extended period of slow economic growth and deleveraging, interest rates are likely to remain low. Actual income generation from investments is important.
- Hopefully society can institutionalize the lessons from this crisis so that future generations don’t repeat it: Individuals, corporations and countries should only borrow to fund long-term investment, not current consumption.
Let’s consider how equities offer returns to investors and see what markets today are telling us:
With investors focusing on more or less irrelevant news out of Europe, regarding whether Slovakia, Malta or some other irrelevant country will vote on the EFSF or not, one risks of losing sight of what’s going on in other markets. Despite our bearish stance, we warned of this squeeze a week ago. Cheap or expensive, markets move aggressively in short time frames. SPX is reaching some short term resistance, but look out for a squeeze in China.
We would like to point out China’s strong performance overnight, where index put on a 3% gain. Note how the big formation has reached the long trend line, and we can expect further gains. Compare the two charts below. Last time food price index took a dive (circle), the Shanghai index put on a close to 30% gain in a matter of weeks.
Quick Market Update. Market focus will be shifting, out of EFSF votes by Slovakia (who cares), to other subjects. With many “smart” people overly bearish, this market has more legs to the upside. With low volume HFT melt up trading taking place, shorts will cover in panic. We clearly see how all risk assets correlate and move in tandem. For a more detailed picture of charts, check UBS’s Technical Research posted yesterday. Buy the dip mentality is here for some longer.
Morning risk on charts below.
The below chart shows a pair trade gone very bad. No wonder Occupy Wall Street is flourishing. From Sentier Research.
Real median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009.