Saturday, July 31, 2010

07/30/2010 - The Vomit Comet

The 'vomit comet' is the nickname for the airplane that produces near zero gravity simulations by climbing in altitude and then steeply diving only to resume the climb. The nickname is derived from the tendency of the occupants to become nauseous and vomit. The casino that the Fed now runs is doing the same to investors. Friday, July 30, is a classic example. The previous two days left the Dow wiggling slightly down after taking out the last previous lower high in the post-April downtrend. Job well done, Ben! That's the first step in the nausea. As soon as the Fed gets a hint that a downtrend is developing, they step in with one of those patented ferocious one-hour rallies that jack the Dow index up by a triple digit move. Out of the blue, with no reason whatsoever, we get a rally. This has led to the Fed Chairman finally admitting to Congress last week that the economy has now become "unusually unclear". Gee, I wonder why? Let me give it a shot. The casino now moves violently when the Fed intervenes and there is no longer any reason at all that we see changes in trend. So let's get back to Friday.

Second quarter preliminary GDP numbers were released for the US economy and the government set the number at 2.4%. That was slightly below the expected 2.5% and and a decline from first quarter numbers that were 'revised' upward to 3.7%. Immediately when the casino opened, the Dow dropped 120 points in the first ten minutes. In the next five minutes, the DIA Dow-correlated ETF was greeted with over a million shares of trading (10% of the days volume) that pushed the index higher. Within thirty minutes, the index recovered all 120 points. Before long the Dow was actually up 40 points. Then it lost all of that and went down 40. There was a lot of gyrating throughout the day but in the end, the Dow finished the day nearly flat. The entire investment community must have cheered the closing bell as they were running short on Dramamine. Maybe we should call the NYSE the 'vomit casino'!

Since no one on Earth has a clue what the next day may bring, investors have to watch the manipulation and intervention. Given that someone with hundreds of billions stood ready ten minutes into trading on Friday to jack the indices higher, we must assume that the manipulators want a rally. Goody, goody. July was a good month for the indices as the Dow and the boys rallied some 7% for the month. Now we move into August. Will the rally continue? Why are you reading this? Shouldn't you just ask Bernanke?

The disarray now injected into the indices has produced the chart below. The 10-year US Treasury bond price has appreciated nicely so far this year (the blue line) while the S&P 500 (gold line) is still struggling to turn positive. Almost all the 'experts' have been predicting a bond sell-off. Idiots. Treasuries will not be allowed to sell-off because the world's most indebted nation cannot tolerate rising interest rates. Period. What does this tell us? It tells us that no one trusts the casino. No one trusts the 'recovery' story. No one trusts the government numbers. Rising bond prices almost always tell us that something is wrong. Of course, the market can be manipulated higher if the manipulator just pours enough money into the effort. Go Ben, go! Welcome to the new bull market! Just eat lightly and keep a trash can nearby in case you need to hurl!

YTD SPX in gold, 10-yr Treasury bond price in blue
Chart courtesy

No comments:

Post a Comment