David Nichols de Hoje August 13, 2003
Enviado: 13/8/2003 10:13WEDNESDAY a.m.
August 13, 2003
Fed-Speak
by David Nichols
When I was at Yale back in the mid-80s, there was an affectionate term for the particular brand of eloquence from the University's President at that time, the late great A. Bartlett Giamatti. His verbal skills were known to one and all as "Bart-Speak".
This is in contrast to a particular lack of eloquence known as "Fed-Speak". Dr. Greenspan is exceptionally good at saying a lot of important-sounding things that don't really say much of anything. This has been his stock-in-trade during his entire tenure.
Yesterday's Fed meeting produced the latest gem in the epic adventure that is the Fed -- an epic, by the way, that will eventually end in the total dismantling of the entire Fed infrastructure. That's not today's business, mind you, but it's certainly going to be tough for the Fed to survive the aftermath of this bubble/debt/liquidity period. At some point over the next 15 years or so, the Fed will be terminated, and the U.S. will go back on a gold standard. You heard it here first.
Here's the exact text of the Fed's latest opus:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1%.
The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted.
The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.
The Fed has been roundly booed by the markets lately for their opacity and double-crossing. So as always, the Fed is now responding to the market's wishes. They are becoming more "transparent" in their policy statements. Yesterday's statement made it pretty clear that the Fed Funds rate isn't going up anytime soon, despite the large recent jump in market-traded bond yields, especially on the long end of the yield curve.
So what does this mean? It likely means that bonds are going to rally, and yields are going to come back down, at least part of the way back down from that recent mammoth spike.
But it could also mean one more thing: the stock market is going to come back down too, as yields come back down.
This is a controversial statement, to be sure, because many now think that the inverse bond/stock relationship (meaning yields and stocks move in sync) has broken down. This highly-linked movement of stocks and interest rates has been a hallmark of the bear market, and also, for that matter, the late stages of the bubble
Lately this relationship has been weird. Yields dropped like a stone while the market rallied furiously. This led many to think the bear market bond/stock relationship had come to an end. That was certainly a natural conclusion, as they were suddenly doing the exact opposite thing.
But there's another explanation to the bond market collapse and jump in interest rates: Fixed income market were just playing "catch-up" to equity markets.
So we need to keep a close eye again on the bond/stock relationship. If yields and stocks are going to move in sync, and bond investors like what they just heard from the Fed, then stocks could be in for a rough patch. Which is long overdue, anyway.
A quick comment on the VIX: it dropped a ton relatively-speaking yesterday, down to a close at 20.21. That's approaching new lows for the VIX, while the SPX is still 25 points below its recent highs -- a bearish divergence. However, Fed announcements tend to skew implied volatility as positions are unwound, so we'll have to watch this more closely on Wednesday before jumping to too many conclusions. But 20.21 is a very low number no matter how you parse it, and a difficult place for a meaningful rally to spawn.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 6 points to 7% full of negative sentiment.
SHORT-TERM: Got the continuation buy signal and the hourly gauge remains in an advance phase.
MID-TERM: Flipped onto the positive side of the gauge at 37% from a bearish 64% on Monday. (The raw score moved 1 point. When it's moving up we report the raw score, when it's moving down it's 100-raw score.) Confidence pipped to a bullish 1. Still a low confidence reading. The momentum of sentiment is still slight and in the central half (between 75 & 25).. Just as there is very little trend in price there is very little trend in sentiment.
LONG-TERM: Weekly gauge regressed a point 2 points to a neutral 93/7e with an unchanged confidence reading at a neutral 0.
BOTTOM LINE: The SPX's test down to 960 brought about a mini-spike of bearishness. The index has now rallied up to the top of the densest congestion band at 982-990. The exertion of the rally has drained the tank from 28% to 6%. With that lousy kind of mileage the market has about 8 more points of upside before the tank hits EMPTY!
This rally has taken the market out of the zone of immediate peril, but at the moment we have to question whether there's enough sentiment fuel to break the market out above SPX 1015. In the absence of some startling catalyst it looks unlikely. We could be looking at a test of 1000 or 1006, but without either that catalyst or some sort of bogus scare to first drive fear into the hearts of marketeers, near-term upside is probably limited by those overhead resistance numbers.
