I have no idea myself, I’m asking you… The market showed it’s displeasure yesterday with a "not enough to make Cramer happy" quarter-point rate cut and, other than a brief bounce from 13,500 to 13,566, the market sold straight down to 13,432, more than a 300-point drop from our pre-Fed level.
Unfortunately, the Fed cut was enough to tank the dollar in overnight trading and oil rocketed back over $90. The October Trade Deficit was $57.8Bn while the cost of imports is up 11.8% for the year, which is the inflation the Fed can no longer ignore just to keep the financials happy. Import prices for October alone were up 2.7% vs. September’s 1.4% increase so we are in an accelerating inflationary spiral that is beginning to have a noicable impact on consumers.
The WSJ titled the market’s reaction "A Snub for the Fed’s Gift" and I discussed last night how I think it’s a good thing that the Fed realizes they are effectively dealing with cheap money addicts, who lack the ability to help themselves and the only solution is to cut them off. Although we had a big sell-off yesterday, the global markets seemed to take it in stride. While the Hang Seng gave up their usual 705 points, the Nikkei came back sharply after lunch, gaining back all but 112 of the 350 points they dropped at the open.
Inflation is also accelerating in China and it’s now getting to the point where people can’t afford to live with staples like cooking oil up 35% for the year and pork up 56% this year leading food inflation alone 18.2% higher. "The government has kind of hinted that this [inflation] would be temporary, and sent out [mixed] messages," says Hong Liang, China economist for Goldman Sachs in Hong Kong. Beijing "has already missed some of the critical times in the third quarter to get this under control….Once you get inflation in the 5% to 10% range, it’s a much more serious problem." Oil prices are so out of control in Japan that the government has announced an oil-price relief package to help people get through the winter but, with $7.2T in debt of their own, the world’s second silliest economy will have a hard time keeping it going.
Something’s gotta give folks!
Europe is trading mildly off ahead of our open but our pre-market is on fire if you can believe the bids that are being put in. There seems to be some kind of coordinated plan by US and other Central Banks to inject liquidity into the market and in the time it’s taken me to look for an article on this (5 mins) the pre-market has jumped from up 75 to up 250. This has the potential to cause a massive short sqeeze at the open.
I’m going to be grabbing GS $220s at the bell as they’re always good for a bounce but I still look at this as just another market rumor, much like Paulson’s plan, which may amount to very little once the details come to light. Let’s be ready for anything today but if we can’t get back to yesterday’s open at 13,750, then we are most likely looking at a ride back to 13,400 – only perhaps a little slower this time. The last time the CBs did something like this was after 9/11 and it did work very well.
It’s oil inventory day and estimates are from -2Mb to + 2Mb but they are driving oil higher on a falling dollar, Fed easing and "Norway’s largest oil spill – EVER" as CNBC has been repeating every 15 minutes. What they are not bothering to mention is that this record oil spill is 21,000 barrels, the amount the US consumes in 45 seconds. When you see nonsense like this coming from corporate shills like CNBC you know the fix is in and the powers that be want oil higher but let’s watch SU to see if this "rally" looks sustainable to the company most affected by the long-term price of crude. If they do start taking off, the SU $100s make a very nice momentum play.
All we can do today is go with the flow as it’s possible that we will still get a lot of selling into any strength but, no matter what, it’s going to be a wild one!