The Fed statement a 0; the EU statement -1
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The Averages (DJIA 10038, S&P 1068) traded within the boundaries of the current trading range (9645-10725, 1009-1150).  The intersection point of their respective short term down trends off the January 2010 high (discussed in yesterday’s Morning Call) at the Market close last night was 10100 and 1079.

    Other factors in yesterday’s trading: volume was very low--though that was to be expected given the terrible weather in the New York; breadth was weak, the dollar was up (scoreboard: stocks down, gold down, oil up).

    Bottom line: until stocks push through that short term January to present down trend, the momentum remains to the downside.  Stay patient.

    Bullish sentiment down to March 2009 levels (chart):
    http://www.bespokeinvest.com/thinkbig/2010/2/10/bullish-sentiment-drops-to-lowest-levels-since-march.html

   Fundamental

    As of the close yesterday, 10% of the S&P 500 stocks have raised their dividend since January 1, 2010.

     Headlines

    Three items:

(1)    most of the Market chatter yesterday focused on the release of the transcript of the testimony that Bernanke was scheduled to give.  The weather prevented the testimony but the Fed wanted it public--although I am not sure why because there was really no new news.  Bernanke’s purpose in his testimony was to outline the Fed’s ‘exit’ strategy from its current easy money policy.  And it is a worthy purpose; as you know, I have spent considerable time worrying about the potential lack of success. 

However, all he did was review the tools available to the Fed in implementing the ‘exit’ strategy--something that he has already done in piecemeal fashion on prior occasions.  True, he did add one new wrinkle: that the Fed would target the interest rate paid on bank reserves rather than the Fed Funds rate. But so what?

I don’t want to be too negative here.  The fact that Bernanke is out talking up the Fed’s ‘exit’ strategy is a plus in that it gets Market participants thinking about [and starting to discount] a move to a firmer monetary strategy.  The problem is that in this testimony, he really doesn’t outline a strategy; he simply lists [again] the tools that are available to implement a strategy.  Bottom line: I thought it a weak presentation, hardly worth rushing to make public and certainly does nothing to ease concerns about the Fed’s capability to negotiate an inflation/deflation free ‘exit’ from its current easy monetary policy.  And I repeat, if the Fed would come out with an easily understood, disciplined strategy for its ‘exit’, it may push interest rates up, but I think that it would be good for stocks,

(2)    score another point for Scott Brown’s election--perhaps.  Obama stated yesterday that He didn’t begrudge the bonuses that Goldman’s Blankfein and JP Morgan’s Dimon received--after having referred to them as ‘greedy, fat cat bankers’ a mere 30 days ago. A change of heart, a move toward the center? As you know, I have maintained that Obama is too much of an ideological purist to expect His move to the center.  Plus a cynic would suggest that those Wall Street fat cats, who also just happened to be major contributors to the Obama campaign, decided to start meeting with the Republicans, Obama decided to lower the temperature of His rhetoric.   So while it is much too early to eat crow, one can only hope.

(3)    the EU was meeting as we slept last night to decide what form the bail out of Greece will take.  I ran the traps of the smarter and more knowledgeable lot again yesterday and my conclusion hasn’t changed:  barring throwing Greece under the bus, any bail out will likely be meaningless in terms of forcing that country to come to grips with its problem [fiscal profligacy].  That is not good for Greece, not good for the EU and leaves the US as the least worst repository for global savings. 

However, investors seem to like the rumored half-a**ed measures to bail out Greece.  If they continue to do so, then today may be a good day, i.e. the euro will rally, the dollar fall and if the inverse dollar/stock relationship holds, stocks will be up.  But longer term, the leading European powers have a problem as do all the major countries that refuse to come to grips with their fiscal irresponsibility.
          http://www.zerohedge.com/article/eu-announces-immediate-and-highly-indeterminate-action-be-taken-greece-no-disclosure-what-it

Here is another good article on the sovereign debt problem.  One point that the author makes is that Greece matters to the US securities markets because it will continue to drive investors into a safe haven [the dollar] and thereby push the price of the dollar up; that, in turn, will at some point force the unwinding of the dollar ‘carry trade’ and that will cause pain and agony for commodities and US stocks [hedge funds borrowed dollars at low interest rates to buy commodities and US stocks; the unwind would involve the reverse--selling commodities and stocks to repay the cheap dollar loans].  There is an ‘if’ in this argument which is, if the Greek crisis causes a stampede into US dollars.  However, if it does, the author will likely be correct.
          http://www.marketwatch.com/story/why-european-debt-matters-to-the-united-states-2010-02-10?pagenumber=1

    Bottom line: the economic outlook remains as murky as ever, the sovereign debt issue being the immediate problem.  However, the tinsy, weensy steps by Bernanke to try to clarify the Fed ‘exit’ strategy and by Obama (perhaps) to become more accommodative are better than a sharp stick in the eye and hold out the hope that this country may be slowly turning in the right direction.
       
Economics

   This Week’s Data

    Weekly jobless claims fell 43,000 versus expectations of a 5,000 decline.
    http://www.calculatedriskblog.com/2010/02/weekly-initial-unemployment-claims_11.html

   Other

    The 10 year Treasury signal (short):
    http://scottgrannis.blogspot.com/2010/02/10-yr-treasury-signal.html

    This is a great set of charts that compares US exports only with the total GDP of other countries.  The authors point is to debunk the notion that the US doesn’t ‘make things’ anymore:
    http://mjperry.blogspot.com/2010/02/us-exports-would-rank-8-for-largest.html

    Chinese imports surge (short):
    http://scottgrannis.blogspot.com/2010/02/chinas-imports-surge.html

    Thoughts on the US debt (medium):
    http://www.nakedcapitalism.com/2010/02/wray-the-federal-budget-is-not-like-a-household-budget-%E2%80%93-here%E2%80%99s-why.html










Posted 02-11-2010 8:31 AM by Steve Cook