Bond Fund Managers

Government participation through TARP and FDIC guarantees have created some trade adjustments which need to be followed closely. US bond fund managers are trading but also sounding out intentions and hoping the Fed and Treasury might reveal the ultimate end game.

More Rally

Further recovery on Wednesday as sellers backed off while glee attached itself to the 'save the banks' plans put forth by the new administration. Volume was decent but no rocket, as the overall price action now consists of less players than a year ago. Pricing will continue to flow into the market as long as there is no hard reversals in the next few days.

Designing Risk Strategies

The discussions about market failures over the last year and a half continues to focus on the lax risk parameters implemented by banks and brokerage institutions. The greater cause however was the type of talent involved in establishing investment strategies and how they inaccurately evaluated the risk scenarios. Proper assessments require enormous amounts of time, testing, and reviewing real-time day to day data in various sequential forms. Real dollar and opportunity costs are substantial but must be weighed against just simple risk evaluations or proper risk reviews that get it right. In order to create adaptive trading strategies scaled for success, several areas of operations must be tackled. Most importantly, they are, identifying the irreducible risks and designing performance standards the enterprise can execute. To many trades were constructed with foolish risk spread specs, which never had a chance to protect any assets in extreme markets.

Articles

For those who love coffee.

Market Keep Trying

Markets will try to build a launch pad from on top of a small island of support chiseled out over the last six sessions. Some market timers are looking for a rally from last week's lows but the ranges thus far have been too small to claim any noticeable success. With the amount of data coming forth this week along with the Fed meeting, anything is possible in an environment which is decidedly bearish.

Loads of commercial paper will be coming due this week and the results of how the market absorbs it will be closely watched. Also, there is some evidence that the relief train is starting to see increased interest from banks, brokerage, and traders who are determining what backstops will allow risk trades to work. Even the life insurance industry is seeking relief from the G which will be met with significant resistance since any deal may weaken their obligation to perform.

Articles

Here are a few articles which are of interest;

Rising Rates

Fed May Gain More Financial Oversight

Man The Pumps

A week to forget again for the DJIA, especially for GE. What a pig. GE represents the constant drip of liquidation the general markets have been unable to shake. On the tech side, some stocks such as AAPL have briefly been able to buck the trend, but if you discount how the cult is trading, even it could not take out last week's highs and thus still has to fight off the lower general trend.

Late on Friday, Freddie Mac announced it will request another bundle of cash from the Treasury. These streams of requests from the BAC, CIT, and now Freddie underscore the insolvency of these financial institutions. We now know that TARP, the first half, was originally approved because the Fed and Treasury told members of Congress the nation's banks were in essence broke or would be shortly if they were not pumped with liquidity. Now the pumps are still pumping and everyone is looking overboard to see if the ship is fixed and has stopped going down. And that just how the stock markets are trading and how the bond markets are trading. No one really can see below the waterline, but some signs, like the aggressive liquidation taking place in GE, makes traders wonder if it is possible to have a catastrophic failure during repairs.

Plowing Lower

Markets plowed lower as bank problems remained the focus of traders and certainly the underlying sore on market confidence. Word that State Street Bank Corp. is carrying fixed income problems as well as BAC needing an additional blast of cash, all created little hope despite a pep talk from the new President.

Bears will hope for a quick hard down move so they will not have to dodge any reactions from an Obama administration sending a message via some unexpected creative measures. Hard to figure what those measures might be but markets can become extremely thin when reacting to any blind side.

Decent Rally

Decent rally on Friday. Continued talk of some big job cuts across various industries with GE Capital looking to drop 11,000. Some timers look to see further bounce into next week with few economic reports due.

Rally

INDU, SP500, and NQ100 rallied sharply of their lows on Thursday with a sharp spike in volume in the Dow Jones. BAC continues to take a hit as they look to the G for relief in financing the Merrill deal.

Talk about Morgan Stanley looking to secure a supertanker to store oil at these price levels with the expectations of higher prices later this year. These guys have trouble trading in anything they cannot figure out, which is just about everything. What makes anyone think they have figured out the oil market? Their own stock is down -13% this year and -65% ytd. The only action they have succeeded in is where they get traction for transactions. Morgan will continue to be a fade.

