Bernanke 8:30 Friday morning

Discussion in 'Trading' started by pumpanddumper, Jun 14, 2007.

  1. So what's the consensus on ET? Market up big last two days, Friday's are usually up, triple witching...gonna be crazy!

    8:30am USD Fed Chairman Bernanke Speaks

    I say Fed brings red or he just continues to lie through his teeth and market tests all time highs again...

    Default Friday's Data/Bernanke's Speech And The $
    The wealth of data to be released Friday morning is very likely to create a high level of volitility in the markets. Bernanke's speech will also be closely monitored. In order to get a clear idea of currency price direction-you'll need to take them all into consideration and then watch the reaction in bonds and equity futures.

    The best time to trade is when the market is thinking collectively. Becasue they are such a reliable indicator of market sentiment, movements in the 10y yeild and equity futures can be used as a leading indicator of likely currency price movement after Wall Street gets going in the morning, especially if the data points in the same direction.

    Wednesday was an excellent example of this. Bond yeilds dropped significantly and equity futures spiked on the good growth seen in the retail sales report. Import prices were up and while this was an inflationary indicator, it didn't affect market sentiments. Wall Street and carry trades had a strong day.

    There are serveral different scenarios possible for the data (and don't forget bernanke's speech). Here are a couple of ideas.

    Higher growth in the NY Fed coupled with higher inflation in the coreCPI will likely cause yeilds to rise and equity futures to fall. Carry trades could unwind in that situation.

    Lower growth and lower coreCPI will likely cause the 10y rate to fall and equity futures to rise-a good carry trade enviorment.

    Higher growth with lower coreCPI will also likely cause yeilds to drop and equity futures to rise. Good for carry trades.

    Other scenarios are possible too, but the point is to watch how the 10y and equity futures react. They're an excellent tool to use as a leading indicator of likely carry trade positioning and currency price movement because they are a direct reflection of market sentiment.

    Just a bit more about bonds and how they can relate to currency movment-specifically the dollar.

    There is always the question about why bonds are moving and who exactly may be getting in or out.

    For example, if foreigners, who hold a large amount of US debt, were to suddenly sell their bond holdings a sharp depreciation of the dollar could be seen even as bond prices fell and yeilds rose.

    The reason for that is the possibility that as foreigners cash out of bonds, they might then convert (sell) those dollars into their home currencies, driving the price of the dollar down as it's sold.

    This isn't likely to be the case though, because of the buying that came into the bond market as yeild on the 10y hit 5.3 this week. That was an indication that investors were seeking a safe investment at a relatively high yeild. If foreigners were doing the buying, they also must feel confident that the dollar is not going to depreciate to a large degree.

    This leads back to the question of why bonds sold off in the first place.

    One school of thought is that because US economic indicators are picking up and the Fed and Treasury remain committed to their projections of an economy returning to trend, investors got out of bonds to invest in potentially higher yeilding assets like equities. In other words, the rise of yield is a bullish indicator.

    Another school of thought relates to inflation expectations. Bond yeilds will rise (and prices fall) if inflation looks to be gaining. If you are an investor who is not holding the bond to maturity, you want to sell because the value of the asset you're holding (the bond) will be going down in a situation of rising inflation.

    The fact is that no one can say with complete certainty what exactly is behind the recent bear market in bonds. If you look at the economic indicators though, the first school of thought seems most likely.

    That's because equities are apparently remaining a very attractive investment. A few months ago, there was a lot of debate about whether there would be a "hard" or "soft" landing in the US economy. By all accounts, the question has likely been settled on "soft", even as problems in the housing market remain. It's likely that the landing ocurred in Q1 2007, if you missed it.

    Consumers are still spending and jobs are plentiful. Gas prices are not affecting major spending patterns as of yet.
  2. S2007S


    I think there is about a 75% chance the market rallies to new highs tomorrow. CPI # wont matter much to the market and anytime Bernanke speaks the markets move higher.
  3. just as a pointer to others and im not being sarcastic but can everybody stop referring to the stock market as 'THE MARKET'.

    i think we need to be specific here because the bond market has been going into meltdown the last few weeks and others markets are moving as well.

    in light of this can people refer accordingly as maybe others are confused as i am when reading some posts.
  4. Right, the market in this case being the overinflated DOW.:(
  5. roncer


    Cramer's view:
    Five days ago we were supposed to sell everything because bond yields soared to 5.21% and the 10-year Treasury traded down to 94.5.

    Five days later we are supposed to buy everything. Why? Because the bond yields fell to 5.21 and bonds climbed to 94.5.

    You can't make this stuff up. That's what happened.

    Perhaps, therefore, we should step back and ask ourselves some questions. First, what really happened with the bonds and the stocks?

    The answer has to do with the mechanics of large-scale money management.

    When interest rates sliced through 5% on the 10-year, going to 5.3%, managers who live and die for these levels -- don't look at me I was never one of them -- swapped out of stocks into bonds.

    They did so with stock futures, which allowed them to lock in some prices while laying to waste the underlying stocks because the buybacks and buyers could not move fast enough to take advantage of the declines.

    There was a void, a void caused by the futures-led selling. Think of it like the February selloff. Because it was so violent, we had to find reasons why it happened, or at least make up some. We heard all the usuals -- rampant inflation, China, etc., detailed in an earlier blog.

    Then the people who wanted out finished. The bonds basically dropped in price a little more, but not enough to trigger another level of program selling of stocks to go into futures. That allowed the stock market to stabilize.

    If bonds had gone to a 5.5% yield, another round of programmed monkeys, oops, I mean managers, would have sold another round of stocks with the futures and bought bonds, but interest rates didn't go that high.

    The bonds caught buyers who liked a piece of paper with 5.31% yields and stopped going down in price.

    Hedge fund managers who bought into the economic bearishness, though, had to prepare for 5.5%.

    Guys like Bill Gross made you feel that it was a certainty. So the hedge funds put on lots of June put hedges to capture the decline and make money.

    But there was no decline to capture, and the puts needed to be sold or used as a backstop against common-stock buys.

    When you combine a stable bond market with put-buying and the first oversold market in awhile, you caught the spring up.

    Now, we probably have seen the run. But nobody wanted to be short at the end of the day because the new pattern, one that has been blasted into our heads this year, is that the market rallies on Friday because no one wants to be short for merger Monday.
  6. Really got no coverage this morning. Just more focus on cpi #'s...

    Today, 8:55am
    Thomson Financial's Avatar
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    Default Fed's Bernanke warns mkts may be underestimating impact of property slowdown
    WASHINGTON (Thomson Financial) - US Fed chief Ben Bernanke warned that observers may be underestimating the impact of a slowing housing market on the wider economy.

    Bernanke said 'changes in home values may affect household borrowing and spending somewhat more' than economists have traditionally assumed.

    He highlighted Japan's 'lost decade' of the 1990s when the collapse of the real estate bubble so devastated the balance sheets of banks and borrowers that lending virtually came to a halt, stifling growth until quite recently.
  7. S2007S


    :p :p :p :p :p :p :p

    No need to worry, 3 straight days of INCREDIBLE GAINS.