Tuesday, August 8, 2010 - Fed Watch

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SgtWs

Tuesday, August 8, 2010 - Fed Watch

Post by SgtWs »

“The Marines I have seen around the world have the cleanest bodies, the filthiest minds, the highest morale, and the lowest morals of any group of animals I have ever seen. Thank God for the United States Marine Corps!” Eleanor Roosevelt

Today is all about the Fed. Will we remain in purgatory? I'm bullish based on the technicals....for now, but I think we are about to hear more bad economic news..........

Yesterday the NASDAQ finished up 0.8%, closing above the 2300 level, where it had met short-term resistance. S&P 500 gained 0.5%. Volume fell sharply on both major exchanges, but that has become the summer norm. This has been a long and interesting summer in the markets with sentiment going from extremely fickle to extremely resilient. I am shocked the market has held up so well the last week. Will the resilient market survive more bad news from the Fed today?

Feeling happy? Just watch the news for 30 minutes and that will fix that. When I was a young Marine in boot camp I use to have a drill instructor that would walk into the squad bay when he came on duty and tell us "Secure the happiness!" That is how I feel when I watch the news. But if your looking three to five years out this might just be an attractive entry point, if you think things will improve by then. Maybe we are not giving corporate America enough credit? Besides, football season is almost here, a reminder of the greatness we possess here in America.

Here is a recap of the other negative sentiments weighing on us before the Fed meeting:

GDP Outlook Cut - Goldman last week lowered its projection for 2011 US growth to 1.9% from 2.5% on signs that boosts to the economy from government stimulus will wane.

Employment Concerns - The jobless rate held at 9.5% because 181,000 people gave up looking for work. Over 1.1 million people have left the labor pool in the last three months. The economy has created just 654,000 jobs so far this year. At that rate, the U.S. Wouldn't recoup the 8.4 million jobs lost in 2008 and 2009 until June 2017.

Since early May this market has been very tough to wrap your mind around. My current decision to remain invested in the market right now is based solely on the technicals. So far the market is cooperating and has been very resilient in the face of very negative economic sentiment. On the fundamentals I want to be bearish, but because of the charts I am remaining bullish (this could all change really fast). The indices seem to have bottomed in July and have been moving higher ever since and while the ride has been scary, are in a clear uptrend. Let’s see what today holds……..

Other articles I found interesting……and there are some really good ones here today:

Three Years on, Is the Financial Crisis Over?

Number of the Week: Cheap Money Isn’t Free

Trend of US Mortgages 'Under Water' Drops

Did the recession actually end?

China to Grow 10-11% This Year: State Economist

Is the Unemployment Problem Cyclical or Structural?

Debt Restructuring Not a Solution for Greece: IMF

Structured Notes Are Wall Street's `Next Bubble,' Whalen Says

Art Cashin: Watch This S&P Resistance Level

The AIG Bailout Scandal

We Are in Equivalent of Great Depression: Strategist

Other Stuff:

NCAA Football Preseason Polls - This weekend’s edition of the USA Today they listed the pre-season top 10.

#1 Alabama
#2 Ohio
#3 Florida
#4 Texas – My consensus #1
#5 Boise - all but 2 starters back, went undefeated last year. More impressive is the head coach - 4yrs, 49-4 record, 2 undefeated seasons, 3 conf titles, 2 coach of the year awards
#6 Virginia Tech
#7 Texas Christian University
#8 Oklahoma
#9 Nebraska
#10 Iowa

Ben’s Chili Bowl

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The other day I saw a special on the Food Network about Ben’s Chili Bowl in Washington D.C. and their famous half smoked hot dogs and chili sauce that made them world famous. Regular visitors to the hot dog stand include the President of the United States and Bill Cosby. Intrigued I set out to try if for my self……..and it was indeed awesome! If you are ever in the DC area, I urge you to go give it a try. Enough said.

Image

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TSPking
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Post by TSPking »

Do you think the market will react to Gate's announcement of military spending cuts? This is big news down in Norfolk, VA where the Joint Forces Command is slated for closure...
TSPking

It's a gift...and a curse ~ Adrian Monk

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flight23
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Post by flight23 »

Im not liking what Im seeing... back near Friday's lows. If we break through that then it could be a way down....
@GlobalCollapse on Twitter
http://twitter.com/#!/GlobalCollapse

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UwshUwerME
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Post by UwshUwerME »

I'm surprised I don't see more people going into C or S. The fed is expected to bring negative comments but I expect the market to be back with the bulls tomorrow. But it appears others don't agree.

