Thursday Sept 19 2013
What happened in the market yesterday makes perfect sense if we just connect the political dots. Here goes.
The stock market has been going up ever since the FED started depositing money in accounts where it would get funneled back to, yes, the stock market. Low bond yields send investors looking for better returns in the stock market.
A while back Obama tossed out the idea that he would like the US todouble its exports over the next few years, sure who wouldn't, of course there was no plan to increase productivity or innovation, so the only way to do that would be, lower the dollar and cheapen the prices of US goods.
Summers was in favor of letting rates rise, enough of this zero interest rate stuff. But when the Democrats dug in and said no on Summers, that policy was out, and more of the same, Yellen et al, moved to the fore, ie, keep priming the pump with cheap money.
Obama dedicated this entire week to trying to convince the US that a 2% growth rate is just dandy. What better way to end the week than a new high in the stock market, fueled by the promise of QE 4 then 5 then 6?
And so yesterday REITs and my closed end muni idea finally too off, as did our idea on pipelines EEP, TCP, and OKS. All the government had to do was trash the dollar.
This screen shot says it all.
Every single closed end municipal fund in this list was up. I suspect they are finally a buy for a nice run up the next two months. As I have noted every pundit who has called for a top in the stock market has been wrong, and they were all proved wrong again yesterday. So perhaps this has much further to run. I have noted John Murphy believes we are in a new bull market.
here is a typical move
TLT the 20 year government bond fund is at top. Notice the volume surge in late May, I suspect with Summers out of the way this surge will have better legs. BTA had a 7.5% yield on the closing price yesterday. BTA has a the higher low this month than last.
Exp Moving Averages
A crossover of the 13 to the 34 will be a big postive here. This reminds me of the pullback in municipal prices on Mert Whitney's warning.
REITs Back from the Dead
REITs, municipal bonds, bonds, oil all pipelines all jumped as did the overall market yesterday.
US Dollar
The Dollar took a big tumble on the news boosting the other mnarkets. Will this last? Just scanningMarketwatch and other sites this morning I see Portugal is back in the news, for the wrong reasons. Nothng was really done to solve the European impasse. So for the time being the government yanks the markets higher with stimulus.
Update 7 12 AMd CST I just finished reading the WSJ lead editorial, Bernanke Blinks on his wasy out the door. As the WSJ observes, is the economy really so weak that it cannot stand on its own without $ 8 B every month, seemingly from outer space. This is what I meant by, how long can this last? Another fund manager quoted in a front page article, had hoped we wold go to earnings growth to support this specutaion. But, no it's cheap money to the fore.
Mike O Rourke at Jones Trading says the same thing in these words.
Right now, the FOMC has “a tiger by its tail” - it has lost control of monetary policy. The Fed can’t stop buying assets because interest rates will rise and choke the recovery. In short, today’s decision not to taper was driven by unimpressive economic data, the fear of a 3% yield on the 10 year Treasury and gridlock in Washington. If the economy cannot handle a 3% yield on the 10 year, then the S&P 500 should not be north of 1700. It is remarkable that the equity market continued to buy into easy money over economic growth. QE3 has been ongoing for nearly a year and the economy is not strong enough to ease off the accelerator (forget about applying the brake). Simultaneously, the S&P 500 is up 21% year to date and the average share gain in the index is over 25%. Maybe today’s action will turn out to be short covering, but if it was not then paying continually higher prices for equities in a potentially weakening economy is a very dangerous proposition.
Read more: http://www.businessinsider.com/the-entire-state-of-the-us-economy-the-fed-and-the-stock-market-in-one-disturbing-paragraph-2013-9#ixzz2fLD166ZN
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