10/30/14…QE is dead…long live QE!!!

Quote of the Day from the Friars Club Encyclopedia of Jokes: “An actors a guy who, if you ain’t talking about him, he ain’t listening.” – Marlon Brando

Bloomberg Quote of the Day: “Work hard, be kind, and amazing things will happen.”

Conan O’brien…he said that???

Bloomberg Top Stories:

*Economy in U.S. Grew 3.5% in Q3, More than Analysts Estimated – Fed more important!

*Fewest Americans in 14 Years filed for Unemployment Benefits in Last Month

*Stocks in U.S. Decline as GDP, Jobless-Claims Reports Fuel fed Rate Bets – not good!

*Greece’s Euro Dilemma Is Back as Minister Braces for Volatile Bond Markets – already here!

*REIT Pair Trade Pays 1.6% to Investors Anticipating U.S. Economy Will Slow

*Ruble Bears Are Getting Burned for Ignoring Rally Signals; Market Reversal

*Barclays Investment Bank Profit Tumbles 39%, Trailing Its European Rivals

*JPMorgan Directors Best Paid in London, Beating Goldman to BofA Executives – the Whale?

*J&J Seen Settling More Than 1,000 Additional Claims Over ASR Hip Implants

*How Oil’s 29% Tumble Took Investors by Surprise and Why OPEC Is to Blame

*”I’m Proud to Be Gay,’ Apple CEO Tim Cook Writes in Bloomberg Businessweek

*Republicans Aim to Control Two-Thirds of U.S. State Legislative Chambers – good luck folks!

*Kurdiah Peshmerga Cross Into Kobani to Take Up Fight Against Islamic State

*African Union Says a Sixth of Pledged Ebola Workers Are Ready to Deploy

*U.s. Mom Fights for Drug to Save Son From ‘ Slow Motion Death sentence.’

Wednesday’s Market Summary:

Suppose the Fed announced an end to the QE’s…what would happen? Well you got a sampling yesterday: stocks weaker, bonds on the other hand mixed with only the 10-year (basis for mortgages) slightly weaker. Stocks all off – this time including Dow Utilities – from 0.2% to 0.5%, on slightly higher volume. Just a wake-up call…let’s see what happens today.A/D’s and Breadth slightly weak, but S&P VIX had to settle for just ONE close with a ‘14’ handle, closing at 15.15 +.76 with a range high of 16.28! Still don’t believe the rally is sustainable, but that’s just TB.

See commentary for discussion of the impact (sic) of ending the QE’s.

Total NYSE Volume slightly higher again: 3.74B shares vs 3.61B vs 3.47B vs 3.06B vs 3.76B: average volume for October is 3.6B, or about 600M more than the recent average. Shares traded on the NYSE floor – affectionately referred to by TB as REAL volume: for October it is 868M shares and slipping!!! Volume was up at 823M shares vs 785M vs 760M vs 718M vs 919M. For comparison purposes, for the prior 12 months it is a historically weak 710M shares…but thus far in October, 868M shares – from 895M just last Thursday – including that HUGE 1.22B share day – highest since 9/19. The lowest was 10/6’s 696M share session. April 30 – September 30 we had just SEVEN 800M shares…for October 14, with FIVE 900M+ days. Looks like that is now past.

A/D’s were slightly negative: NYSE: -1.3x vs +4.6x!!! vs -1.3x vs +1.6x vs +3.3x!; Nasdaq -1.2x vs +3.8x! vs -1.1x vs +1.3x vs +2.7x vs -2.8x; Breadth was similar: NYSE -1.6x vs +4.8x!!! vs -2.1x vs +1.8x vs +3.4x vs -3.7x; Nasdaq -1.5x vs +5x!!! vs +1.1x vs +1.9x vs +5.7x vs -2.9x; New 52 Week Highs slightly lower at 312 vs 326 vs 161 vs 142 vs 171 – their range for the year is 39-580!!! New Lows up a tad to 86 vs 80 vs 136! vs 82 vs 89. The 2014 range is 24-1043!!! S&P VIX turned around closing higher at 15.15 +.76 – goodbye 14, and any chance of 13?, still well below those bearish extremes that had a high of 31.06 (highest since 11/28/11!!!). The range not out of danger yet at 14.19-16.28. Remains bearish and well above 9/18’s 12.03 The average of the past 12 months is 13.94, with a low of 10.32!…high close 26.35 on 10/14!

U.S. bond market closed mixed following the FOMC announcement of an end to the QE’s – hah! The 10 year being the loser as it is the benchmark for mortgages. The recent 12 month low yields (10’s 2.09%; 30’s 2.87%; and long TIP 0.83%), 10’s closed at 2.32% -3/16; 30’s 3.05% +5/16; and the long TIP 0.96% +1/2. Rallying overnight: 10’s 2.29% +1/4; 30’s 3.01% +13/16; and long TIP 0.93% +11/16. QE’s may end, but dump $4.3 trillion??? No way!  

