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Todd Harrison: The World's Interconnected Central Banks


As goes the Fed, so goes the world.

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Greetings from MV East, where there's been a tremendous uptick in the things that truly matter. Let's dive right in with some top-line vibes.

Yesterday, in The Heart of the Stock Market Matter, I asked perhaps the most important "What if" in the history of financial markets. To save you the click, I'll repost it below:

"What if, the entire 177% rally off the March 2009 low was created synthetically, magnified in effect through derivatives and leverage (much the same way the unwind occurred, but in reverse), carried on the back of momentum, driven by a belief in the policies of the Federal Reserve (in a virtuous self-fulfilling process), extended by the greed of hedge fund managers, and floated ever higher on the shoulders of hope?'

The reason I revisit that passage is simple, on the heels of ECB President Mario Draghi assuring investors that he'll do "whatever it takes" to ensure the eurozone recovery. In an interconnected world -- interconnected by currencies, interconnected with counterparty risk, interconnected via investors, and interconnected through psychology -- the Federal Reserve is the ECB is the BOJ, and back.

We -- meaning the USA -- not only started the fire, we also initiated the grand central bank experiment that was the global flood of liquidity intended to quell the fire, and the ability of policymakers to execute a soft landing will fast-track the results of their brethren abroad. I've said it before and I'll say it again: One day our grandchildren will ask us about these historic times. Pay attention, and be sure to ask "why" while everyone else is digesting the "what."

Away from the policymaking fray, the elephant in the room this morning is Twitter (NYSE:TWTR), which is trading in the $52 range, or 21% lower in early action.

As discussed yesterday, we bought a starter position for our kids at $56 a few weeks back, and rather than take a quick ten-spot into earnings, we're looking at a $5 (paper) loss coming out of the report.

I remind myself that you can't look at long-term positions through the same lens as trading exposure, although a part of me wonders if I'm post-rationalizing risk. It's in watch-mode for now, but man, if they didn't screw the pooch on their user metrics.

Twitter's worst nightmare is that people return to the era of thinking before they speak (type), and that it remains a niche media protocol, 140-characters at a time. As I said last night -- on Twitter, of all places -- balancing user experience against maximizing revenue has been a (digital) age-old dilemma since the beginning of the Internet. I think they'll figure it out, but the proof is in the pudding.

Bigger picture, the stair-step S&P (INDEXSP:.INX) range is 1710 (200-day) - 1770 (underbelly resistance); should either of those levels give way, next-step technical levels will be provided by the channel, per the chart below. Mr. Michael Sedacca notes that several short-term technical indicators are getting "washed out" on a trading basis, which is true, albeit relative in the grand scheme. For my part and with my trading coin, I remain short biotech with a stop above the January highs in the IBB (NASDAQ:IBB).

Finally, in the land of the rising sun, Mr. Sedacca touched on the vernacular coming out of Japan last night, which is curious but not all that surprising given the importance of the technical levels on the Nikkei (INDEXNIKKEI:NI225).

While we've more or less tagged our previously discussed price target, one need only pull back the aperture to see there's still a fair amount of air between where we are now and where we were two short years ago. I've included a fresh chart below; a picture speaks 1,000 words.

OK, let's roll -- but hey, let's be careful out there!


Twitter: @todd_harrison

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Positions in TWTR, Biotech.
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