Dow Soars In Response To Historical Rate Cut

Bravo Fed...Bravo. I have to tip my hat off to the Fed for their slide of hand on cutting interest rates today. They were able to manage expectations to create an explosion of excitement today. Throughout all last week, all of the signs and the announcements the Fed was releasing to media had to do with their probability of not doing a large cut. By doing so they were able to control expectations to a minimum and surprise the world by their cut to pretty much 0%. It actually is a range of 0-.25%, as they feel it would be easier to manage having a range. Much like the finale of a firework show, it seems as if the Fed has saved the best for last. This is their big finale to hopefully pull us through the next year. Although they claim to have other factors to help stimulate the economy, there is nothing comparable to their "trump card" of cutting rate. By their move today, they have become very vulnerable to future expectations.

Things started out when both Best Buy and Goldman Sachs announced "better than expected" numbers, both, however, being losses for the quarter with some strict guidelines for the next quarter. Media is doing a great job of managing the day traders by using such terms as "market expectations." By doing so, it is helping to ignore the fact that these companies are still suffering losses and are hurting more and more in an unstable economy. In fact, I am not even listening to some of the analysts out there, as I feel they are trying to manipulate investors. I have been very satisfied with Morningstar. They have a GREAT annual subscription or you can sign up for a membership to use their free website tools. See more at Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds. Either way, the market has purely become one that reacts off of speculation and should be factored in when making investment decisions right now. Fundamentals are completely gone at this point and our future has become even more so darkened.

Of course a day like today will cause for extreme buying volume. However, despite the huge gains, volume was still not high. Just a bit above average. Many people are still holding back. The bears fled at sight. The belief is that buy having almost 0% interest rates, this should stimulate mortgage, credit card, and small business loans. However, in my opinion, this is not possible. The monumental debt which is due in 2009 is far greater than available funds that the bank has. The CMBS, conduit loans have destroyed our lending system for a very long time. Unfortunately, a majority of the American people don't know this. Either way, expect to see this market continue to rise in the short term as we still have an auto bailout to pull off as well as more upcoming stimulus plans.

To hedge my shorts, the only sector I feel comfortable going long is commodities. Buys like POT, GDX, DIG, SLVR, GLD are the few stocks that I feel aren't as vulnerable to having the bottom fall from underneath them. Financials scare me tremendously, especially after the extremely over zealous buying which has gone on this month in the financial sector. With the Fed looking like they will continue to print money as long as it takes to get banks lending again, I believe commodities are due to fly. The US dollar will be worth nothing. 1990's Japan, here we come.

Expect this rally to probably push into tomorrow. People are so love struck by the Fed, I don't even think disastrous Morgan Stanley numbers could even phase them. World markets should cheer the rate cut tremendously in their markets this evening. This market should pull back one day after this momentum slows, as it usually does after an announcement driven rally. Either way, I plan on buying more SRS and either FAZ or SKF tomorrow as they are sure to be down to all time lows. These may seem like a sinking ship to some of you, but I personally feel that once this emotional rally is finished, there is a lot of problems to sift through. If I can keep lowering my basis on some of these shorts, it will be that much better for me during, what I believe to be, the 2009 disaster. Most of these "day traders" have quit (or been laid off) from their jobs, so they don't even know whats going on in Capital America. There are many, many tough times ahead.

With my long UYG, DIG, and GDX options expiring Friday, I have been trying to decide whether to sell them or execute them. Most likely I will sell a lot of them during tomorrow, if the market remains up. I may flush those profits right into POT and SRS.

Well, its a rough day for the shorters today. Patience. Houdini just performed his final trick and seems to have nothing left up his sleeve. We are, as the poker players say, "all in." I hope for the best with our economy and hope that somehow we can lessen the pain that is to come in 2009, I just don't see that possible from happening. Have a good night, see you tomorrow.

16 comments:

  1. Anonymous Says:

    Hi FF,

    Thanks for all your insight once again..do you think the following article may have anything to do with the late push? considering some of the short etfs have become more popular (and in fact, since the mechanics are based on swaps, not actual shorts), that with all these long AND short etfs sending in more buy orders at eob?

    http://online.wsj.com/article/SB122929670229805137.html

    Any thoughts would be appreciated.

    Thanks,
    A

  2. Anonymous Says:

    I have been reading your blog for some time and have unfortunatley bought into most of the ETF's you've quoted here. I wonder if you could divulge what your avg cost is on SRS since you've been saying buy on this since at least the 120's, maybe 140's. This has been sinking like a rock and for this to go back close to 100 at this point you would need a significant pullback. All indicators are for this rally to continue for a couple weeks to close to 960 at least on the S&P. Where would SRS be then??? Maybe 40's.

  3. Finance Fanatic Says:

    A,
    I don't think ETFS are solely to cause for end of day rallies. I just feel that people are waiting until then to pull the trigger. 90% of our market is day traders now. The final few minutes have been the most volatile time to trade.

    Anon,
    Like I've always said with these 2x etfs, they are volatile. We saw SRS up 30% on Thursday and down 20% on Friday. Unfortunately, we have found ourselves in a government stimulated rally. My basis is at about $92. Even though I began buying at $120, my volume was not nearly as high in my first rounds of buying then my most recent, as I said in that particular post. No one can predict what the market will be doing, especially in the short term. I personally, remain bullish in SRS, even if it does go down to $40. The fact that is what $250+ a month or two ago, shows that it moves at its own pace. Combined with the commercial debt which is coming due in the next few years, I don't see how these REITS will survive. I try and not worry about the end of the year, as the market always seems to move at its own pace during this time of year. These are my own feelings. I just don't feel comfortable going long at this point.

