A reminder: This is the Fed's stock market

But the central bank may not be able to give investors the clarity they're hoping for.

By Jim J. Jubak Jul 11, 2013 7:31PM

Pedestrians walk past the Federal Reserve Building
© JOSHUA ROBERTS/Newscom/RTRJust in case you had forgotten what is driving the current rally in U.S. stocks, let Thursday’s jump in the Standard & Poor’s ($INX), to close at 1675, a new record losing high, serve as a reminder: it’s the Federal Reserve’s market.


All it took to create the 1.4% gain was a speech by Federal Reserve Chairman Ben Bernanke on Wednesday to the National Bureau of Economic Research. In an answer to a question, Bernanke said the Fed will keep its current  "highly accommodative monetary policy for the foreseeable future." Unemployment is still too high, Bernanke noted, and inflation too low. "Both sides of our mandate are saying we need to be more accommodative."


Timing increased the power of Bernanke's remarks to move the market. He spoke just three hours after the release of minutes from the Federal Open Market Committee -- that emphasized the disagreements among Fed members on when to begin to taper off the central bank’s program of buying $85 billion in Treasuries and mortgage-backed securities a month.


From the minutes, some investors concluded an early taper was gaining momentum at the Fed -- since you could count the comments to show that about half of the 19 participants wanted to end the purchases by the end of 2013.


Bernanke’s speech and subsequent remarks, then, seemed a refutation of that conclusion.


I think, in truth, the reading of the minutes to show growing momentum for an early taper was an over-interpretation -- based on very hard to parse, short comments -- and that Thursday’s reaction to Bernanke’s remarks is an equal over-reaction, since it really contains no new information. The Fed’s decision on when to begin any taper will depend on the data about unemployment, economic growth, and inflation. That was Fed policy and it still is.


But even though Thursday’s big move may be based on the market’s wish for a clear calendar for any beginning of a taper -- a clarity that I just don’t think the Fed wants to or can provide -- it is nonetheless as big deal.


By closing at 1675 on the Standard & Poor’s, the stock market broke decisively through the old high near 1652-1654 that had capped trading gains recently. Instead of bouncing off that ceiling, U.S. stocks have cleared the hurdle for a new run higher.


Whether that run materializes depends on more than just this technical move. Events in Portugal, Greece and Italy are potentially volatile enough to generate enough fear to stop the move. On Monday we get second quarter GDP numbers from China,  that could revive fears that growth in China is slowing too fast and by too much.


But by moving through 1654 to 1675 the market set the trend in a clear upward direction. A move like this is precisely what brings new money in from the sidelines to chase after the new high. That’s powerful momentum. News may disrupt it, but the trend is upward until that disruption arrives -- whenever it does.


You can see the power of that trend in the way that Thursday's rally swept the board. All 10 groups in the S&P 500 rallied, with even such lagging sectors s raw materials posting big gains.


Freeport McMoRan Copper & Gold (FCX) climbed 3.4% on the day and Yamana Gold (AUY) roared ahead 7.5%. (Freeport McMoRan Copper & Gold is a member of my Jubak Picks 50 long term portfolio and Yamana Gold is a member of my 12-18 month Jubak’s Picks portfolio.)

 

The U.S. dollar fell against both the yen and the euro on the day.


Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Yamana Gold as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio.


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34Comments
Jul 11, 2013 9:58PM
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I don't pray for him.  I am retired and this "recovery" is on my income.  Pity the poor, the elderly, the savers, the retired, your children and the rest of us upon whose backs all you folks are enjoying whatever it is you enjoy.  But then who in America pities anyone.  We, very willingly, sacrifice whom ever we have to keep the show going. 

Jul 11, 2013 10:03PM
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This is a Fed and Ben bullsh--t market that the tax payers are paying for and will pay for for along time. Get ready for the time is coming for it to hit the fan!!

Jul 11, 2013 10:55PM
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The Federal Reserve is a Criminal Enterprise that favors the rich and powerful and Screws every middle class American ! The collapse of this illegal organization is in inevitable ! To the (TBTF) Banking Cartel   DIE BANK OF AMERICA DIE !
Jul 11, 2013 11:13PM
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Shhhh! listen, that creaking and cracking sound is the timber that holds up Wall Street. When Ben leaves in January QE 3 is gone. Going to be a big cave in, you can hear the props creaking and the rumble already down deep in the bowels of Wall Street. 85 billion a month, 1 trillion a year air money. When the wet nurse pulls the sugar tit away, the baby is going to scream like a spoiled child. Been feedin the junkie since 09, hard to see the intrinsic value in a propped up market. It's going to be one hell of a ride to the bottom.

Jul 11, 2013 9:57PM
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Jimmy, the perception is that this is Uncle Ben Stock Market. We won't know the real truth until the
Feds get out of the way and allow true Price Discovery. Even then, it's not a given. It's always easy to say the Market moved higher or lower because of this or that. At the end of the day, it's pure assumption because we can't wind back the Clock and see the Market's Behavior without the Feds actions. Folks were saying the same thing about the Gov't sequester cuts, now they hardly mention them. If anything, the FEDs ever growing Balance Sheet is a long term Negative. It's like drug dependence, at some point, you don't know anything else. That's never a good thing.

