Chicago Fed Governor and permadove, Charles Evans, stated in a Chicago speech Monday that the Fed’s balance sheet will rise to $4 trillion. He added that the economy will reach “self sustaining growth” (aka no more training wheels) at “escape velocity” (some sort of NASA lingo). Further, the “economy is doing pretty well," minus the student loan bubble, subprime auto loans, recent manufacturing data, or the recession in Europe. Evans also channeled Japan’s Abe stating he wanted inflation to 2%.
With that speech, stocks started to sell-off as algos tried to comprehend this new lingo.
One aspect many investors must understand is that company stock buybacks have led to light volume and better earnings given fewer shares. From a financial engineering view, companies have taken advantage of ZIRP to borrow and buyback shares. This accomplishes little beyond a temporary bump in stock prices and great bonuses for senior management with stock options. But it doesn’t create more corporate expansion, innovation or jobs.
More than just a little interesting on Monday was a 2,500 contract sale of silver before the open in electronic trading when volume was light. This was either a mistake, stupidity or, as is more likely, a margin call requiring immediate action. This pummeled silver (SLV) and precious metals prices including gold (GLD). Perhaps this margin call was something bulls had sniffed-out previously. Once the selling pressure ended in a perceived blow-off manner, bulls raced in to buy, causing a $60 reversal from the low in gold and over $2 in silver. This reversed the plunge if only for a trade perhaps. But it also reversed the deteriorating conditions in most commodity (DBC) sectors including base metals (DBB) and crude oil (USO).
On Monday, stocks opened slightly higher and then rose after a light $1.45 billion POMO action settled. But then, and coinciding with Evans’ speech, brought out some selling.
Underperforming sectors Monday were mostly in defensive sectors such as healthcare (XLV) and consumer staples (XLP), while gainers included financials (XLF) and energy (XLE).
Late breaking is a rumor that SAC Capital’s Steve Cohen is considering to shutter his hedge fund and return clients money in exchange for settlement of an insider trading lawsuit. If true, that’s a big story. Perhaps Cohen has had enough since he personally has his billions. Should this happen, it would be like a “reverse POMO”.
Volume was ultra-light once again and breadth per the WSJ was modestly positive.
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There won’t be any economic data to speak of until Wednesday’s Existing Home Sales and Fed Minutes release in the afternoon. It shouldn’t surprise that Bernanke will be speaking Wednesday before the minutes are released.
Let’s see what happens.
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| Commodity | Quote | Change | Change % | NY |
| Gold | 1,382.30 | -13.50 | -0.97 % | 06:05 |
| WTI Crude Futr | 96.43 | -0.28 | -0.29 % | 05:51 |
| Index | Quotes | Change | Change % | Local |
| CRB | 288.78 | 1.19 | 0.41 % | 05/20 |
| US Dollar | 83.84 | 0.09 | 0.12 % | 00:52 |
| Index | Quotes | Change | Change % | Local |
| VIX | 13.02 | 0.57 | 4.58 % | 05/20 |
| MSCI | Value | Daily | MTD | YTD |
| Brazil | 2705.58 | 1.18 % | -0.31 % | -0.81 % |
| Russia | 770.49 | 1.00 % | 1.27 % | -4.59 % |
| India | 443.29 | -0.90 % | 1.73 % | 3.08 % |
| China | 62.33 | 1.54 % | 2.73 % | -0.83 % |
