Feeding The Beast

ZeroHedge

MarketShadows August 26 2012: Feeding the Beast

This week we discuss the Fed’s activities and the real economy, share Allan and Springheel Jack’s TA perspectives and charts, and Pharmboy’s ideas for buying and selling options for two stocks (POT and DOLE). ~ Ilene

Excerpt:

The rally on Friday was triggered by a letter released by Ben Bernanke to US Rep. Darrell Issa, which was also leaked to the WSJ:

 

 

“Federal Reserve Chairman Ben Bernanke, in a letter responding to questions posed by U.S. Rep. Darrell Issa (R., Calif.), chairman of the House oversight committee, defended actions the Fed has taken to support the economy and said there is room for the Fed to do more.

 

“‘There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,’ Mr. Bernanke wrote in a letter dated Aug. 22, a copy of which was obtained by The Wall Street Journal.

 

“The Fed’s ‘Operation Twist’ program—buying long-term Treasury bonds and selling short-term securities—is still ‘working its way through the economic system,’ Mr. Bernanke said. The program was first launched in September 2011 and in June 2012 was extended through the end of this year.” (Bernanke Letter Defends Fed Actions)

The WSJ article was written by Bernanke’s well-known mouthpiece Jon Hilsenrath. Karl Denninger noted that the Fed has a long history of countering weakness in equities by releasing information that “sends bears running for the door.” It’s part of the game the Fed plays and reminds us that stock prices do not reflect price discovery so much as they reflect the Fed’s manipulations. Karl Denninger continued:

 

 

“That such a gambit was inbound and was almost-certainly leaked to certain special insiders was also rather clear from other patterns. Specifically, the selloff had a well-below normal TRIN the last couple of days for market conditions and in addition there’s simply no big “fear position” in the VIX, in the internals, or for that matter in the A/D line…

 

“Of course all of this movement and response might be nothing more than the Pavlovian response — any time there’s a dip one should accumulate into it, because Bernanke will come save the day…

 

“This sort of casino mentality is nothing new. What’s ugly, however, is that this is all the market is trading on nowdays.

 

“There’s been no material improvement in employment.

 

“There is no grand new paradigm shift in the economy taking place that grossly boosts productivity.

 

“There is no innovative new product or service that will drive broad-based gains in people’s standard of living.

 

“There has been no material drawdown in total systemic debt, and federal deficits haven’t come in materially at all…

 

“When I look at the so-called “leaders” such as Amazon and Apple, what I see is a business model that either produces ridiculous P/Es and thin margins or worse, a fad-based business model predicated on margins that are sustainable only as long as people can keep refinancing their house and pulling out equity to blow on toys.

“That set of predicates went kaboom four years ago.

 

“Bernanke’s hall of mirrors appears to be singularly focused on keeping the last mirage of ‘prosperity’ — the equity markets — pumped up and ‘alive.’

“He will fail because the longer this continues the less bang he gets for each of his QE’d bucks.

 

“We’re in trouble folks, despite the S&P poking around 1,400.” (Pavlov’s Dogs In The Stock Market)

continue at ZeroHedge:

http://www.zerohedge.com/contributed/2012-08-27/feeding-beast

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