Sunday, October 19, 2014

Feds Looking to Game the Markets

( Markets are looking for another handout from the Fed, so whatever Fed Chair Janet Yellen says or does not say Friday will be a big deal. Stocks bounced back Thursday after a rough opening, with the S&P 500 (^GSPC) ending the day less than a point higher, and the Nasdaq(^IXIC) up 2 points. The Dow (Dow Jones Global Indexes: .DJI) was off 24 points, but the small cap Russell 2000 was up nearly 1.3 percent. St. Louis Fed President James Bullard was credited with the turnaround, when he said the Fed should consider continuing to buy bonds beyond the scheduled end of quantitative easing later this month, due to market turmoil.
"The market was looking for a lifeline. It found one in his comments," said Mark Luschini, chief investment strategist at Janney Montgomery. As for Yellen, he does not expect her to say anything new or stray from recent remarks.

( -) About an hour into the trading day Thursday, with the S&P 500 (^GSPC) at its lows and the smell of fear in the air Bullard took the mic and had his Battle of Agincourt “Once more into the breach…” moment.

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Jame Bullard, President of the Federal Reserve Bank of St. Louis said given the wild market the Fed might not finish tapering as quickly as they had intended

Jame Bullard, President of the Federal Reserve Bank of St. Louis said given the wild market the Fed might not finish …
“We have to make sure that inflation expectations remain near our target,” said Bullard in reference to the FOMC’s ongoing war against deflation. “And for that reason, I think a reasonable response by the Fed in this situation would be to…. pause the taper at this juncture.”
Just like that feverish selling broke. Bullard’s stirring cry to non-action ringing in their ears, traders began furiously bidding for shares. Yes, a non-voting Fed board member’s oblique reference to the possibility that the Fed may not completely eliminate its now $15 billion monthly QE program this month marked the lows for the correction thus far.
How big was Bullard’s bluster? Based on the World Bank’s estimate of the total market capitalization of US stocks the 2.5% gain in equities just in the States is worth about $420 to $450 billion.
We knew the Fed would blink on coming up with a new QE at the slightest excuse. Peter Schiff and I discussed it openly last week. We just didn’t know their pain threshold. How bad would it have to get before the Fed stepped in? Now we do. Whether he tried to or not James Bullard has in effect signalled to traders that the FOMC is committed to jawboning the equity market anytime stocks get down 9% or more.
(CERR INVESTMENTS). Look out for more surprises in the next month or so.  First we had we need to have clear guidance on what the Feds was going to do. It looks like QE3 was coming to an end in October. Now we get that wait just a minute we may not need to end QE3.  Feds are trying to keep market prices inflated no matter what the cost.  I could believe in this strategy if they can explain the end game.   The Feds need to use their leverage and get companies who are benefiting from QE3 to quit hording money and start hiring.  Banks are getting the spread money but are not loaning.  Interest rates for student loans are not decreasing.  Unfortunately there will be no policies targeted to the middle class until after the election.  All you will hear then is cut cooperate taxes, flatten the tax codes, increase sales taxes.  None of this will happen of course.  Instead getting ready for more government shut downs, more nasty talk, sequester, no minimum wage, and no finance reform.