Markets Rally on Fed Rumors
My friend Peter Bookvaar of Miller Tabak comments on the recent pop in stocks off of today's low:
"Stocks have bounced on a rumor that the Fed all of a sudden is going to cut the discount rate. Anyone who spread that rumor should go to jail as there is NO WAY the Fed will do anything one week before their next meeting.
Secondly, the Fed uses the discount rate to unclog the financial markets. Right now, the financial markets are in much better shape than 2 months ago. LIBOR spreads are tighter, commercial paper rates are down and swap spreads have come in alot. The economy and the housing/mortgage mkt on the other hand has its own issues which the Fed is trying to address with the fed funds.
Lastly, the discount rate only 50 bps above the fed funds is barely being used anyway."
Wednesday, October 24, 2007 | 03:03 PM | Permalink
| Comments (65)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e54f11e6948834
Listed below are links to weblogs that reference Markets Rally on Fed Rumors:
Comments
Barry,
The Fed?? I thought Cramer set interest rate policy.
Posted by: Christopher Laudani | Oct 24, 2007 3:10:21 PM
It's probably the same dude who started the rumor about Buffett buying into Countrywide!
Posted by: John | Oct 24, 2007 3:20:51 PM
The few times I've decided to short sell I get hammered by fed rumors. I'm gonna stop playing.
Posted by: Dumbo | Oct 24, 2007 3:21:03 PM
Clearly, the problem is now behind us. All the losses associated with defaulting mortgages, poorly performing MBS, and murky CDOs have been announced and accounted for.
It is crystal clear smooth sailing from here on.
Posted by: Mr. Beach | Oct 24, 2007 3:34:34 PM
Thanks for the post, I was wondering what happend ~2:00. If it really was this rumor stocks should fall back when things are hashed out but that is unlikely.
A
Posted by: njAndrew | Oct 24, 2007 3:37:26 PM
BR,
Thanks for posting. I was wondering what was going on. Fires in California are a perfect excuse, otoh, for a between meeting discount rate cut.
Posted by: zao | Oct 24, 2007 3:42:29 PM
Thanks for letting us know what caused the bounce. That's precisely the reason that it's very difficult to short this market. Now that Bernake has shown his hand, rumors of Fed intervention will run rampant on any decline. I'm sure that a lot of shorts covered on the rumor, although the advance / decline numbers didn't impove appreciably.
I'm still watching the non-confirmation by the SPX of the new NDX high. The game is still on. Either the SPX plays catch up, or the NDX declines.
Posted by: Glenn | Oct 24, 2007 3:59:28 PM
So folks when is this subprime mortgage crisis, CDO debacle, SIV mess going to precipitate Armageddon as predicted?
I am still waiting for a half way decent buying opportunity, but alas the current crisis is failing to bring it about. It is very disappointing.
Posted by: Werner Merthens | Oct 24, 2007 4:04:15 PM
what a complete joke. Merrill leads with a $5B write down just a few weeks ago, now we get an $8B hit, and S&P write down, markets tanking..then rumours of 50 bps discount rate cut and voila.... a 180 pt turnaround on the DOW. NY is the friggin' Den of Thieves.... this is crazy.
Posted by: Stuart | Oct 24, 2007 4:08:02 PM
I am sick of losing by shorting this market. The Fed has shown that it is going to burn you if you are short. Really. And hence the rational reaction to head for the door if you are short at the first sign of a rally.
Posted by: zao | Oct 24, 2007 4:11:21 PM
I think that's just the cover story for the usual shenanigans. Why? 'Cause when some tried to sell the "rumor" at 3:30, they pushed it right back up at the close.
That spike at 2:20 was a bit ham-handed, no? I mean geezus, if they're going to intervene and manipulate, can't they at least try to be a bit more discreet?
Posted by: Al Czervik | Oct 24, 2007 4:14:18 PM
all in the last hour two days in a row now (hmmmm)!
perhaps this bear won't be sleeping as long as he thought
once your mild recession starts all the cutting in the world won't help all the way to your real recession
rgds pcm
Posted by: peter from oz | Oct 24, 2007 4:14:19 PM
Well, I think pretty much all the bad news has been priced in in financial stocks. They trade at very low PE ratios and they have big dividend yields. By now everyone knows about subprime, write-offs, CDO and so on. Therefore, I think the bull market will continue and most of the people on this board will miss it as usual while they are waiting for the end of the world.
Posted by: Nicolas | Oct 24, 2007 4:14:35 PM
Why is anyone surprised????
Since last summer,
*Think (Thank?) Hank P. ERA!!!!!
the market has an end of day sharp upward move(insert any excuse here).....
same ol' same ol'
lather, rinse, repeat....
Posted by: MarkTX | Oct 24, 2007 4:17:29 PM
By now everyone knows about subprime, write-offs, CDO and so on.
Its the amount they dont know- sorry verdict is still out. Enronesque financial crap off balance crap - who the hell knows?
