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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: George Statham who wrote (15821)	4/14/2014 12:03:04 PM
From: John Pitera	2 Recommendations Recommended By Davy Crockett roguedolphin Respond to of 33421

George here is a chart of the XBD (Broker dealer index).... they have already hit there 200 DMA and so it makes sense that they are rallying. today. I have made a chart of the XBD from 2007 to 2008... XBD spent a lot of time rolling over.... and heading lower on the next post I have a chart of the SPX from that 2007 to 2008. the Market in 2006 and 2007 had the most unnatural look of a market that went up in a very controlled fashion and it took a long period of time rolling over. The XBD reached a high of 268.65 in june and broke down decisively below the 200 DMA in August and it was a long long painful trip down. The SPX which is overlayed on this 2007-2008 chart did not top until Oct and it documents how the Broker Dealer index and often the BKS are leading indicators. When Jim Cramer had his hedge fund partner and the real trade Berkowitz reluctantly providing short term commentary back in 1997-1998, Berkowitz was always looking at the XBD, BKS, the $SOX and the Biotech $BTX Indexes as the tells. of what the broker market was going to do. In summary right now the XBD has been weak enough to already hit it's 200 DMA and is naturallly bouncing, the BTK is weak is approaching it's 200 DMA. The $SOX has been selling off and has just gone below it's 50 DMA and it might well be an excellent trading short as it trys to get above it's 50 dma.... if not it will be heading lower to the 200 dma The $BKS has been weak and is also approaching the 200 DMA xxxxxxxx

To: George Statham who wrote (15821)	4/17/2014 9:48:34 AM
From: John Pitera	5 Recommendations Recommended By Davy Crockett Hawkmoon isopatch roguedolphin toccodolce Respond to of 33421

The $TNX is going to break down below it's 2.58% low and that is going to drag the Global equity markets into a bear market..... the $ TNX has already given it's bearish death cross with the 50 DMA going below the 200 DMA on our last peak at 2.80%... and the descending daily triangle is the most reliable bearish pattern... we will see the $ TNX crack below it's 2.58% trendline and since US equities are so positively correlated with the 10 year yield we are destined to see bearish equity action in the US and also Globally. 20 to 30% correction coming straight at us at the least,,,, we have a reasonable good chance of having just put in a to like March 2000 and Q3 of 2007.... and then the carnage will be much much worse. John

To: George Statham who wrote (15821)	4/18/2014 2:17:49 AM
From: John Pitera	2 Recommendations Recommended By Hawkmoon isopatch Read Replies (1) \| Respond to of 33421

In Going Long, the Fed Is Short-Sighted It's doing everything it can to provide the Treasury with minimal borrowing costs. By George Melloan April 15, 2014 6:53 p.m. ET Stock and bond traders spent most of last year in a state of high anxiety over what would happen when the Federal Reserve began "tapering" its monthly $85 billion purchases of Treasurys and mortgage-backed securities. But when the tapering was actually announced in December, the Dow Jones Industrial Average rose sharply, apparently out of relief from all the suspense. Today, after various fluctuations including last week's swoon, the Dow is pretty much where it was back then. Chairwoman Janet Yellen at the Federal Reserve Board of Governors' open meeting in Washington, D.C., April 8. Bloomberg News The taper this month will take the purchases down to $55 billion, $30 billion in Treasurys and $25 billion in the tainted mortgage-backed securities that were the product of Uncle Sam's "affordable housing" fiasco of the 2000s. So far, the worst fears of the markets haven't happened. Why not? One reason may be that the Fed isn't tapering as much as the numbers might indicate. While the Fed is buying fewer securities, those it is buying have longer maturities. So the Fed's purchases, though shrinking, are relieving banks and the Treasury from a higher proportion of their risks. Numbers compiled by the Federal Reserve bank of St. Louis record the lengthening of Treasury maturities in the Fed's ballooning portfolio. *The face value of that portfolio now stands at something over $2.3 trillion, of which bonds with maturities of more than 10 years account for 26%, compared with 18% only four years ago. Maturities between five and 10 years now account for 37%, versus 26% in 2010. But maturities from one to five years have dropped to 37% from 42%. Short-term notes, 91 days to a year, ran around 23% of holdings in the pre-2008 years. Today, they are zero.* This might all sound rather arcane, *but longer maturities mean that the Fed is buying more risk. That mitigates whatever tightening effect tapering might have on the markets. John Butler, a fund manager for Amphora Commodities in London, has commented that by buying a greater proportion of longer-dated securities from the banking system and thus relieving bankers of risk means that monetary policy may be no more tighter than it was before tapering. That would be debatable considering the substantial $10 billion increments the Fed is removing from the "buy" side of the Treasury and MBS side of the market each month. But it certainly can be said that by relieving banks and the Treasury of some of their long-term risk, the Fed is softening the market impact of tapering. Long bonds normally return greater yields than shorter-term securities because in a fiat money system subject to bouts of inflation, they carry greater risk. Thanks in part to the Fed's purchases, the 10-year Treasury is currently yielding less than 3%, which doesn't offer much protection against a future inflation loss. At the Fed's target of 2% annual inflation (which the CPI is currently undershooting if you believe those numbers), a 10-year Treasury with a 2.75% coupon would net less than 1% at maturity. If inflation rises above 3% it becomes a loser and from 5% inflation on up it becomes a big loser. Even a one-year spike of 10% in a decade of otherwise modest inflation could produce a loss at maturity for bonds with the remarkably low coupons Treasurys carry today. The Fed has made no secret of its plans to go long, but the whole concept of "quantitative easing," including the term itself, is shrouded in obfuscation.* While the Fed says its policies are a form of economic stimulus, any such effect is far less obvious than what is plainly visible. The Fed is clearly doing everything it can, at the expense of small savers, to provide the U.S. Treasury with minimal borrowing costs to help it finance a profligate administration and Congress. Banks, especially the big ones, aren't doing so badly either. According to the Federal Deposit Insurance Corp., the banking industry had record earnings of $154.7 billion in 2013. The largest, "systemically important" giants have an added fillip in that their too-big-to-fail designation and close connections with the Fed reduce their borrowing costs versus their less-favored brethren. The Fed pays a quarter of a percentage point to borrow from the banks the money it uses for supporting the Treasury and the mortgage market under "quantitative easing." That pads bank earnings as well. So everyone wins, right? Well, except maybe for the Fed itself, and of course savers. The Fed has put itself in a position that offers no easy way out. If credit demand rises and that huge holding of excess bank reserves finds its way into the global economy, it could trigger inflation in excess of the Fed's strange 2% target, and it could happen fast. The Fed could find itself sitting on a lot of devalued Treasury and mortgage-backed debt that would lose money even if held to maturity. Who knows what the world will look like 10 years from now, or even next week? At least the Fed has an incentive to try to contain inflation. *But given the size of the bank reserves already exploded by the Fed, maybe it already has failed in that task.* Mr. Melloan, a former columnist and deputy editor of the Journal editorial page, is the author of "The Great Money Binge: Spending Our Way to Socialism" (Simon & Schuster, 2009