Baby, here we stand again where we've been so many times before
Even though you looked so sure as I was watching you walking out my door
But you always walk back in like you did today
Acting like you never even went awayHere come those tears again – Jackson Browne
What a rally!
Yes, we missed it. Though we've had plenty of long-term winners (see September Trade Review), we certainly weren't expecting this short-term pop in the face of all this uncertainty surrounding the debt ceiling. Our short-term portfolio lost $6,000 (down 20%) in the last week as we kept taking pokes at a possible sell-off that never (so far) came.
Bulls continue to hang their hat on continued Fed easing and there's the undercurrent of a celebration that uber-dove Janet Yellen will take the helm in January and, already, they are talking about MORE QE than the $85Bn a month that is currently being pumped in to support the markets.
As you can see from Dave Fry's SPY chart, we're falling into a daily pattern of getting a massive pump from POMO, the daily injections of Billions of Dollars in Fed Funds to the Primary Dealers like GS and JPM who, in turn, use it to manipulate the market and paint the pretty picture we see on the Big Chart.
Today is an extra big one – about $5Bn will be placed today as part of a $16Bn week in Treasury puruchases alone! Of course that's par for the course on option expiration weeks, when the Banksters need a little extra cash to hit their targets on Friday – regardless of the Fundamentals.
Speaking of Fundamentals, KO came in-line on earnings this morning with year/year revenues down 2.5%. Cost-cutting and share buybacks save the day for another mega-corp. DPZ missed their estimates but it won't matter on a pump day, nor will FRC's miss likely slow them down, even though it was .63 per share vs .75 expected and lower than last year's .72. STLY missed yesterday, LOSING .17 per share vs a loss of .13 last year and a loss of .11 expected and they went UP 3% – that's the kind of market we are in folks – everything goes up – until it doesn't. Why? Who cares?
JNJ just missed their $1.32 estimate by a mile ($1.04). Last year they made $1.25 BUT, excluding special items, they're hitting $1.36 and sales are up 3.1%, so I guess we have to give them that one, even though $900M of those "special items" was an increase in accrual for "litigation expenses" among other things and it's those "litigation expenses" that had us shorting JNJ earlier in the year but all they ever had was a mild sell-off and now they look firm above the 50 dma ($88.50) again.
C just reported and they missed by .02 at $1.02, also excluding .02 of "special items". Oddly enough, C will likely be punished for this – even though the $3.2Bn they earned is a darned site better than last year's Q3 of $468M. Of course the stock was only $30 last October, now it's $50, so the bar should be set a bit higher. Still, the company is well on track to making $4.78 per $50 share – nothing to sneeze at.
When the S&P was at 1,729 in mid September, XLF was testing $21. Now we have earnings coming in and they are mediocre, so far, but it's not stopping the index from moving back up to where we made good money shorting it last month using FAS in our STP. I'm not advocating getting in front of this rally train but certainly there are a lot of good shorting opportunities shaping up.
Oil (/CL Futures) took another round trip from $102.50 to $101.50 this morning and we made some nice gains on yesterday's tumble as well. As I said to our Members in the morning Chat Room, it's not much of a range ($102.50-$101.25) but we play the cards we are dealt and yesterday we were able to make money on the up move, as well as the down move. As you can see from the chart – it's not very hard to play this channel.
Adding to the insanity this week is a new scheme by the Fed to allow banks, broker-dealers, money-market funds and some government-sponsored enterprises to lend the Fed unlimited amounts of cash overnight at a fixed rate in exchange for borrowing Treasuries in so-called reverse repo transactions. Under QE, policy makers direct the markets desk at the New York Fed to buy securities from primary dealers, or brokers who are authorized to trade directly with the central bank. That adds funds to the dealers’ accounts and creates reserves at their clearing banks.
With “the amount of bonds that have been piling up on the Fed’s System Open Market Account” there “has been a collateral shortage,” said Jim Bianco, president of Bianco Research LLC in Chicago. “What worries me about the Fed is that in reacting to the fact that their actions have created an unintended consequence in a free market, instead of saying ‘Oh, maybe we ought to re-think these actions,’ their answer is ‘No, we’ll go manipulate that problem now.’ Where does this end?”
Where does it end, indeed. So good reason for the markets to be bullish and the financials to pop as the Fed continues to layer on the free money schemes, making money less valuable than stocks and, therefore – stocks become a safer place to invest. Companies don't need to sell more stuff to make money, not when they can lay people off and refinance their equipment to save Billions.
Zero Hedge has "22 Reasons To Be Concerned About The U.S. Economy As We Head Into The Holiday Season" but I think it's just 22 more reasons to expect even more QE next year from the Yellen Fed. Will the bubble burst again? We'll just have to wait and see.
