Notes From Underground

Yes, the FED released its FOMC statement today and there were no changes to the FED’S POLICY NOW AND FOR THE EXTENDED PERIOD INTO 2014. So here was nothing to upset the markets and as I read the statement for the third time in a 15-minute period, old man thoughts turned to BUYING GOLD. As a veteran trader and subsequently global macro investor for 35 years, the price action did not perform to my satisfaction. The January 25 FOMC statement was very similar. While that FOMC missive provided for the impetus for GOLD to rally and close on its highs, the action today was totally opposite as GOLD sold off and the EQUITY MARKETS RALLIED. The January 25 release also saw the EQUITIES RALLY into the close but today the stocks left the GOLD behind.

While the GOLD and SILVER languished, the COPPER and PLATINUM maintained its recent strength as an indicator of increased global economic activity. The copper has been well even as fears of a Chinese slowdown continue to circulate. The GOLD closed under some important moving averages but there are three trading days left in the week for the ULTIMATE HAVEN TO SAVE ITSELF. BUT AGAIN, THE GOLD TRADE IS TIRED AND AFTER ITS PERFORMANCE OVER THE LAST 10 YEARS, ANY INVESTMENT IS ENTITLED TO A RESPITE. This is not to say that the factors driving the GOLD higher have been corrected. It’s just a simple fact that the GOLD MAY BE TIRED. GOLD BEGAN ITS MAGNIFICENT RALLY AS IT BROKE ABOVE THE GOLD/EURO CROSS OF SOMEWHERE AROUND 320 EUROS PER OUNCE OF GOLD and whatever fiat currency you wish to use for a measure.

It has been a fact that as bad a currency as the EURO has been both technically and fundamentally, the GOLD has been unable to take out the highs of the GOLD/EURO established in September. Two large tranches of LTRO have failed to propel the GOLD to new highs. Again, a sign of a TIRED BULL. THE GOLD has closed higher 10 years in a row. Have the fundamentals changed? NO! But when a market is tired prices can certainly correct. (I REFER TO THE GOLD BECAUSE OF SIR ALAN GREENSPAN, THE BARBAROUS RELIC WHO CERTAINLY DESERVES AN ELEVATED TITLE.)

Following the very SOFT FOMC STATEMENT, the long end of the curve sold off as investors did some significant investment reallocation. Investors have been locked into the BOND market as an alternative to risky stocks, but after the STRESS TESTS were prematurely released and bank stocks rallied, it seemed that sidelined investors decided this equity rally could no longer be ignored. The 15 banks that got the GREEN LIGHT from the FED to do stock buybacks and increase dividends began substantial rallies. It must be remembered that this rally in the S&Ps has taken place with financial stocks not having participated. A list of where these stocks were the last time the S&Ps were at this level (May 2008):

Citi (C): $211

JPMorgan (JPM): $47

Bank of America (BAC): $35

State Street (STT): $72

Bank of New York (BK): $43

Two big financials are higher: American Express (AXP): $50 and WELLS FARGO (WFC): $30. Just for a reminder, AIG was the equivalent of $1000.

Bottom line is that if the financials can sustain a rally they will be able to carry the S&Ps higher. Just a little reminder as to where we are relative to the post-Bear Stearns action in the equity markets.

***Along with the GOLD, the long end of the TREASURY market was perplexed, especially in context with the FOMC statement. The FED reminded us that “THE HOUSING MARKET REMAINS DEPRESSED.” Along with maintaining the sentence, “The COMMITTEE also decided to continue its program to extend the average maturity of its holdings….” Today’s BOND selloff is going to challenge the FED for if the FED allows long rates to rise and with it mortgage rates, the DEPRESSED HOUSING MARKET WILL NOT CONTRIBUTE TO THE GROWTH STORY.

Chairman Bernanke has been put on notice by today’s action. How high will the long rates go before the FED steps in? We’ll probably have to wait for the Hilsenrath piece on the next phase of OPERATION TWIST. There is much to be aware of to judge is the markets are beginning to change away from the PREVIOUS RISK-ON/RISK-OFF PATTERN. IS THIS A MERE RESPITE OR A DYNAMIC CHANGE?????

Tags: Bond, Equities, Fed, FOMC, Gold, gold/euro, LTRO, silver, SPS, stress tests

This entry was posted on March 13, 2012 at 5:31 pm and is filed under Equity, Fed, Gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.