Tuesday, March 16, 2010

FOMC Non Event

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To no one's surprise just about nothing changed in today's statement.  So far the market has rallied off the "cheap and free money" IV stuck into the arm of speculators for an even longer period of time, but let's keep an eye out.  While everyone is complacent and being a bear has been a fool's game, eventually we must correct at least a bit.

However, today's announcement has my early 2009 prediction of no interest rate hikes until 2011 looking very probable.   It is widely known now that "an extended period" means "6 months" per some Fed officials.  With the next Fed meeting April 27-28, 6 months hence would take us to late October 2010.  There is a Fed meeting Nov 2-3, 2010 - so if they changed the language in 6 weeks, it would mean the first rise would come in November.

That said, I cannot see the Fed changing the language at that meeting although what I forecast to be a huge jump in employment in the March data (released first Friday in April) will change the calculus a bit.  Since census workers will be hired fast and furious the next 3 months, and the Fed is waiting for a turn in employment it will be very interesting to see what the Fed does over the summer.  The reason for that is the Fed won't have a good clean organic look at employment data until next winter since the census workers are going to be messing with the numbers both to the upside and downside the next half year.

Just as I said in 2009, I will reiterate Bernanke is a student of the depression - that's how he became (in)famous.  The general belief in America is the mistake of the depression was to start pulling back the spigots of credit, stimulus once the economy began showing signs of improvement in the early 1930s - hence that is what caused the Great Depression.  Right or wrong - that is the dogma in the country by most academics, of which Bernanke is the foremost.  Tim Geithner also worships at this altar as you can hear in almost every speech he makes.  So Bernanke does not want to go down in history as repeating that mistake.  Which is why he will err on the side of caution and creating future bubbles.  Plus the bubbles he creates now will help "solve" some of our problems - especially of the wealth effect kind, pension plans, and the like.  At least in his mind.

Unless the "extended period" language is changed at the late April meeting, the next time it can be changed will be June 22-23, 2010.  6 months hence takes us to the December 14, 2010 meeting.  Either way this type of thing will be leaked to the media and in speeches well in advance because all American policy is now created so as to not "spook the market".  Because in a debt laden, financed based service economy it all centers around making our financial oligarchy the market happy.

As for the S&P 500, 1150 is the new baseline - all decisions will be based on that pivot point as we did with 1109, 1125 etc.  The market is quite difficult here because we are simply grinding up in small increments most days... it is much easier to make trades around swooshes up and down.  Very few days are giving us such opportunities - all these +0.3%, +0.2%, +0.4% days are not the type of sessions we can make much hay.  Hence it is kind of boring and it feels like treading water even as the market overall continues up.

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