Larry Levin’s Blog: Crack Pipe Be back with the daily day trading blog with Larry Levin, the topic for us to discuss today is about “Crack Pipe”. Just note down the latest news to guide your trading decisions!
The market was smoking from the same crack pipe as Monday. Much like yesterday the market received bad news (arguably MUCH worse), but chose to ignore it in favor of the buzz elicited from the crack pipe. On second thought, perhaps I should give the pipe another name, because the one being smoked on Fraud Street is packed with hopium – not opium.
Last month’s consumer confidence report was a lowly reading of just 59.2. The reason why that is considered a low data point is because if the economy was indeed “recovering,” consumer confidence would be north of 90.0. Moreover, confidence in ones future is what drives sales of homes, appliances, electronics, cars, etc. so this is an important report to be sure.
The lowest estimate of the incompetent group of soothsayers on Fraud Street known as “economists” had this number coming in at 45.0 with a median guess of 52.5. The actual reading was just 44.5 – below the lowest estimate, less than ½ of what it should be, and the worst reading since the depths of the crash!
From Bloomberg we read “This paints a picture of underlying demand weakening,” said Bricklin Dwyer, an economist at BNP Paribas in New York, whose forecast of 45 was most accurate in a Bloomberg News survey. “Consumers are seeing their wealth deteriorate. We’ve seen a huge decline continuing in the housing market. They’ve also been hit on the chin by the equity markets.”
“ Whatever Mr. Dwyer *pffffffft, cough* never fear – the crack pipe is here! Take a hit of hopium; let’s get gooped up on the gop…and lift every offer in sight.” After an initial plunge, the market skyrocketed to new intra-day highs, new daily highs, and new weekly highs.
According the morning’s S&P/Case-Schiller housing report, prices of homes across the US continue to crash. But that’s old news by now, so according to Fraud Street it no longer matters and should be ignored…until prices rise, then they will magically matter in a big way.
Charles Evans of the Chicago FED was quoted on CNBC as wanting “to do more easing” (loosely quoted). He later spoke to the Wall Street Journal in which we read Mr. Evans, who stirred markets with similar comments earlier in the day on CNBC, said he felt the Fed needed to make an even stronger commitment to keep interest rates low.
He worries the public has tended to be too quick to assume the Fed will raise interest rates whenever the economy perks up a little and says that view is undermining the recovery. “I would want to nail down expectations about accommodation,” he said. “By itself that would be very helpful.”
Mr. Evans doesn’t think the Fed should raise interest rates until the unemployment rate gets to 7% or 7.5%, or unless inflation threatens to move up to 3% in the medium-run. The Fed has a 2% long- run goal for inflation, but just as it undershot that by roughly a percentage point during the recession, he thinks it is OK to temporarily overshoot it, too.
Additional hopium was packed into the crack pipe by Government Sachs (GS) and then JPM. GS told the Fed how it should (read: will) introduce QE3, which is to implement one or all three of the following; buy securities other than Treasuries (which I believe is illegal, but who’s gonna complain) like ETFs, corporate bonds, etc, announce an unlimited purchase plan of any Treasury and, announce an implicit or explicit change in the Fed’s policy targets (inflation).
JPM packed the final *ppffffffft, pfft, cough, COUGH* crack pipe with the new drug of hopium saying that it now believes in a better than 50/50 chance of QE3. Said another way, the banking mafia is demanding QE3 and like I said yesterday: what the banking mafia wants, the banking mafia gets.
Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.