The Fed has released the POMO schedule for the next month. It looks like the old POMO schedules, except on steroids.
Under the old "sustain the balance sheet" treasury purchase plan which we saw from mid-August through early November, there were usually two POMOs per week for a total of $7B per week. The new POMO schedule combines the "sustain the balance sheet" purchases with the "increase the balance sheet" purchases.
Now, we are due to get a POMO almost every trading day at an average of $25B per week. Starting tomorrow.
It will be interesting to watch the comparative performance of stocks vs. commodities over the coming weeks. Rising oil prices, for example, increase production costs while hurting the economically depressed consumer, squeezing corporate profits from both ends.
It will be interesting to watch the comparative performance of stocks vs. commodities over the coming weeks. Rising oil prices, for example, increase production costs while hurting the economically depressed consumer, squeezing corporate profits from both ends.
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with so much pomo how to expect substantial correction after double top? there will be some down days for sure but i don't know how deep correction can happen unless this money goes into something else toallly instade of equity markets.
ReplyDeleteThere is an old story about a young floor broker at the Chicago Board.. or maybe it was the NY Merc.. where ever they trade pork bellies. This young guy was educated in the best universities, and he came from a family of considerable wealth. He was very familiar with how the markets worked, he knew that substantial size in a series of orders could signal to other floor traders that something was going on that would drive the market in the direction our young guy was trying to move it.
ReplyDeleteSo Our young man bought a lot of contracts, and the pork belly market began to move in his direction. After a couple of days of taking almost all of the offers on the books, he had moved the market substantially. Then he noticed an older, gray haired trader he had not paid much attention to.. and this old guy was hitting every bid our young trader was placing.
So our young man walked up to the old trader and said "I want 20 contracts, and I'll take the offer." The older guys sold him the 20 contracts. This was a pretty good sized order, and it had not fazed the old trader. So our young trader again went to the old trader and said "I take 50 contracts, and I pay up to get them. Again, the old trader sold him the contracts.
At this point, our young man was running out of trading account margin, so he went to the old trader and said "How many contracts do you want to sell?" The old man said as many as you want..and the young trader said "I'll take another 50 contracts".
So they old trader sold him the 50 contracts and then said to him "Are you done"?
The young trader realized he owned all contracts he could buy, yet the old trader was still willing to sell. Does anyone here know what happened next?
Bill
OK, so I'm dense. what happened then?
ReplyDeleteLisa
ReplyDeleteyou're kidding right? If the buyer is done,and the seller is still willing to sell, where will the prices go? also to be considered is the fact the a seller in the commodities markets is not necessarily selling a long position.. every open contract in the commodities markets is started by a short sale.
Now that the uptick rule is gone, and a short seller does not need an uptick, sellers can drive the stock market the same way sellers in the commodities can drive those markets.
There might also be another message in the allegory.....buyers need a reason for the decision to buy, while a seller does not.... sellers can sell for any number of reason or no reason at all, and the naked short seller only needs a provocation.
When the Fed is done buying, and one day they will be, there will still be sellers, and prices will no longer only travel in one direction.
Bill
Since I used to trade bellies and fat cattle in the old days, I would say "what happened next?" was a lock limit down series of trading days...and the young man couldn't get out of his longs. He ended his days greeting people at Wal-Mart.
ReplyDeleteIf we extrapolate this tale into an allegory of today's markets, liquidity basically evaporates at some point because the bid evaporates (for whatever reason)...and everyone on leverage including the FED never lives to tell any more tales.
"everyone on leverage including the FED"
ReplyDeleteExcluding the Fed. They don't have a margin requirement. They print whatever amount of money they need to.
Leverage is always finite....regardless.
ReplyDelete