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Friday, May 12, 2017

THE DANGLING CARROT

“Watch, as the financial world chases alpha!”

They are all, in their own way of course, doing or attempting to do the same thing; namely, chasing “alpha” [yield]. From the institutional side, with the utter and complete collapse of interest rates worldwide since the ’08 financial crisis, pension funds, insurance companies, banks, brokerage houses, and hedge funds are all in the same boat; “we’ve got obligations that need to be funded, now & into the future, so how do we even come close to generating yield when the central banks of the world have “yanked” that carrot from us”? And, of course, one of the consequences of this is the now daily abundance of financial derivative products introduced and hawked to investment committees all over the globe. Do I need to mention the fact they come with “jacked up” fees [hidden deep into (most likely) some page like 473 of the prospectus with the tiniest print this side of an aspirin bottle], high commissions, and of course “other fees” that shall remain anonymous; stuff that would have gotten you laughed out of the conference room 10 – 15 years ago if you presented it, now gets funded cuz they got no choice; meanwhile, “the Street” still finds a way to take their cut.

For individuals, the stakes are equally dire; retirement, kid’s future education costs, to name just two, can’t be satisfactorily funded and achieved with interest rates at a fraction of a percent after taxes and inflation. Today, the 30-year treasury bond yields right around 3%; take out taxes [fed, state, local if any] and inflation and you will be lucky to see any gain over 1% a year. And, as I have stated before, passive investing via index funds and/or ETF’s over time [many years] will have high fees and subject you to market risk that few understand or appreciate the extent of potential carnage from redemptions.

And so, thanks to the FED mainly, they have effectively taken your savings and investment monies and said to you, “screw you, you don’t get any return for money just sitting in a bank or a bond; you need to pump the economy up with spending and/or new business ventures that might potentially produce growth. The days of you getting something for nothing are over … so get out there and SPEND”! But, taken together, both groups instead have piled into the “FANG” stocks, and since the indices are “weighted”, you get statistics like the fact that since 2008, approximately 50% of the gain in the SP500 has come from 10 stocks.

Well, here we are; we now live in an era where everybody is chasing the stock indices trying to capture some kind of return yield, and here is where “group think” comes into play with the “herd” mentality; and why more often than not, up and until the last momentum player has left his/her funds on the table, the stock indices drift in one direction until the last dollar is pulled in, and then the direction changes abruptly. And then I hear stuff like, “oh yea, I sit there and watch as it climbs, then finally get in, and within minutes the whole world changes and it starts going down and then they force me out … hell, how does anybody make sense of any of this”?

Well, it starts with the perception that the Dow30 [or SP500] in and of itself doesn’t mean anything; you can’t deposit into the bank “Dow30 20850”. You go to the teller at your bank and do this and they call 911 cuz you’re nuts. Only if you can “buy” it lower than you “sell” it and produce a profit can you then say, “well, I can deposit the profit into the bank”. My point here is simple: where the index is doesn’t matter, so why let the ups & downs influence your decision making and drive you to buy the highs and sell the lows? Cuz if that’s what is happening, without you realizing it that “carrot” is being stuck in front of your face to get you do to shit you don’t really want to do. This is simply one part of the “setup” I mentioned yesterday, and what really drives trading in the indices.

Turning to today’s market … retail sales & CPI slightly below consensus or at the low end of consensus … don’t see either driving action much … today is Friday, a position squaring day for the weekend … also on tap for today, some Fed Pie Holes speaking for chicken lunches somewhere, which is always good for laughs & entertainment, unless they say something “off the wall” that threatens the conventional view on the June meeting and moves Fed Funds futures; then it gets interesting, but I doubt this happens today.

An hour and a half into this clusterfark … and honestly … stock prices are in severe drift mode, and it feels to me like traders don’t want to do anything … no doubt, the SNB has its bids below the market in key stocks, and nobody but nobody [unless they absolutely have to] wants to hit those bids, and by the same token nobody wants to buy it either given it’s 1) the weekend coming up, 2) shorts blew their collective “wad” yesterday with that early rally so there’s really no buying power in the market, and 3) nobody wants to be first to buy. Take all that into consideration, and is it any wonder we’re in a ± 15 point range with no clear direction? And, “oh by all means, hit a new high right at the European close by a couple of ticks so those idiots can go home … and then of course it backs off … time of day caused that mini rally cuz 11:30 is the European close and the shorts got to get out”. If we closed here, we’d be lookin’ at a dragonfly doji … just another doji in what seems like an endless stream of them lately … hardly the stuff you want to put a position on over.

It’s the Noon hour, and it feels like Christmas Eve trading conditions … this is just so pathetic, but it’s perfect if you work at the FED. Outside of the folks robbed at the European close, I don’t think anybody else has done anything. Here we are, and some of the M1’s have 1 and/or 2 point ranges, and they look like dots on my chart; over the last 26 minutes, the range has been 9 whole points, and I don’t have a clue [along with every other trader] what it means other than it’s an invitation to sit on my hands; there simply is ZERO going on and we are exactly 1 Dow30 point from the open of today’s trading.

I dunno, maybe I’m wrong, but this just might be the most pathetic “open to close” trading action day that isn’t a Holiday in the modern era of trading; about a 30-point range top to bottom with the obligatory “Flying Wedge of Death” trips to near the high and low a few times during the day. I said yesterday that the “setup” of what happened with that rally off of the low to a new high rather quickly, followed by nothing but chop and light selling, really dumbfounded many traders; and I think today’s lack of action proves my point, cuz the “setup” from yesterday into today has been messed up, and I don’t see any “pioneers” out there willing to take the arrows in the chest from the institutions on this Friday. Simply put, this day just sucks. Half hour to the close, and it’s time to bring the fat lady in to sing and end the week; nothing I can do when there literally is nothing to do. Obviously, no trades today; hopefully next week sees some trading action.

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Time for the beach … the dog and I are outta here … until Monday.
 
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