Friday, October 22, 2010

ZeroHegde: Today is a POMO Day, Goldman Says "Buy"

Thanks to ZeroHedge for posting this note from Goldman Sachs, discussing the most well known secret on Wall Street.  When the Fed is conducting Permanent Market Operations - moving money into markets via primary dealers who then can do "what they wish" (wink wink) - you should buy with eyes closed and 2 hands out in egregious fashion.  At this point it does not even matter if the relationship is factual - the market believes it to be true, so like technical analysis it will feed on itself.  When everyone believes the market has a great chance to go up due to POMO, people buy ... which self reinforces itself, causing the market go higher.  POMO Arigato Mr. Roboto.

  • Zero Hedge is happy to advise our readers that finally Goldman Sachs itself has capitulated and is now indirectly telling its clients to frontrun Ben Bernanke via POMO. 
  • (via Goldman)  Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%
  • In addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day
  • This compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market's performance on the 19 non-OMO days: +70bps.

As you might know, today is a POMO day - buy at will; the Fed is behind you.  "Free markets at work"

Coming POMO days:  Oct 26, Oct 28, Nov 1, Nov 4, Nov 8

"Secret Secret I've got a Secret"

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