Waiting - watching as joe six pack goes down the drain.
Posted by: Moonoverseattle | Oct 24, 2007 4:18:29 PM
Nicolas wrote: By now everyone knows about subprime, write-offs, CDO and so on.
I don't know how you can be so sure a mere 10 hours after MER's ~$3.5B surprise writedown.
Posted by: Bonghiteric | Oct 24, 2007 4:24:45 PM
Nicolas,
Maybe you're right. Still, it's amazing that everybody in the world appeared to come to that conclusion at exactly 2:20 EST.
Posted by: Al Czervik | Oct 24, 2007 4:32:18 PM
The market will not truely sell off until all of the SHORTS capitulate. Short covering is causing the very floors you are all bitching about!
If you want to get to the basement you gotta punch a hole in the floor first!
Posted by: KP | Oct 24, 2007 4:35:46 PM
I do think the bad news is already reflected in the market. Look, BAC is trading at single digit PE and has a dividend yield of roughly 5.50%. Since interest rates are still very low and going down these stock are undervalued. This credit crisis will not last forever.
Posted by: Nicolas | Oct 24, 2007 4:39:06 PM
KP,
I agree with you. As I posted several weeks ago, this might be the begining of the larger downtrend i dont know, but a nice spike up for short capitualtion first makes much better sense... who knows, I just scalp either way and dont hold anything overnight so for me I could care less... but for a swing trader this can be difficult. Great Price Action today btw... 22 pt ranges on the mini es... makes my job alot easier...
Posted by: Brian B. | Oct 24, 2007 4:42:18 PM
KP,
I agree with you. As I posted several weeks ago, this might be the begining of the larger downtrend i dont know, but a nice spike up for short capitualtion first makes much better sense... who knows, I just scalp either way and dont hold anything overnight so for me I could care less... but for a swing trader this can be difficult. Great Price Action today btw... 22 pt ranges on the mini es... makes my job alot easier...
Posted by: Brian B. | Oct 24, 2007 4:42:26 PM
you can still make 5% on cash, which was beating the S&P 500 at one point today. without the agita of wondering what Uncle Ben will do next to trap those who wont drink the kool-aid. loved seeing the FDIC head yday talk about restructuring residential mortgages. when was the last time anyone even saw the initials FDIC? sometime back in the early '90s. there are no regulatory bodies anymore, just cheerleaders and Plunge Protectors.
Posted by: scorpio | Oct 24, 2007 4:45:35 PM
Even the bulls are starting to suspect that the fed cuts are useless, as higher "inflation-Ex Inflation"(aka input costs) offsets any weak dollar gains overseas, and it's better to take our medicine than to take the dollar to the point where their Latte costs $15 and milk is $10 and Gas $8, they know that will kill the consumer, or do they?
And only that Paulson implies the fed will save financial institutions. By trying to make the CDOs more attractive than treasuries. I.E. if you can get Bonds to 3% then fifty cents on the dollar for 7% returns sound good..
Even Cramer has taken 3 of the 4 horsemen of the Tech apocalypse out to the barn and shot them.
In a declining market the Day traders stop buying the dips and start selling the strength. With the bulls hiding and the institutions buying bonds, the only buying is short covering, and suckers.
Honestly the music has stopped, just waiting for the slow money to try and find a chair.
Time to take our medicine. But I'll be in cash on fed day, and if they cut, I'm buying Euros.... and maybe moving there.
No wonder I keep taking everyone's money.
*knock on wood*
I just can't believe anyone believes these "convenient rumors" anymore.
Even the constant reminders of "dip buying" as traders lie to the journalists, go to show that the music has stopped, find a chair.
Update: the guy on bloomberg is dumber than the guys on CNBC, but at least the screeching doesn't give me a headache.
Just more air in the market to short.
It's always the 20-30 year old morons in the market, who have never seen a recession before, doing everything they can to keep pumping in air, not realizing the time is better spent selling.
Posted by: Eric Davis | Oct 24, 2007 4:48:07 PM
This market is acting like a wounded animal that's still in danger. No matter how you try to approach it (long or short), there's a real chance it will claw your face off. I think the Fed et al want that to be very clear. I also wonder if the timing of the uptick removal wasn't a bit sinister...kind of like baiting a trap.
Posted by: dukeb | Oct 24, 2007 4:49:15 PM
"Therefore, I think the bull market will continue and most of the people on this board will miss it as usual while they are waiting for the end of the world."
Could be. Or recession could be imminent. A collapse in housing, NFP rolling over and heading down, and various other conditions have been highly reliable precursors to recession in the past. And if there's one thing for sure, recessions take stocks down hard. For anyone who cares about keeping their money, a certain quotation might come to mind:
"I know what you're thinking. Did he fire six shots or only five? Well, to tell you the truth, in all this excitement I kind of lost track myself. But being as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you've got to ask yourself a question: Do I feel lucky? Well, do ya punk?"
Posted by: TKL | Oct 24, 2007 5:00:53 PM