  4. djdhrubs Says:

    i agree that there will be a slump, but do you expect it to occur before or after christmas? like you, i'm planning to buy srs and faz tomorrow, but picking a bottom is very difficult. people, whether they be right or wrong, say that xmas is traditionally a time for rallies. others say that the run up to the new president being sworn in is also time for a rally!

  5. Finance Fanatic Says:

    DJD, I agree with what you are saying. Picking a bottom is difficult in this market. I personally try and rely on fundamentals and where I believe the market is heading. Stocks usually rally during christmas, because of the huge increase in consumer spending. However, this year it is rising because of government expectation. I just feel that not a 0% rate, obama as president, or elvis showing up will prevent us from sinking deeper in this economy. I personally feel that reality will eventually show its face in the market. I do not know how long it will take, maybe a couple months. I am patient and my investments are patient.

  6. Paul Says:

    I see that you like DIG, what are your thoughts on DXO?

  7. s Says:

    I laughed my ass off today.GS posts losses it goes up , BBY posts losses(from profit) goes up!!!!Lol!
    I really feel sorry for the GS shorters today.They must've thought it's a sure bet to short GS.
    All I say to you just wait for February to kick in when all the excitement is out.
    I bought some more FXP today and can't wait to get out of my BAC and other longs that I have.
    So , just patience , we'll get there.
    And OP , I still think oil will hit $25 in February.
    The world economy is out of steam , nobody will buy the oil anymore even though Obama will shut down drilling.
    Who buys the oil in this world , let's face it , US consumes about 25% of production.US is going to have a lot of trouble starting next year and ending , hopefully next winter.
    Everybody sells here my friends , if we don't buy , they're dead and as of now we are not buying anymore.We will again after all this has passed.

  8. Michael Singer Says: This comment has been removed by the author.
  9. Michael Says:

    Ok, so I have been reading this blog for the past few weeks, and really like FF's writing style.
    On the other hand I read the reverse ETFs are supposed to be used only for short term (e.g. buy today, sale tomorrow) since, as has been noted, they are very volatile, and when loosing tend to go into a spiral dive. Just to make things clear, I bought me some SRS and planning to get some FAZ, but I am not sure about going long on these shorts (holding them for a few weeks hoping they'll go up), since the textbook (or at least seakingalpha and other sites) says you really shouldn't.
    Would really appreciate some guidance here.

    Thanks

  10. GPUrooky Says:

    Some questions for Finance Fanatic . . .

    Government Orchestrated Periodically Scheduled Events (GOPSE)

    In order to deter shorting, could it be that future government actions are being conveyed to both mutual and hedge fund managers who then buy and hold stock so as to benefit from these periodically scheduled government-orchestrated events?

    Now it seems that quasi-good news causes an exponential rise in market sentiment. In contrast, really bad news seem to be treated inversely proportional to the quasi-good news. In other words good news is significantly amplified and bad news is significantly dampened.

    The weakness in our positions is that the government seems to be bent on raising/maintaining the DOW both by printing money as needed and by buying everything slowly.

    The government probably has a schedule of marketing milestones to raise the DOW well into next year. It seems to push the market upwards once or twice a week with these staged events. So do we need to pair up with SRS/URE and FAZ/FAS and take advantage of the governments intervention?

    The government is nowhere near being out of bullets, they can keep printing and buying for months. Therefore, is it possible for us to take advantage of this rocking motion caused by our government’s efforts to fight market reality?

  11. Anonymous Says:

    Hey guys,

    Be alert. You cannot resist the short term sentiment of the market. We have seen awful news and yet the market going up for "speculation". And watching the market for the past two months, the "futures" are manipulated. So, when the futures are down, they (such as hedge fund managers) manipulate the market so they can do the opposite. So, I anticipate another major announcement (on top of OPEC's today) which will fire the market again. Let's see if I am right.

  12. Anonymous Says:

    Hi FF,

    Is there a relation between the trend of Gold and Oil prices? I mean historically would the Gold price go down with the decrease in oil price?
    In other words, what are the factors we should look for that possibly affect the price of Gold.

    Thanks

  13. Finance Fanatic Says:

    Michael, there is a lot of debate of the length of term of these etfs. I don't plan on being in these short etfs on into 2010. I do feel that I am fine being in them through 2009, as I feel there are still a lot of hurt to come and these etfs still can move. Either way, the remain very volatile in both directions. It is just working to play the bumps right. Unfortunately, this last round, I started my buying rounds a bit early. It may cut into my profits in the long run, but I am still optimistic for my portfolio. I have also been making some money on the longs as a little hedge, but not much. They are very volatile and risky, especially FAZ, so it is not for the faint in heart and I never go all in on them.

    I think there will remain some govt intervention for the time being that could cause some more speculative movements in the market, but we (the govt) is running out of bullets.

    Anon,
    Really, the only relationship gold has to oil is there both valued as a commodity. However, I would not link them to move in sync, especially in our market. Oil also merges into the energy sector which also differs it from gold. The reason why I like gold much better right now, is that it usually is increased in value as currency falls (even though the US is not on the gold currency anymore). The point is no, I wouldn't value them the same. Gold will usually move with commodities and inflation fears.

  14. Finance Fanatic Says: This comment has been removed by the author.
  15. Finance Fanatic Says: This comment has been removed by the author.
  16. Michael Says:

    Thanks FF, said it before, and I have to say it again, I love reading your blog.