The Fed is considering selling 2 year notes and buying 10 yr notes in order to lower longer term interest rates. The goal, is to get mortgage rates even lower than the present 4 percent. The belief is that this might spur real estate recovery. With unemployment stuck at 9 percent and with zero job growth last month, all the fed can do is make money cheaper.
The problem is, there is a ton of cash sitting idle. No one wants to make any plans with uncertain policies looming in front of an administration that is viewed, correctly or incorrectly, as anti business, pro union, pro beurocracy and pro class warfare. Like much of life, the perception is more often more important than the reality.
Banks, who were bailed out and re-paid the government after the March 09 bail outs, now are content to sit and protect thier money. A friend of mine in the residential market told me it is almost impossible to get a home financed.
Super wealthy investors are content to sit and wait to put their money to work.
Boeing is told it can’t open a factory in a right to work state.
Its hard to foster job growth in an environment where you have political intrests at odds with best business practices.
In any event, the markets do not particularly like it. After trading up to 14000 over night, the Doe futures are now at 11,010, down 302 points in the future.
This should also put pressure on commodity prices in general. The US Dollar is now up almost a whole penny, at 78.25, a 6-month high.
Already as I right this, Crude Oil is down 2.00 at 85.00 a barrel, Gold has dropped 35 bucks off today’s high and is at 1785. Gold looks poised to take a run at the 1720 level again. Just 12 days ago, Gold made a record high at 1920, and people were telling me that $2,000.00 gold was a slam dunk. Silver looks like it might take a run at the 39.00 level. I wonder how all those folks who bought silver at 49.50 back in April are feeling now? The Spring lows at 32.50 make an inviting downside target for silver.
Personally, I tried to buy breaks in the stock indexes. I was looking for a rally in stocks on the idea that the Greek problem would be addressed, and the shorts would have to run for the hills. 3 sell stops later, and we are out. The only mistake I made was not flipping when the Dow moved below 10300, but that seemed like a recipe for a disaster, trying to catch each and every move.
For what its worth, 11,000 is a support level. Use it to cover shorts and initiate longs. Below 11,000 we have 10,850 and then 10,700. We could be there by Friday morning. The august lows down at 10,400 beckon as longer term support and an extreme level which would not surprise me to see tested in the next 2 weeks.
11,000 is a big round number which will attract attention in the Dow futures.
6.50 in CZ and 13.00 in SX will attract attention as well. Large spec funds are still long 300K contracts of corn and 150K contracts of beans.
Who is going to take the other side if they decide to get out? Or worse yet, get short?
Wednesday night (tonight) and tomorrow through Friday should be volatile. The only answer to trading volatile markets is to trade smaller with larger windows of stops.
If 678 does not hold in CZ, that could accelerate fund selling. Regardless of the fundamentals, the price model looks like it needs to be adjusted. Adjustments like that are usually sudden and destructive.
CER