Friday, October 22, 2010

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

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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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