Overnight markets were a bit lower, which negatively impacted the Spooz, though it did not take long after New York opened for the initial losses of roughly 0.5% to be nearly eradicated. There was no particular cause for the rally that I could see; macro data in the form of consumer confidence was a smidgen better than expected, but I don't really think that was the culprit.
"Clowns to the Left of Us, Jokers to the Right. . ."
Perhaps we are -- and have been -- in a rut where stocks don't go up well, but they certainly don't go down well either. In the last week or so I shorted the tiniest amount of a handful of stocks and covered them rather quickly, as for the moment stocks don't want to sink, no matter how much one thinks they ought to. (That said, today saw Lexmark and Unisys get clubbed on smallish "misses," much like Adobe was a few weeks ago).
On the other hand, good news doesn't seem to matter all that much. I think stock bulls may be getting a little overly optimistic thinking about QE2 and the possibilities of gridlock in Washington after the election, as they are factoring in all of the potential positives and none of the negatives. After all, there is no way that interest rates are going to stay where they are indefinitely, and once they start higher they are liable to do so dramatically. That is just one of the reasons we will see the compression of price multiples over time.
Game of the Year: Bulls v. Bears at Limbo Field
Still, that thought process is not really today's business, since it seems unlikely stock prices could fall dramatically until QE2 is a fact. The really intriguing question is the one I touched on yesterday: will QE2 be sold in any or all markets? The answer depends to some degree on what has already been discounted. It would seem that half a billion dollars or so of Treasuries and/or mortgage-backed security purchases has been, but perhaps something north of $1 trillion has not.
Obviously, I don't know exactly what the Fed is going to do (besides create lots of inflation). Last week I had the chance to talk to a friend who is pretty plugged in and he seems to think we could see something between $1 trillion and $1.5 trillion (i.e., maybe $100 billion a month or so, indefinitely). Were that to be the case, stocks and bonds would probably need to rally before they would be sold, and the same might apply to other markets as well. But I would say that this is liable to be the last hurrah for the deflationists and their favorite momentum vehicle: bonds. However, all this is conjecture until we know what the Fed is going to do (and actually does it).
From "The Boy in the Bubble" to the "Man in the Box"
I believe the Fed is trapped because if Bernanke disappoints the markets, stocks will likely fall through a trap door and we might have something on the order of a "flash crash" in a heartbeat. Presumably he knows that. In the event that he doesn't, he would find out soon enough, and you can be sure that more QE would be forthcoming immediately. In any case, it is literally just about the only thing that matters at the moment (along with the election). So between now and next week's Fed meeting it is hard to imagine any data points (other than election results) that could affect the market in a meaningful way.
Over the course of the day the indices flopped around unchanged after the brief early selloff, which is pretty much where they closed.
Away from stocks, the dollar was higher, oil was flat, and bonds were lower. Silver gained 1.5%, while gold went nowhere.
Positions in stocks mentioned: none.