*Thanks for the close-up on the chili dog. Looks Great! A dog-of-a-day in the market.

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flight23
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Post by flight23 »

I dunno im 50-50 S-I right now and after two days of big drops to start the trading day Im worried we're about to go down fast. I think it may be time to hop into G/F... 10 minutes for me to decide.
@GlobalCollapse on Twitter
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SgtWs

Defense Spending......

Post by SgtWs »

You know, I saw this on the news and was wondering how people would react. I saw another article where they were talking about huge cuts in personnel at the Pentagon. I thought we would end the wars before making huge cuts in our spending on defense.

To be honest, I'm not sure. I am wondering what impact this will have on the employment numbers too........and I am wondering if the government will start fudging those numbers...........


The Financial Times had this article……..

Pentagon’s ‘Endless Money’ Era Ends

Robert Gates, US defense secretary, on Monday announced what could be the biggest cuts to the Pentagon bureaucracy since September 11, as he declared that the era of “endless money” had come to an end.

Mr Gates announced cuts of almost 30 per cent on outside contractors, and curbs on military intelligence agencies and his own staff, as well as the proposed abolition of a military command and a reduction in the ranks of generals and admirals in Europe and beyond.

The cuts would lead to the loss of thousands of jobs but could be fiercely resisted in Congress.

“The culture of endless money that has taken hold must be replaced by a culture of savings and restraint,” Mr Gates told a press conference. But he added: “My greatest fear is that in economic tough times that people will see the defence budget as the place to solve the nation’s deficit problems, to find money for other parts of the government.”
The US’s looming fiscal crunch is almost certain to end the breakneck expansion in military expenditure that has nearly doubled the base defence budget in 10 years to $549 billion for 2011. When the wars in Iraq and Afghanistan are taken into account, total spending is more than $700 billion a year.


Although he did not specify a figure for total savings from his latest move, the Pentagon chief’s goal is to find enough savings from reduced overheads to increase core defence spending by 2 to 3 per cent a year with only a 1 per cent annual rise in the overall budget.
Painting a dark picture of the global landscape, Mr Gates said slashing the budget overall would be “disastrous” at a time when the world was becoming more unstable.

Among his announcements, Mr Gates said he would propose the scrapping of the US Joint Forces Command, which employs 2,800 military and civilian officials, and 3,000 contractors at a cost of at least $240 million a year. He added he would close the Pentagon’s $340 million Business Transformation Agency.

The defense secretary announced spending cuts of 10 per cent a year for the next three years on private sector contractors, who account for 39 per cent of total workforce costs, not including contractors in Iraq and Afghanistan.

Mr Gates expects the Pentagon to thin down senior positions in parts of the world such as Europe, where cold war command structures remain in place, leading to the elimination of at least 50 posts reserved for generals or other top military officials and 150 civilian posts over the next two years.

He announced a freeze over the next three years in the number of positions in his own office and in defense agencies and combatant commands, as well as reduced expenditure on advisory studies for the Department of Defense and on intelligence contracts.

The announcements form part of a broad push by Mr Gates to restrain and reallocate spending. Last year he cut high-profile projects such as new orders of the F22 fighter jet and in June ordered his services to find $100 billion of savings over the next five fiscal years.

SgtWs

Large percentage drops

Post by SgtWs »

We have been going up on relatively light volume, and today the selling seems to be on higher than usual volume........so that is not good.

I think we all knew the news was not going to be rosy............but I wish i had waited until this morning to place my buy order versus yesterday. I was hoping the market would react positively to bad news like it has been doing over the last two weeks.........

I told you guys I am jinxed..........

SgtWs

Fed Meeting.......

Post by SgtWs »

The Fed is meeting at 2:15 ET, so hopefully we will start getting some news back on what happened by 3:30??????

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Pocono13
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Chili dogs

Post by Pocono13 »

I will take two chili dogs, hold the fries.
:D

SgtWs

The dawgs were good........