August 13, 2003
Fed-Speak
by David Nichols
When I was at Yale back in the mid-80s, there was an affectionate term for the particular brand of eloquence from the University's President at that time, the late great A. Bartlett Giamatti. His verbal skills were known to one and all as "Bart-Speak".
This is in contrast to a particular lack of eloquence known as "Fed-Speak". Dr. Greenspan is exceptionally good at saying a lot of important-sounding things that don't really say much of anything. This has been his stock-in-trade during his entire tenure.
Yesterday's Fed meeting produced the latest gem in the epic adventure that is the Fed -- an epic, by the way, that will eventually end in the total dismantling of the entire Fed infrastructure. That's not today's business, mind you, but it's certainly going to be tough for the Fed to survive the aftermath of this bubble/debt/liquidity period. At some point over the next 15 years or so, the Fed will be terminated, and the U.S. will go back on a gold standard. You heard it here first.
Here's the exact text of the Fed's latest opus:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1%.
The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted.
The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.
The Fed has been roundly booed by the markets lately for their opacity and double-crossing. So as always, the Fed is now responding to the market's wishes. They are becoming more "transparent" in their policy statements. Yesterday's statement made it pretty clear that the Fed Funds rate isn't going up anytime soon, despite the large recent jump in market-traded bond yields, especially on the long end of the yield curve.
So what does this mean? It likely means that bonds are going to rally, and yields are going to come back down, at least part of the way back down from that recent mammoth spike.
But it could also mean one more thing: the stock market is going to come back down too, as yields come back down.
This is a controversial statement, to be sure, because many now think that the inverse bond/stock relationship (meaning yields and stocks move in sync) has broken down. This highly-linked movement of stocks and interest rates has been a hallmark of the bear market, and also, for that matter, the late stages of the bubble
Lately this relationship has been weird. Yields dropped like a stone while the market rallied furiously. This led many to think the bear market bond/stock relationship had come to an end. That was certainly a natural conclusion, as they were suddenly doing the exact opposite thing.
But there's another explanation to the bond market collapse and jump in interest rates: Fixed income market were just playing "catch-up" to equity markets.
So we need to keep a close eye again on the bond/stock relationship. If yields and stocks are going to move in sync, and bond investors like what they just heard from the Fed, then stocks could be in for a rough patch. Which is long overdue, anyway.
A quick comment on the VIX: it dropped a ton relatively-speaking yesterday, down to a close at 20.21. That's approaching new lows for the VIX, while the SPX is still 25 points below its recent highs -- a bearish divergence. However, Fed announcements tend to skew implied volatility as positions are unwound, so we'll have to watch this more closely on Wednesday before jumping to too many conclusions. But 20.21 is a very low number no matter how you parse it, and a difficult place for a meaningful rally to spawn.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 6 points to 7% full of negative sentiment.
SHORT-TERM: Got the continuation buy signal and the hourly gauge remains in an advance phase.
MID-TERM: Flipped onto the positive side of the gauge at 37% from a bearish 64% on Monday. (The raw score moved 1 point. When it's moving up we report the raw score, when it's moving down it's 100-raw score.) Confidence pipped to a bullish 1. Still a low confidence reading. The momentum of sentiment is still slight and in the central half (between 75 & 25).. Just as there is very little trend in price there is very little trend in sentiment.
LONG-TERM: Weekly gauge regressed a point 2 points to a neutral 93/7e with an unchanged confidence reading at a neutral 0.
BOTTOM LINE: The SPX's test down to 960 brought about a mini-spike of bearishness. The index has now rallied up to the top of the densest congestion band at 982-990. The exertion of the rally has drained the tank from 28% to 6%. With that lousy kind of mileage the market has about 8 more points of upside before the tank hits EMPTY!
This rally has taken the market out of the zone of immediate peril, but at the moment we have to question whether there's enough sentiment fuel to break the market out above SPX 1015. In the absence of some startling catalyst it looks unlikely. We could be looking at a test of 1000 or 1006, but without either that catalyst or some sort of bogus scare to first drive fear into the hearts of marketeers, near-term upside is probably limited by those overhead resistance numbers.