Today seems to be another bad day for those who thought QE2 was going to be a supercharged version of QE1, where you just front run 1 of about 5 stocks and the market closes higher. Today the submitted to accepted ratio closed at a very (formerly bullish anyway) 3.5x which would have sent the market rocketing higher under the QE1 POMO regime. Today, none of the POMO darling stocks were able to catch a bid and the market seemed to be more in line with the currency pair of EUR/USD then it did with anything having to do with today's POMO day, as was the situation on Friday.
Above is where the US markets opened and the afternoon's downtrend in the Euro.
2 days does not make a trend, but it certainly hints at the possibility that the trend of front running POMO days may be over, which would leave the market to fend for itself. Many things come to mind, especially the insider selling over the last few months that reached a crescendo last week.
It's not yet time to do a victory lap, but it is encouraging that we may see a more normal market in which stocks and the market rise and fall due to market dynamics and not a seemingly never ending supply of QE money through POMO.
1 comment:
I've been thinking about QE2 all weekend, and it occurred to me this version might not have the same effect as the last.
1) It was front-runned HARD the last three months, and in retrospect now seems every insider and CNBC guest HF Manager used to unload their longs into.
2) More fundamentally, unlike QE1, QE2 is buying the same amount of issuance as the Treasury is making. Unlike 1, which monetized the Primary Dealers by buying their Agency inventory, this one seems to be aimed at monetizing the Treasury. I'm not sure it's going to have the same effect.
Of course I'm being very careful with it, but it's been in rattling in the back of my mind as one of those things that in retrospect will be offered as the perfect explanation.
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