The Fed Invents Its Own Good News
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October 29, 2014

10-29-2014 7-25-20 PM Absolut

The Fed can invent its own reality because escaping from QE is a must since their balance sheet is way too large.

But, they basically have just said “what we’ve done has worked and now we move on”. We know better but they and the financial media can spin it any way they like. Even Greenspan, perhaps feeling left out, noted today that “…purchases of Treasury and Mortgage-backed Securities did help lift asset prices (stocks) and lower borrowing costs (stock buybacks). But it didn’t do much for the real economy. Effective demand is dead in the water and the effort to boost it via bond buying has not worked” And in a final note added, “I don’t think it’s possible for the Fed to end its easy-money policies in a trouble-free manner. Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”

And who were the largest beneficiaries of QE3? The chart below shows U.S. taxpayers paid it to foreign banks. (No wonder Bernanke & Co. didn’t want an audit.)

10-29-2014 7-30-30 PM Cash 1.2

Sure, I can hear bulls say clearly, “Look Dave, it’s about the tape and nothing else. And worrying about truth, honesty and the American way is a waste of time. Got it Superman?!”

Try as one might to exclude bullshit and just go with the tape is the money manager’s primary role. So just shut up and just enjoy the ride dammit! Writing about conditions challenges your sensibilities. There are some genuine earnings which should lead markets higher. But it should be pointed out that any large corporations are enjoying free Fed money courtesy of ZIRP to buy back shares thus reducing float upon which EPS is based.

The current volatility is built in to the process of ending QE and raising interest rates in the future won’t be done as Greenspan suggested in a “trouble free way”. Today the old saw, “the first move’s the wrong move” proved true once again. Out of the gate stocks fell and kept falling until the invisible hand entered to move stocks to nearly unchanged by the close.

Leading market sectors higher included: The dollar (UUP), Crude Oil (USO), Natural Gas (UNG), Banks (KBE) and Bonds (TLT).

Leading market sectors lower included: Most everything else more or less.

The top 20 market movers by percentage change in volume whether rising or falling is available daily.

Volume is a little higher with Fed reaction and breadth per the WSJ was negative.

10-29-2014 7-31-56 PM Diary

 

Charts of the Day
  • SPY 5 MINUTE

    SPY  5  MINUTE

  • SPX WEEKLY

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  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

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  • XLB WEEKLY

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  • XLE WEEKLY

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  • KBE WEEKLY

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  • IBB WEEKLY

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  • IYT WEEKLY

    IYT  WEEKLY

  • IYR WEEKLY

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  • XLY WEEKLY

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  • TLT WEEKLY

    TLT WEEKLY

  • UUP WEEKLY

    UUP WEEKLY

  • FXE WEEKLY

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  • JJC WEEKLY

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    RSX WEEKLY

  • EPI WEEKLY

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  • FXI WEEKLY

    FXI WEEKLY

  • NYMO DAILY

    NYMO  DAILY

    he NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.


     

  • NYSI DAILY

    NYSI DAILY

    The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

  • VIX WEEKLY

    VIX WEEKLY

    The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.


     

 

 

Closing Summary

I find it remarkable how little publicity is given to the U.S. Fed’s largesse giving printed money to foreign entities. How can this happen without any complaint? And yes, QE3 and those preceding it had benefits to banks and large corporations but it didn’t reach Main Street. There wasn’t much in the way of serious employment gains despite the unemployment rate decline that didn’t do much for real jobs. Those have left the country for good.

Economic indicators tomorrow include GDP and Jobless Claims. Janet Yellen gives a speech on “diversity” at Fed meeting on the subject. Maybe she’ll use the occasion to promote Fed policies and drop a few dovish hints for investors.

Let’s see what happens.

 

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Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001.

He is the author of "Create Your own ETF Hedge Fund: A Do-It-Yourself Strategy for Private Wealth Management" published by Wiley Finance and "The Best ETFs: U.S. Equities, A Companion Guide to Building Your ETF Portfolio"



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