[Chart courtesy of MarketWatch.com]

1. Moving the markets

When the Fed announced a few weeks ago that it would be buying up Treasury debt to the tune of $60 billion a month, it sure sounded to everyone on Wall Street that another round of QE (Quantitative Easing) had started. However, Fed chief Powell insisted that this is “in no sense is QE.” Yeah right.

Author Charles Hugh Smith wasn’t in agreement either and quoted in a recent post a riddle that Abraham Lincoln was known to have told: “If I should call a sheep’s tail a leg, how many legs would it have? — Five! — “No, only four; for my calling the tail a leg would not make it so.”

That is a great analogy to the Fed’s QE implantation which, despite all denials, is a bailout of some sort, most likely of the repo market, about which I have commented on from time to time. And, as this chart depicts, it may have been a panic reaction, and I am certain that this will not be the last we’ve heard about repo issues.

While the major indexes see-sawed throughout the day, the bullish bias remained intact with the Dow and Nasdaq eking out tiny gains, but the S&P slipped a fraction. These small moves were actual significant in that the usual driver, namely US-China trade news, was neutralized.

There were announcements about “progress” and “setbacks,” cancelling each other out, which is what market direction reflected. Over the weekend, we learned that top negotiators held “constructive” discussions, but other reports suggested that without rolling back existing tariffs, the outlook for a resolution looked questionable.

With trade news playing an immaterial role in the market today, traders focused on a meeting between Trump and Powell, with speculation running wild as to what these two discussed. Trump released this statement:

Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.

I am sure that by tomorrow morning, the computer algos may have found some more bullish meat on that bone, probably just enough to keep the ramp going. If that doesn’t work, there is always another short squeeze to be done, just like we saw today, which gave a big assist in pulling the indexes off their lows. (Source: Bloomberg)

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The bouncing below the unchanged lines went on throughout the session with the major indexes having a hard time seeing green, with only the S&P 500 and Dow briefly peeking into positive territory.

The cause for this lack of upward momentum turned out to be usual culprit, namely the latest trade reports casting a big shadow on some of the alleged process. For one, the White House “conceded that the original target date may slip,” but they denied reports of a setback.

Other bon mots included things like “China was absolutely delaying the truce with its approach,” and “there is a lot of jockeying going on—it’s a standoff, in part,” all of which did nothing to calm the markets. However, the positive in all that was that the indexes remained stable and closed within a fraction of their respective unchanged lines.

Even the mid-day tumble was stopped by an influx of dip buyers making this pullback an event now long forgotten and only visible in the rear-view mirror. So, the trade movie continues with all of its idiosyncrasies, as the market-implied odds of a trade deal are worsening from day to day.

On a side note, I had to crack up today when I heard the latest interpretation of using politically correct language, an area that seems to have taken on a life of its own. You’ll be delighted to hear that a new word is spreading in the investment community.

We all, especially the buy-and-hold crowd, certainly remember the crash of 2008, which decimated many portfolios, and I believe the next one will even be more destructive, whenever it arrives. To lessen the pain, some joker suggested we call such an event no longer a “crash” but rather “a sudden value reassessment.”

Well, I don’t know about you, but I would feel far more comfortable losing 50% of my portfolio due to “a sudden value reassessment” than due to a “crash,” wouldn’t you agree?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

It was another trading day during which uncertainty ruled. The major indexes survived an early sell-off and bounced back only to be slammed back down below their respective unchanged lines.

Give credit to the mid-day slam to a US-China trade problem, caused by reports that that a snag was hit over farm purchases. Then China barked by “resisting US requests for tech-transfer curbs and any enforcement mechanism.” Needless to say, the markets were not amused and down we went, while at the same time the latest short squeeze appeared to have run out of ammunition.

In the end, however, the indexes managed a comeback into the green with the weakling being the Nasdaq, which bumped against its unchanged line but failed to conquer it.

However, I consider one development today an important one, namely that the recent bond sell-off, during which the widely followed 10-year yield spiked dramatically, thereby taking the starch out of low volatility ETFs like SPLV, appeared to have reversed. After pushing towards the 2% level, the yield pulled back and closed at 1.88%, which allowed SPLV finally to have a good day by gaining +0.78% vs. the meager +0.05% the S&P 500 (SPY) generated.  

While the 5-week old rally continues to roll on, today’s gains were small, but they were gains, nonetheless. I keep harping on the importance of liquidity as being “the driver” for further advances. Well, the Fed has pumped some $280 billion into the system over the past 7 weeks, which all but guarantees the momentum necessary to support the bullish theme.

Never mind that the October budget deficit surged 34% to $134 billion, which was its worst in five years. There is nothing but red ink in our future, but who cares about such minor details, if it stokes the liquidity engine.