Perception

by Larry Levin

It is often said that perception is all that matters in the markets and not the current events. This must be true now. There was only one economic report today, a bad housing data point (yes, again)...and the market exploded to new highs.

The National Association of Home Builders (NAHB) reported that the housing market index (HMI) was at 13 in September, which is rather low. In fact, any number below 50 is considered bad, very bad. From the report - "In general, builders haven't seen any reason for improved optimism in market conditions over the past month," noted NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "If anything, consumer uncertainty has increased, and builders feel their hands are tied until potential home buyers feel more secure about the job market and economy."

"The stall in the nation's housing market continues," agreed NAHB Chief Economist David Crowe. "Builders report that the two leading obstacles to new-home sales right now are consumer reluctance in the face of the poor job market and the large number of foreclosed properties for sale."

Although the housing data was supposed to get better many, many months ago and hasn't, the perception has been that its getting better. When it didn't get better, the perception remained that it was getting better. As of Monday's poor data that shows things aren't getting better, the perception is that it couldn't get any worse. Perception is all that matters.

The recession is over. Promise. The NBER said so. From its report we read - "The Business Cycle Dating Committee of the National Bureau of Economic Research ... determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II."

Now that the NBER says "it's all good" the perception is, well, "it's all good."

Thrown into the mix this morning was the latest POMO action by the Federal Reserve, which are their Permanent Open Market Operations. The Fed announced in its last FOMC statement that it was embarking on its QE 1.5 program, or QE Lite as I have joked in the past. These POMO parties are the difference.

These operations are when the Fed buys billions of Bonds & Notes from the Primary Dealers (PD). Without a short holding period at the PD's, the Fed would be directly monetizing the debt from the Treasury. Now, what is a banker to do with billions of fresh dollars from the Fed, like this morning's $5.2-billion POMO action? Well, they could just wait to buy more bonds at the next auction but markets are running now. Therefore the odds are very high that the bankers will use this cash to buy stocks and commodities. That's their business - that's what they do.

As I said earlier, the latest POMO was Monday morning. Guess when the Fed stops buying the bonds from the PD's; when POMO ends? The party ends at 11am Eastern. Guess when today's early out-of-the-blue explosion ended? Why, 11am Eastern, of course.

Funny money? Who cares. Rigged market? Who cares. The perception is that the Fed's got your back...and perception is all that matters.




Previous Day's Trading Room Results:

Trade Date: 9/20/10

E-Mini S&P Trades*
(before fees and commissions):


1) Pivot point sell @ 9:15am at 1129.25 = -1.00 (1 lot)

2) OTF buy @ 10:51am at 1132.00 = -1.75 (1 lot)

3) Algorithm positions (0)

4) “Reading the Tape” positions (2) combined Secret’s, Algo, & “Reading the Tape” total… -2.75



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