Comments on: Stocks Rise Into Thin Air (Again) http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html Freshly squeezed market commentary & analysis Fri, 19 Mar 2010 22:31:57 +0000 http://wordpress.org/?v=2.0.2 by: wayne http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55861 Mon, 19 Oct 2009 14:52:53 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55861 1-1.5% could probably be justified to deal with unemployment. rates went to unprecedented zero to deal with crisis, which is behind us. oil, commodities, market, gold, point to potential of inflation, unemployment dictates caution is warranted. Zero rates is not, at least not in my opinion. I would take friendly wager that fed funds rate is increased within 12 months. 1-1.5% could probably be justified to deal with unemployment. rates went to unprecedented zero to deal with crisis, which is behind us.

oil, commodities, market, gold, point to potential of inflation, unemployment dictates caution is warranted. Zero rates is not, at least not in my opinion.

I would take friendly wager that fed funds rate is increased within 12 months.

]]> by: dacian http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55858 Mon, 19 Oct 2009 14:23:49 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55858 Rates won't be raised before unemployment peaks; and that is 2011 eventually. FED doesn't do what Barron's says. Few people have access to 0% money; the truth is the FED doesn't control rates, the (bond) market does. FED just follows that market. Rates won’t be raised before unemployment peaks; and that is 2011 eventually. FED doesn’t do what Barron’s says. Few people have access to 0% money; the truth is the FED doesn’t control rates, the (bond) market does. FED just follows that market.

]]> by: wayne http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55851 Mon, 19 Oct 2009 12:58:54 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55851 Historically, rising rates have been shown to work against the markets. The old rule is "3 steps and a stumble". The question I have is how should the rule be modified if rates are starting from near zero and the move up in rates is a sign that we are coming out of a recession, not necessarily overheating. Could it actually be a positive sign initially? One Percent Tbills are not exactly a lot of competition for investment dollars. My expectation, in this spot, is that a rate hike before yearend could give the market an initial excuse for a 5% correction before resuming higher and that I think the market is probably alright for the first 3-4 hikes over the next 12 months ?? Historically, rising rates have been shown to work against the markets. The old rule is “3 steps and a stumble”. The question I have is how should the rule be modified if rates are starting from near zero and the move up in rates is a sign that we are coming out of a recession, not necessarily overheating. Could it actually be a positive sign initially? One Percent Tbills are not exactly a lot of competition for investment dollars.

My expectation, in this spot, is that a rate hike before yearend could give the market an initial excuse for a 5% correction before resuming higher and that I think the market is probably alright for the first 3-4 hikes over the next 12 months ??

]]> by: Dave http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55826 Mon, 19 Oct 2009 04:12:57 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55826 Mkts have started to reflect a rise in interest rates. If one looks at a chart of LQD going back to March, you can see that the rock solid uptrend in corporate bond prices has been broken. The mkts are thus reflecting that a growth cycle in the economy is beginning accompanied by an interest rate tightening cycle. This normally spooks the stk mkt particularly if it's earlier than expected. However, intermediate/long term it's very good news because the Fed should not be willing to risk choking off the economy with monetary tightening unless it thinks that the economy is strong enough. Mkts have started to reflect a rise in interest rates. If one looks at a chart of LQD going back to March, you can see that the rock solid uptrend in corporate bond prices has been broken. The mkts are thus reflecting that a growth cycle in the economy is beginning accompanied by an interest rate tightening cycle.

This normally spooks the stk mkt particularly if it’s earlier than expected. However, intermediate/long term it’s very good news because the Fed should not be willing to risk choking off the economy with monetary tightening unless it thinks that the economy is strong enough.

]]> by: wayne http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55825 Mon, 19 Oct 2009 03:47:18 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55825 Lead story in Barron's Monday is calling for Bernanke to take rates back to 2% before inflation gets away from us Lead story in Barron’s Monday is calling for Bernanke to take rates back to 2% before inflation gets away from us

]]> by: Wayne http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55764 Sat, 17 Oct 2009 02:47:14 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55764 Babak I read Hulberts article on the Dow theorist that you referenced. Thank goodness the market is never crystal clear to everyone, else efficiency would dominate and opportunities would not present themselves. The Fed is a wildcard here. They probably should be taking rates back to 1% in the next 3 months, but will probably be behind the curve. The easy money in 02-04 helped contribute to the conditions that led to the crisis in 08. Let's watch and see if they learned anything. Did you see where Volckler commented that they should be tightening, as well? Babak
I read Hulberts article on the Dow theorist that you referenced. Thank goodness the market is never crystal clear to everyone, else efficiency would dominate and opportunities would not present themselves.

The Fed is a wildcard here. They probably should be taking rates back to 1% in the next 3 months, but will probably be behind the curve. The easy money in 02-04 helped contribute to the conditions that led to the crisis in 08. Let’s watch and see if they learned anything. Did you see where Volckler commented that they should be tightening, as well?

]]> by: Wayne http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55763 Sat, 17 Oct 2009 02:35:16 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55763 Not sure what to read into Vix. Vix over the last 10 years has averaged around 20ish and we are getting back to somewhat normal volatility. Two years ago, Vix of > 20 , would have been considered high. You can calculate what the statistical Vix should be based on a a trailing N day average and compare it to the "implied" statistical volatility priced into the Vix and get some insight into the fear factor priced into the options. Some software packages provide such. Normally options are about 10-20%% above what there statistical value is. Babak, Near the end of October, Ill try to update my 4th quarter odds based on October performa and pass along. We could also have our 8th up month in a row, but Curly could still kill somebody before the day is over. Not sure what to read into Vix. Vix over the last 10 years has averaged around 20ish and we are getting back to somewhat normal volatility. Two years ago, Vix of > 20 , would have been considered high.

You can calculate what the statistical Vix should be based on a a trailing N day average and compare it to the “implied” statistical volatility priced into the Vix and get some insight into the fear factor priced into the options. Some software packages provide such. Normally options are about 10-20%% above what there statistical value is.

Babak,

Near the end of October, Ill try to update my 4th quarter odds based on October performa and pass along. We could also have our 8th up month in a row, but Curly could still kill somebody before the day is over.

]]> by: Dave http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55756 Fri, 16 Oct 2009 21:31:41 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55756 Babak, I wasn't looking back that far; so thanks for the addt'l info. I was just struck by the dichotomy. The quuestion is what is the meaning or what caused it ? If i understand Pete Najarian, right now on Fast Money, there was an excessive amount of call buying today. Babak,

I wasn’t looking back that far; so thanks for the addt’l info. I was just struck by the dichotomy. The quuestion is what is the meaning or what caused it ? If i understand Pete Najarian, right now on Fast Money, there was an excessive amount of call buying today.

]]> by: Babak http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55754 Fri, 16 Oct 2009 21:24:07 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55754 Dave, you mean the VIX is at its lowest since Sept 2008, right? In any case, low VIX readings don't really correspond with tops - at least not the way VIX spikes do with market bottoms. Dave, you mean the VIX is at its lowest since Sept 2008, right? In any case, low VIX readings don’t really correspond with tops - at least not the way VIX spikes do with market bottoms.

]]> by: Babak http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55751 Fri, 16 Oct 2009 21:01:55 +0000 http://www.tradersnarrative.com/stocks-rise-into-thin-air-again-3122.html#comment-55751 David, you're right, my point was that historical precedent points to this or that. David, you’re right, my point was that historical precedent points to this or that.

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