Post by SgtWs »

The food was good. The inside could be redone to be a bit nicer, but with all of the celeb pics I gues they don't feel the need too.........

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flight23
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Post by flight23 »

Anybody have an explanation for the instant 50 point jump in the Dow & similar jump in S&P right before the fed announcement?

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Pocono13
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now that is a surprise.

Post by Pocono13 »

Do you think that info was leaked?

SgtWs

I think it was...........

Post by SgtWs »

In the last two weeks I’ve heard several people mention the government’s manipulation f the stock market via the “Plunge Protection Team”. This is a cool article about it that is a little dated (February 2010), but explains everything in pretty good detail. Could explain why the markets kept going up on bad news in light volume.

Does The Government Actually Manipulate The Stock Market?

What’s really going on in the markets now? We all know exactly what is going on. The government, per se, isn’t buying stocks. But someone with close ties to the government is. Remember, the Fed is independent, right? According to the government they are. Except of course when it goes to Congress with its hands out asking for a check worth (roughly) several trillion dollars. This “independent” Fed of ours then goes on its “recapitalization” mission by buying assets from the large banks. Now the banks are flush with cash. What do they do? They do what they believe is prudent and in addition to buying treasuries they buy other assets that diversify their portfolios. The banks aren’t necessarily acting illegally or corruptly. The banks are using their bloated balance sheets to invest in assets that will boost their earnings. Based on their analysis, the assets they have been buying are “good” investments. Much like they believed mortgage backed securities were “good” investments leading up to the credit crisis. Remember, the purpose of the bank bailout was to recapitalize the banks and help them earn their way out of their toxic woes. And the results have been great – at least for the banks.

For those who still think the government is actually in there buying up shares and selling them I have just two questions for you:

1. If they are actually doing this then why did they let the market collapse in 2008?

2. Why would they do such a thing when they have banks that can do it for them?

As for the first question – if the government is directly propping up the markets they sure are bad at it. Don’t you think that Dick Cheney, a bona fide market guru would have done everything in his power to prop up the markets using the PPT before the Republicans went down in flames on the back of the economy? We declined 60% in 12 months and remain almost 30% below the all-time highs. By any measure, I would say the so-called PPT is failing at their job.

The answer to the second question is simple as I’ve mentioned above. Of course, there is a very important caveat here. The Fed is not independent in any fashion. This is the fourth branch of the U.S. government whether anyone wants to admit it or not (I personally believe the Fed should be part of Treasury and subject to the same rules and oversight as Congress). The Fed is directly tied to the health of the U.S. economy and acts in ways that they believe best support the U.S. economy. In this case, they think the U.S. economy is best served by a bloated and ever expanding banking system. You know, the 90’s were great in large part due to the explosion in financial services. What if we could just perpetuate that growth? Don’t we all benefit from an industry that makes its money by shuffling money from one pocket to the other and effectively rapes their customers by shaving off fees and increasing the rates they charge on their new and “innovative products”? Not exactly.

By effectively crediting bank accounts with cash the Fed is directly contributing to the boom/bust cycle we have been stuck in for the last 20 years. Your average Keynesian will argue that this sort of government spending is effective in protecting the banking system, keeping bank reserves healthy and helping to encourage lending, but in a world where the private sector remains deeply indebted it simply sews the seeds for mal-investment. Time and time again, the financial sector has proven itself incapable of proper risk management or proper allocation of its own assets. The free market attempted to obliterate this sector of the economy and punish it for its malfeasance but here we are protecting it and providing these banks with money they didn’t earn and in fact should have lost. Why do we allow this to happen? Perhaps more important – if we aren’t going downsize this sector (which I believe the market will take care of over time regardless), why have we not regulated these imprudent institutions more strictly? It’s simply unfathomable that the institutions that caused this crisis have not been downsized and/or regulated more strictly.

What’s the end game here? At some point the Fed will stop buying assets and crediting bank accounts. If, at that point, the private sector is not ready to carry the baton the daily carpet bombings will end and could in fact turn into daily implosions as confidence sinks and the capital isn’t there to bolster a flailing economy. At that point, the party ends and the bagholders look for someone to pass the bag off to. The banks will be looking for the small investor at this point. No one can be certain when this might occur (or if it will assuming no private sector recovery), but Bill Gross explains why he is scared about the potential impact on the market in the coming year:
“So it’s a trillion-and-a-half-dollar check that won’t be there as the Fed withdraws from the market. How that affects the markets, I just don’t know. I’m not eagerly anticipating the answer, but I think it holds some surprises in 2010 — not just in mortgage securities but stocks as well. We could miss the money, put it that way.”

