Freaky Friday Potpourri: Financial Growth Hormones
Monetary stimuli gets injected into the market.
- The bulls are nervous about looming recession, the bears are bummin' the tape isn't lower and sideliners are cork-forking for not banking trades. Seriously, why does it feel like nobody is content?
- I agree with Hoofy that given what we saw yesterday in the banks, breadth, semis and homies, the S's should have traded lower. Whether the relative traction was a stealth sign or a simple function of today's expiration remains to be seen.
- I'm often reminded of the axiom, "Good traders know how to make money but great traders know how to take a loss." I've never claimed to be either but it makes a salient point.
- Hoofy and Boo take a look at music piracy.
- There's something to be said about the injection of growth hormones gone awry. The Rocket allegedly took a shot in the buttocks but, after years of fiscal and monetary stimuli, we're all gonna sing Moon River.
- When I started Minyanville, I was told to remove the word "education" from all corporate literature as it was considered toxic. I didn't, as I've always believed that financial literacy would be mission critical. It is now a priority in political circles and begs the question: why does it always take something bad to raise awareness of an issue?
- Keep your right hand up and your head down. This is no time to be the Greatest American Hero.
- See the flag formation in the S&P and remember that these pennants typically "break" to the side of the prevailing trend.
- Pepe Depew made a great point on FOX Business Happy Hour last night in noting the difference between involuntary vs. voluntary thrift. The former kicks in when, say, someone can no longer afford to go to dinner. The latter is a matter of folks having it but choosing not to spend it. That, in a nutshell, is what we're talking about when we speak of the shifting social moods and risk appetites.
- There is a massive battle underway between hyperinflation and watershed deflation. I plan to focus on this dynamic next week but it's in my lung so it's on my tongue.
- As an extension of that, there is indeed big two-sided risk right now. Say, for instance, the government creates a trust and takes down the mortgage risk (the definition of socialism), the dollar would fall out of bed and equities would rip higher. Not saying it happens, just saying it's possible and we always need to appreciate both sides of every trade.
Vibes from my sidebar with Mr. Practical yesterday:
Mr. Practical: There are things going on in the derivative market that you wouldn't believe. Asian traders are trying to get out of risk and they're paying absurd prices.
Toddo: I'm not surprised although I would expect stateside volatility (VXO) to reflect a bit more concern.
Mr. Practical: The reason is management. Operation mode is to now unwind at any cost the risk they got themselves into and "made money" with all those years. Of course, the money wasn't real it was just mismarked collateral. When you remark it, that money magically disappears. This is deflation: the destruction and contraction of debt.
Toddo: On a scale of 1-10, what are your odds that we enter into a 1970's style environment? What about a 1930's environment?
Mr. Practical: An "8," and a "4," respectively.
Toddo: Thanks P.
Answers I Really Wanna Know…
- Am I the only one who thought Jo was cute?
- Did Hank run from the Hill yesterday so he could press the button?
- Is there anyone out there willing to take the junk portion of these bond insurer portfolios?
- Why was the New York Times so strong yesterday (NYT)?
- Whatever happened to Conrad Bain?
- Are you keeping your eyes peeled for pin risk into today's expiry?
- Have we entered a phase where systemic risk trumps a near-term fix?
- Orange whip? Orange whip? Orange whip? (Three orange whips!)
- Do YOU know who sings Afternoon Delight? I certainly didn't.
I tried to sell $150,000.00 of Nuveen 7 day paper and was informed by my broker that she could not sell it because there weren't enough bidders. I asked her what she meant and she replied that all we can do is to try again next Wednesday.
I have no idea if I will be able to sell it next week or not. I asked her what would happen if I had to have this money now and she had no answer. If I had not tried to sell this product, I would have never known there was a problem. I just wonder how many people like me are clueless about this.
-Nervous Minyan Ed
I don't "know" the particulars, obviously, but if I were you, I would get a manager on the phone pronto and get to the bottom of this.
I took your advice and talked to a higher up, the news was not great. They had a meeting this week as Nuveen auctions just started failing. I could have got it out a week or two ago, so he says. He told me it could be worse as some people park their money there and use it to pay margin. They are, in his words, "screwed." He said the principle is safe because it is considered 'preferred' and comes before Nuveen closed end funds. I will just have to be patient as there is nothing they can do.
I asked him if other people were having a problem with this explanation and he said that there is certainly is a lack of confidence and they are having a hard time explaining that it is not their fault. He also said people have asked to borrow against their assets but they cannot even do that. He said I will continue to get my interest every week and he will continue to submit them for auction every Wednesday, but he's not optimistic of a quick solution.
Boy, who would have ever thought investing in fixed income would be harder than trading stocks?
-Now Very Scared Minyan Ed
I hope you're having a fine day. Quick question about contra hour. Do you give it more credence when the there's a countertrend turn that occurs around 2pm give or take?
As a general rule of thumb, yes. All day action that has a distinct 'counter-trend' move from 2pm-3pm EST typically plays out this pattern. We've spoken about this seemingly non-sensical movement for many years and while I've yet to figure out "why," I'm always conscious that it exists at some level.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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