Competing To Liquidate

Markets continue the retreat as little interest in buying is evident due to the general malaise engulfing trading. After the close, AAPL announced Jobs was taking a leave of absence and ' the cult' immediately barfed on their MacBooks. Certainly the company is more than one guy. At least it should be after the stocks breaks -56% last year and another -8% this year. Either the stuff is good right here on the product and the discount, or it is not. AAPL and other successful companies represent issues not of liquidity, but whether any of the connecting elements which feed from the financial sector back to stocks, are solvent. Either the Fed and Treasury are going to be successful right here in the first quarter or there is going to be an unbelievable drag on prospects for reclaiming any ground. Restoring national wealth will be Herculean task, leaving most unable to recover for a decade.

The reluctance of Congress to grant the second round of TARP is well founded. It is a legitimate question to ask just what has all this liquidity done. And if it has done nothing but stabilize several financial corporate institutions while the rest of the nations jobs and wealth tanks, the money should just be returned.

Winning this battle is having a plan that the geniuses in Washington and Wall Street have demonstrated is worth their over compensation. This is all about delivering financial conditions transparent enough where markets can develop trading strategies competing to take risk rather than competing to liquidate.

More Where That Came From

Bernanke in London told basically every one that 'there is more where that came from' with regards to additional stimulus. Markets are nervous and having all agree to the ' no one knows where these markets are going ' song, a trader has to take a shot on the buy side here. The Fed and Treasury are trying to monetize the long positions it would seem for at least for a 25% retracement from the lows. While they certainly do not have a target, they are going to make it increasingly hard not to place some of the liquidity into equities. With the size of the equity pool, that could be a significant position spread over players who in turn are spreading out risk with a discounted market and a long term time horizon. May not bring the bull back, but would certainly diminish bear prospects.

First Quarter Trading Really Begins

Volatility should kick up this week as the markets begin to establish first quarter battle scars. Despite the yearly romps in October, the first three months of the year are never without plenty of action. Monday saw commodity prices begin the week with sharp losses as notions of deflation were being pondered by specs. Whatever the direction, commodities will follow the stock market this quarter since equities will be the barometer for the world's efforts in defeating the pervasive dismal sentiment infecting alternative mattress strategies. Monetizing long positions requires more lifting than the Fed and Treasury have done, but the new administration's call to arms may cause the bears to think twice.

Just Move Higher

Stock indexes fell on low volume as various reasons failed to identify anything important happening today. Though bad unemployment data by ADP has put fear into Friday's number, the action is really about constructing a daily support pattern traders can build on. Today actually may help the cause of the bulls if the market can chop through a bearish number on Friday. No great runs, just move up.

Fed Panics

Well the FOMC minutes definitely showed real panic by the Fed about the dire economic conditions facing the nation. The question of coarse is whether conditions interpreted as so miserable can lead to anything but sideways action at the best for these markets. Acknowledging severe conditions does provide some honest tranparency to current financial problems. One wishes the same transparency would be used by the Treasury and Fed as to just where all the bail out money has gone. Information they both refuse to release.

Volume remains low and internals softening up as the markets wait for Friday's jobs number.

You Go First

Still no shows for trading so far this year. Lots of stimulating going on but little in the way of supreme confidence on how the next market play will assemble and become a run. The blitz of liquidity to fund the rescue of the nations banking and investment institutions, along with various other corporate entities, has created a fog hovering over the notion of zero interest rates. Hard to find data supporting big stock rallies while institutional preferences are to hoard cash. Cash given to them with little performance criteria and few incentives to do anything but invest in sure things. Which of coarse are things such as money market mutual funds guaranteed by the G. This ' you go first' lending and investment courage is typical of the talentless industries of banking and insurance. Even with every legislative advantage to conduct business long before the current mess, they still screwed it up.

New Year Action

DJIA, SP500 and NQ100 indexes all had solid rallies today as the best guesses for market direction played the odds on higher. It is hard to fade early action this year since bearish attitudes have clearly never been higher. Any redemptions aside, this market could rally substantially and still be no good in the end. Traders will follow early price action with the reasoning that it is hard to get motivated about downside potential after the death dive of last year. Trading institutions are leaning on the massive governmental rescue and putting trades on which are leveraged by excessive liquidity on the one side and the ability to purchase the best of the highest rated knocked down debt on the other. These trades have a longer time horizon but will pay well if the worst is over. The only caution today was the extremely light volume. The beginning of solid moves are built on sharp volume spikes. As today illustrated, much of the heavy lifting is being done without broad participation. Getting fund managers to deploy funds early and to flap those wings and scream like the chickens they are will take more than bull trap action this year. You cannot fool those guys all the time.