Damn right they’ll miss the money. The question we should be asking ourselves is whether we would miss any of these banks were they to disappear into the abyss of Chapter 11. Let’s be realistic though. In this bailout nation and false capitalist market we all know that won’t happen. The losers don’t lose in this market. At least not until the next big bust. Until then, perhaps the mantra of “don’t fight the Fed” is more relevant now than ever. Just make sure you’re not the guy holding the bag when it all comes crashing down….

SgtWs

Here is the key portions of the FOMC statement:

Post by SgtWs »

“Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.”

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

“Inflation is likely to be subdued for some time.”

“Exceptionally low levels of the federal funds rate for an extended period.”

“To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.”

SgtWs

Wednesday, August 10, 2010 – From Around the Web

Post by SgtWs »

A lie has speed, but the truth has endurance.
-Josh Billings

I’m posting on the fly today working off the Blackberry and will be adding through out. Bear with me……….I plan on looking at the charts today at the close.

From the Market Ticker: The Fed Announcement

(Their statement inset, The Market Ticker translation outset.)

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.

We never had a recovery. The Government borrowed a scadload of money and blew it to avoid recognizing what was a severe recession; as a consequence they reported at worst a 2% drawdown annualized, but this is fraudulent - the real drawdown has exceeded 10% now for more than two years.

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Everyone's broke. Congratulations.

Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.

Business is broke too. That claimed "record balance sheet cash" is of course offset by debt, and coverage ratios are worse now in terms of assets than any time in the last 50 years. That's not improving either.

Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

We believe. Don't you?

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The economy is going through deflation and our attempts to stop it have failed.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

There's no growth, the economy is contracting at 10% per year and is likely to continue to do so for the foreseeable future. We know this and we also know that at some point the government's ability to borrow and spend in order to fraudulently report "growth" will disappear. Of course we won't tell you that up front, because then Grandma will (correctly) surmise that her Social Security and Medicare will disappear (and she's rather likely to be unhappy.)

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

I said there is no recovery! We can't shrink the balance sheet but we can try to monetize Treasury Debt. Of course there is this tiny problem with that Fannie and Freddie paper - it's got huge embedded losses in it. We won't bother talking about the blatantly-unconstitutional act of allocating revenue that we just said we're going to do - and we hope Scott Garrett doesn't call us on it (again.)

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

We suck and we know it. Ain't it grand that you let us get away with this crap?

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

The criminal cabal.

Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee's ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives.

And the one man with a brain.....

PS: To Mr. Hoenig: Don't get in any private planes. Nor take any late-night walks. Nor go bird hunting with anyone named "Cheney." And for God's sake, don't stand up in the bathtub. (Yes, that's sarcasm, if you're incapable of understanding it as-written.)

From the Bespoke Investment Group: The S&P 500 Short Term Uptrend Still Intact
Tuesday, August 10, 2010 at 02:50PM

It was close, but the S&P 500 has once again managed to hold its short-term uptrend line. 1,130 is now shaping up to be the line in the sand for the bulls and bears. Without a break above that level in the next day or two, the uptrend will be broken, giving the bears a victory. A break above 1,130, however, will keep the bulls in the drivers seat.

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Fund Prices2024-03-28

FundPriceDayYTD
G $18.15 0.05% 1.05%
F $19.08 -0.06% -0.74%
C $82.21 0.11% 10.55%
S $82.43 0.30% 6.92%
I $42.57 -0.24% 5.95%
L2065 $16.38 0.02% 8.37%
L2060 $16.39 0.02% 8.38%
L2055 $16.39 0.02% 8.38%
L2050 $32.73 0.01% 6.95%
L2045 $14.91 0.02% 6.58%
L2040 $54.38 0.02% 6.22%
L2035 $14.34 0.02% 5.79%
L2030 $47.67 0.02% 5.38%
L2025 $13.15 0.03% 3.43%
Linc $25.61 0.03% 2.82%

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