but the end of the rate hikes is just two weeks away.
It seems to me that this takes the dollar defense off of the field, and allows gold to run wild like Barry Sanders in an open field.
And gold is cowering in advance?
And there's the algorithm driving our crazy market. Just after my 2:45 post, with the hedgie signal pointing down, the Dow went down a fast 20 points. Then the US$/$VIX reversed and the Dow rallied off that low almost 100 points. Note that when the US$ strengthened near the close, $VIX stayed down and the rally held. Had I had the courage to take the signal, I would have made 70% on the DIWFO calls in the last hour. But I assume that the algorithm is dynamic, and that it is sensitive to time and interest rates, so the algorithm is far from bullet-proof.
Since last post 45 minutes ago, US$ has weakened, $VIX backed off, and the Dow is up 20 points to 10766 as we head into the last half hour. So the "hedgie" set up now points to a closing rally.
The options abuses have just gotten TOO dilutive for stock prices to make meaningful advances.
Despite the massive stock buyback plans that seem to announced with almost every earnings report, most companys (esp. tech companys) are still issuing more shares than they are buying back.
The game worked when options grants were small relative to shares outstanding... as usual, too much greed has spoiled the game.
"I may be completely wrong about this"...but
Yesterday the dollar strengthened, $VIX shot to a mult-year high and markets sold off ugly. Today the dollar weakened, $VIX dropped, and markets rebounded (so far). I noted yesterday that it was completely a computer-trading driven market.
This is a case for the "carry trade" driving wild swings in the market. The trade is put on, buying US assets with yen borrowed at cheap interest rates. The $VIX is sold to provide a cushion against FX differences. If the dollar strengthens, the FX differences begin to wipe out the FX cushion, and the hedge begins to unwind. Hence the wild computer driven swings. This has nothing to do with the climate for stocks in the US. It is globalization hitting the market class, just like it has hit the manufacturing class. When the hedges are unwound and Ben announces the post hike pause, the markets will be free to rebound.
Has any sector TAKEN/STOLEN/ABSCONDED with more shareholder money than the tech sector?
Multimillion share option grants.
Stock price too low? Just reprice options.
Options not worth enough? Just pick a better day to backdate them.
Too much cash on the balance sheet? Let's announce a buyback and buy up some shares, before we exercise some more options.
When does this end? I've said it a thousand times. The stock market doesn't go up, until this stock option game is abolished.
One thing you have to consider is that every point up in interest rates is a huge percentage increase in mortgage rates. SF Bay area has up to 80% of its mortgages as ARM's. A mortgage going from just 4% to 6% will see a 50% increase in interest payments. You are already seeing increases in foreclosures and a stalling housing and construction market.
The problem with pushing the rates up too high too fast is you can accelerate wealth destruction to the point of a nice recession coming into play. We are already seeing signs of it now.
Whether 6% would be too far too fast remains to be seen. These ARM's roll over in 3 year cycles mainly so you get a wave of new rates hitting people as the old ones expire.
ankle, that's a minority view, but one that I've heard.
The economy is starting to crumble now, at 5%. The inflation data suggest we should be 6% or higher NOW. But with the entire economy leveraged to rates, I just don't see how the Fed can take us there.
If I were a big hedge fund, I'd make a massive bet right now with gold options and index puts. At least one of them will pay off huge.