A few things occurred today toward the end of the day and I looked at the market in a totally different way.
It's interesting that it occurred after the F_O_M_C and no doubt connected to it. T/he NFP today seemed like the worst reading imaginable and a safe zone for QE for a bit longer, but the real issue here is F_E_D guidance, bond traders don't forget, this is why yields on the 10 year blew through 3% after the F_O_M_C aggressive/hawkish taper meeting. You may recall, half of voting members wanted QE ended in totality by the end of 2013, a few even wanted it ended that meeting or started.
Bond traders went nuts, that was what the F_E_D feared and yields popped above 3% like they have been doing the last week, the reason was F_E_D guidance which was rate hikes would follow the end of QE in about 6 months, that was the real key and rate hikes are amazingly destructive to a market.
I was chatting with a member and said, "Don't expect Wall St. to show their cards on the NFP print, they aren't that dumb and logistically we are essentially jet skis that can turn on a dime, they are super tankers that take 2 miles to come to a complete stop. Their reaction to the NFP will be seen in felt in the coming week/s and I don't think ti will be good.
Two major items this week, the unprecedented F_O_M_C inter-meeting survey which I've never heard of that showed us that F_E_D policy is being formed to some degree based on the F_E_D as a business, i.e., "The F_E_D sustaining capital losses", I've tried to make this clear, the F_E_D is a quasi-governmental/private corporation, they have share holders, they are not a government service, they are there to do a job for the government, but they are for profit.
The fact they openly admitted QE is getting to the point where it's not only not effective as far as bang for the buck which was a given as soon as they announced QE2, but what is becoming more of a problem is extracting themselves and doing so rather soon without taking capital losses. Just imagine the next crisis when the balance sheet is teetering on $4 trillion and they are facing losses. MY PREDICTION, "THIS IS A FISCAL PLANNING POLICY PROBLEM THAT CONGRESS NEEDS TO TAKE UP".
The other issue was the NFP today with a nearly half percent drop from 7% unemployment to 6.6%, which is 1/10th of a percent above the benchmark that has been part of F_E_D guidance as long as I can remember, "Accommodative policy will be removed at 6.5%". Accommodative policy is not just QE, in fact that's the smallest part, it's ZIRP and getting back to rate hikes. While it's true. they've backpedalled on that a bit, the facts are the facts, they are exiting.
What today's NFP showed us is exactly what I thought we'd see, but not to this extent. I think somewhere between 100k and 300k fell off extended benefits for January's NFP, that's going to be in the millions by the end of 2014, I think I heard 3 million so if a small fraction falling off send the labor force participation rate so low that a 74k gain on consensus of 200k can send the unemployment rate down by nearly half a percent, what happens going forward and what happens when the rate is below 6% which could happen at the next NFP in a month?
Watch the 10-year yield and the 3% mark.
Also I've noticed and will put out, a huge change in perception toward 20-30 year bonds, the volume has been increasing at an unbelievable clip, the bond itself has been flying, but that's not all. It seems there's so much desperation to find safe haven cover as the banks own a lot of Treasuries that are their class A collateral and the F_E_D owns 1/3rd of all issuance with the Treasury set to lower 2014 issuance as our deficits are expected to be lower, that means more and more people fighting for the same asset. For a long only mutual fund, there's really no amount of stock picking or dividend stocks that will keep them from suffering massive declines, I suspect this is the reason that EU, PIIGS (no less) have gone to market seeing an opportunity. Ireland had a successful auction this week, Portugal had an oversubscribed debt offering and Greece is looking to sell bonds! GREECE? I thought Greece wasn't going to be able to go to market for years?
Well if the demand is there, make hay while the sun is shining.
These are just a "FEW" of the many changes that finally revealed themselves late today.
I think I've just scratched the surface of a change that has occurred in 2 weeks that introduces a whole new dynamic. Putting the pieces together is going to take a lot of study and some time, BUT I CAN TELL YOU THIS, IT'S IN THE AREAS WE HAVE BEEN WATCHING CAREFULLY, BONDS, BOND YIELDS, CARRY TRADES, THE YEN, MARKET CHARACTER AND NOW THE SHIFTING OF THAT CHARACTER.
CHANGES IN CHARACTER LEAD TO CHANGES IN TRENDS.
I have believed for a long time (based simply on comparing different markets back to the early 1900's (with 3C) that we are going to see the chance of a lifetime, perhaps of much longer and it will be those who put the pieces together and learn how to trade this market that will benefit from what's not only to come, but what is here right now.
You know I started the trading portfolio (start of December) not just to have a different perspective that is helpful for members, but to track performance and personally for me to decide whether I can do both without either suffering, my work here and my portfolio. I've found that it's not a problem, some of the things I was worried that may become an issue I have found ways to deal with such as posting trade timestamps so you know I gave the trade to members first and am not front running members like some other services are doing in illiquid penny stocks.
The point being, I've had this under consideration for a while, weighing the pros and cons and knew that I'd like to participate in a bigger way in what I think will be an unbelievable opportunity (not for all, I'm guessing 90% of traders will be crushed), but again the point being, after all of this consideration and patience, I've NEVER felt the pressure I feel now to fully fund the account ASAP.
Many members have asked about "blow-off tops" and the like, yes they occur, but for this to work for Wall Street, they aren't going to send up a flare letting everyone know that things have changed, they''ll be like a thief in the night and looking around today as you saw in several charts, we are not only past that point in which a flare would go up, we are on the slippery slope of the right side of stage 3 in more assets than I imagined simply because using the market itself as a map is a flawed concept.
There's more reason now than there was in 2000 for the market to see a sharp "V" reversal, that was largely based on a series of rate hikes back then, but at least there were fundamental reasons that changed our culture and the world forever, there was value and usefulness even if much of it was severely mis-priced. What we have now is not useful, it's not even in line with an economic recovery, it's a Ginger Bread house of liquidity, pure and simple so if the NASDAQ which was steaming ahead of the greatest innovation seen in nearly a century (so much so it took 6 rate hikes too finally kill the momentum), than what shall we say about the market that has no natural growth, has been a product of nothing but printing and proven flawed F_E_D policy (this period is VERY similar to the 1920's when QE was used successfully to turn around a recession and create a true economic boom before seeing the 1929 crash). What of the excessive margin at record highs with investor new worth are record lows? What of the structural integrity of the market's having been totally compromised so badly that on an average day the markets break down for no apparent reason and what of the liquidity providers and HFT?
No one can say, but I think it's safe to say that we will be in a full blown bear (and in many ways already are-market breadth is one) well before CNBC calls it.
I just can't imagine (and I've spent a lot of time studying and trying to understand the dynamics of the days in these charts) what we are in for when you consider the following...
NASDAQ 100 2000 top and bear market, note at least the volume was healthy and increased with price.
Again...
These are just examples of what a top looks like before you know it's a top.
What I was talking about earlier has infected currency, carry trades, bonds, Index futures and probably way more than I've uncovered
I'm sure I'll have some interesting observations now that I've found that, "something" that has been so illusive this week.
HAVE A GREAT WEEKEND
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