Libor update: 0.233% 3 mos.; 0.324% 6 mos., both steady and just above new record lows! The Fed Funds rate has averaged 0.09% and is steady at 0.08-0.10%. T-Bills range from 0.00%, one-month, to just 0.10% one year!!! Foreign bond yields mixed, with PIIGS higher. especially Greece!!! (Benchmark is 10yr): Germany 0.85% -5; UK 2.22% -4; France 1.25% -3; Italy 2.49% -1; Spain 2.16% +2; Portugal 3.35% +4; Greece 7.94%!!! +54!!! 10/16’s close was 8.54%! – cycle low: 5.42%; Crisis high: 12.57%. Japan: 0.46% –.

Gold closed slightly lower at $1224.90 -$4.30, and remains below the 40/50 day m’a’s, following a new recent high of $1255.60, highest since 9/10/14. There have been just two prints below $1200 since 12/31/13 – 10/3 and 10/6 and soundly rejected! Last close above $1300 was on 8/15. 7/17’s session high was $1346.60, highest since March 19th!!! Res is the 40 day at $1229, the 50 day $1238, and the 200 day at $1284. Recent high was $1392.60 on 3/17, highest high since 9/4/13. Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight it is weaker at $1203.70 -$21.20!!!, BUT it is even worse than it looks as the session low is $1199.30 – first time below $1200 since 10/6!!! Silver likewise, falling to $16.53 overnight, taking out 10/3’s $16.64 – lowest since 2/9/10 and very close to $14.65, a multi-decade low!!!

Crude closed higher at $82.20 +.78, but still not negating Monday’s huge header to $79.44 intraday– lowest since 6/29/12. 10/25’s high $84.83, low $79.44, define October’s range. There have been 28!!! handles since peaking at $107.73 on June 13th at $107.73 highest since 9/19/13 (a huge down session which put it in freefall. The record high of $147.27 was on 9/30/08, the low since on 12/30/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. RES at the 40 day ($88.58), then the 50 day ($89.74), and lastly the 200 day (98.34), all accelerating to the downside. The range is now $79.44-$112.24 since 3/1/12. Overnight weaker at $81.72 -.48.

Global equities weaker, ex-India/Japan…look at this: UK -0.6% vs +0.6% vs +0.6% vs -0.6% vs0.2%; France -0.4% vs +0.1% vs +0.6% vs -1.4% vs +0.2% vs -1.3%; Germany -1% vs +0.6% vs -1.6% vs +1.4% vs +0.4% vs -1.4%; Japan +0.7% vs +1.5%! vs-0.3% vs +0.6% vs +1%; Hang Seng -0.5% vs +1.3% vs +1.6% vs -0.7% vs -0.1%; Korea -0.1% vs +1.8%! vs -0.3% vs +0.3% vs -0.3%; India +0.9% vs +0.9% vs +0.5% vs -0.4% vs +0.2%. U.S. equity futures weaker and at session lows following jump in weekly jobless claims, opened higher: Dow -45 (range 55); SPX -6.60 (21!); NDQ -15.75 (23). Should be an interesting day!


Some random thoughts:

Reactions to even a whiff of an end to the QE’s have been all over the place since the first one that set the bond market into panic mode and alerted the Fed to the problem of just how to end them. The answer is the taper is over (for now?), but with $4 trillion in overvalued assets on their books how do they bring the balance sheet back to the norm? The answer to that is they don’t, which will bring more allegations from the right and coupled with the failure to regulate by the NY Fed (most notably with JPMorgan’s London Whale),the independence of the Fed is once more in question. Wouldn’t you rather see it under the control of our Congress??? Hell, if that had been the case we would be in a full-blown depression right now, instead of languishing.

The more important issue for the markets however, is how has the Fed financed their buying binge? Simple…by paying the banks 0.25% for the excess reserves, and since that is 15 basis points more than Fed Funds pay them (actually they would be at zero or less if the Fed wasn’t keeping them at equilibrium! Want proof? T-Bills are going at ZERO percent for one month and 0.10% for a year! You tell TB how they could stay positive?

They can’t! That would lead to not disinflation but DE-Flation! Europe is already in the throws of this…it can’t happen here, you say, the biggest consumer nation on the planet…ah but China, like Japan in the 1980’s is rapidly replacing us…and our economies are interdependent.

What the Fed has done is keep the banks from lending and thus putting a ‘floor’ on rates to borrowers. Imagine if the banks had $4 billion in their hot, greedy hands? It wouldn’t be pretty.

So should bondholders be afraid? No, just aware as we are in a state of flux. We have most likely seen the lows in yields…Europe likewise, but another crisis is building in Greece where the 10-year jumped 54 basis points overnight to 7.94%! this from a low of 5.47% on 9/8/14! …with a spike to 8.64% in the interim for one day! All is not well!

Where are we going from here? Dunno, but as the old English translation of a Chinese ‘curse’ goes: “may you live in interesting times.” …and we most certainly do!

Have a great day! Congrats to the Giants especially Baumgarner for an incredible win and thrilling end to a fantastic seven-game series…KC has nothing to be ashamed of…just what could have been.



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