MARKET COMMENT
December 14, 2006
After
a few days of relative calm, stocks were driven higher today by some
heavy duty liquidity injections from Uncle Sam. [And, people wonder why
there’s so much cash around.] The actions below have been typical and
coincided with rallies in previous months over the past few years.
Who gets to play with all this money? The Primary Dealers listed below of course.
You’ll note that “some” of the government’s generosity today
came at rates below the posted Fed Funds rate of 5.25%.
Sometimes these funds aren’t repaid by the borrowing primary
dealer. When that happens, new money is
created out of thin air. But while “Da
Boyz” have the dough they’ll surely route it to their trading desks.
Further when you connect this type of activity with the
players and then study their earnings reports carefully you’ll note profits
from trading activity is the largest single source of revenue and gains for the
“gang of 22”. Should you care? Well, it is “your” money they’re playing
with. And, you can’t play, just
follow. Speaking for myself, I’m
jealous.
This is the way things work today. Fight it at your peril.
While the big boys play, retail cash-flows are strangely
missing. It’s often thought that when
retail commits to the market, that’s the time to exit. [As if this hour, I only have last week’s
numbers, but that should give you the idea of who’s in charge of this market.]
While the stock market is behaving like December 1999, then
the Fed was tightening credit and trying to constrain money-supply growth. But we also had Y-2K to worry about and
equity markets were in a frenzy to go with the dot.com boom. Some may remember that in early January 2000
when world computers continued to function well, a powerful, albeit brief,
sell-off occurred. This shook-up a lot
of investors but the rally quickly resumed for a few months before the bear
market set-in with a vengeance.
I have no idea whether January 2007 will begin with heavy
profit-taking or not. The market isn’t cheap
and is by most measures overbought. But
it can continue in that manner for a period beyond rational analysis. If the Fed and Treasury keep providing
liquidity markets will continue to rise.
The only insurance an individual investor can maintain is probably
having some allocation to gold since this liquidity orgy debases all fiat
currencies.
Today I also noted that the SEC is proposing that banks be
allowed to receive commissions from mutual funds without having to register as
brokers. They needed this kind of
help? It should remind you that many of
the rules implemented by the SEC after the 1929 market crash are being whittled
away. The demise of Glass-Steagall was of course the major change which created today’s
featured players. Last week the SEC also
suggested eliminating the long standing up-tick requirement for shorting and
are thinking of decreasing margin requirements from 50% to as little as
15%. Things are changing that’s for
sure.
Anyway, back to the action today. Everything was up except bonds and
currencies.
Let’s focus on a few other sectors that usually are of
importance.
And, how about some odds and ends?
And overseas markets were as or more heady.
Tomorrow is “quad-witching” when futures and options expire
for December. Lot’s
of goofy things can happen as volume builds as trader’s need to settle
positions. Do you think there are any
shorts left to squeeze after today?
Well, maybe a few brave souls.
As for the Da Boyz, if you can’t beat ‘em,
join ‘em. That’s
our philosophy. They’ve been the
beneficiaries of a boatload of cash from the government to keep things well
oiled through the holidays. It’s scary
and controversial stuff that the mainstream financial media hasn’t written a
bit about. I wonder why?
Have a great weekend!
Disclaimer: Among
other issues, The ETF Digest maintains positions in: SPY, QQQQ, MDY, PZJ, PZI,
IEF, GLD, SLV, USO, DBC, PHO, PBW, EFA, EEM, ILF, FXI and EWA.