Jul 12, 2013 12:42AM
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If the general public had any idea what has been going on? They would be tying a NOOSE for these THIEVES. I pray for the children of this once GREAT NATION. When inflation sets in. WE ARE TOAST!!
Jul 12, 2013 8:10AM
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This fed buying of bonds or printing money is a deliberate attack on the American people by our government. Stock speculation creates nothing. No jobs or improved standard of living, etc.. It is a transfer of money from the American people to the government and the rich. Our own government is our greatest enemy.
Jul 12, 2013 8:55AM
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Here come the inflation - wholesale price increase 10% per year.
Jul 12, 2013 10:35AM
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"(Propaganda Central) - Federal Reserve officials are considering moving the goal posts on U.S. monetary policy with a promise to keep interest rates low for longer in the hopes of heading off a troubling rise in market-set borrowing costs. Top Fed officials, who have pulled out all the stops to boost the U.S. recovery from recession, have worried for months that investors might drive bond yields up when the time came to reduce the central bank's bond-buying program. Their fears have started to become reality. Yields, which move inversely to the price of Treasury debt, began to climb sharply in May with signs of stronger jobs growth and signals from the Fed that it could begin to scale back its bond purchases, known as quantitative easing, as soon as September. With yields rising, some Fed officials warmed to the idea of anchoring borrowing costs more firmly by pledging to keep overnight rates near zero well after the jobless rate falls below 6.5 percent, the Fed's current threshold for considering tighter monetary policy. Unemployment stood at 7.6 percent in June."

 

First... there is NO family-sustaining job creation so the job-thing is bogus. The sheer volume of fiat money in the markets pushing up stock prices but doing nothing else is directly validated in White's book: Fiat Money Inflation in France. The gross dilution of a spending dollar vs. the mammoth loss of movement because of the hoarded dollar is the actual cause of the impasse. The more printed money and bond-buying, the less likely actual enterprise can build sufficient momentum to create economy and hire. Basically, every day that Bernanke continues QE, he stagnates Main Street and condemns it into dysfunction. The pendulum never swung back, hog-tied by this manipulation. The fact exists that while the blade is held hostage, the structure supporting the pendulum is breaking apart. What good are a bunch of administrative businesses fully detached from the society economy and nation that gives them existence? Bernanke has painted himself and us into a stupid loop. The FACT cannot be disputed-- QE must end abruptly and business platforms forced into divestiture to restore currency. To Bernanke's Goliath, any competent capable small entrepreneur with tenacity can wipe out every business platform by refusing to cooperate in stocks and bonds. Without a Main Street connection, they are resigned to seniors, whose subsequent death ends the value and tags the association obligation to the shareholder. You hoard- you adopt his created debt. If I no longer recognize his false dollar, I'm not obligated to anything except to move forward alongside millions who no longer recognize it either.

 

END QE BEN BERNANKE OR FIND ANOTHER PLANET. YOU WON'T BE WELCOME ON THIS ONE VER SOON. PROGRESS OR ELSE.

Jul 12, 2013 6:45AM
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"Just in case you had forgotten what is driving the current rally in U.S. stocks, let Thursday’s jump in the Standard & Poor’s (), to close at 1675, a new record losing high, serve as a reminder: it’s the Federal Reserve’s market."

 

Thank you, Jim... and to add- what goes up must come down. Realize that all of you in the markets having fun in the casino, cannot leave with anything in your pockets. No business platform has a sustainable sales volume. No one is hiring the quality and quantity that broadens profitability through internal loyalty. Literally- not one hired-in executive has shown a competence that wasn't funded by the Fed, so... "talent" can be challenged and crushed across the board. These aren't argumentative points, they are the stuff that wars are made of and societies are destroyed by. Flat out, Bernanke would have been better off randomly giving 85,000 consumers $100,000 in any given month and ordered them to spend it or return it. Think about it... 100% of his QE is holed-up in the vaults or greedily hoarded in nuggets and certificates. NONE courses through the economy! NONE! Bernanke needed to say-- go forth with your wealth, divest and create enterprise. If it doesn't happen soon, you can count on a war. For you naysayers-- your perception of war is probably as dim as your actual investing acumen. When you are resolved to only a basic survival option, you EAT, because all other actions require it. Where do you run to once you've screwed the whole world, well-fed on real food rich people? Not all wars involve handheld weapons, not all battlefields are on actual real estate, not all victims have wounds that can be surgically healed. Those are the premises that cannot be manipulated.

Jul 12, 2013 8:33AM
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Well, once again it's time for a release:

 

   Aaaaaaaaaaaaaaaaarrrrrrrrrgggghh!

Jul 11, 2013 11:59PM
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SURFS UP. Ride the wave or drown. Your choice.
Jul 12, 2013 5:21PM
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IF you made money this week then give a brother his due: "Ben Bernanke and President Obama" two thumbs up !!!! Who needs gold during an Obama Bull Market???? Go America. Dow 18,000!
Jul 12, 2013 2:42AM
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Gold is supposed to be a hedge against inflation. What inflation? If this Obama Bull continues gold will sink further. I feel sorry only for those right-wing Republican religious fanatics who out of racial hatred have lost a fortune betting against OUR President. You think you are smarter than 32 MIT-trained turn-around specialists? IMAGINE where this market would be if only we didn't have to carry the DO-NOTHING GOP CONGRESS on our shoulders on the way back up this Bush-inspired hill. God Bless America and God Bless our President and I hope you all buy stocks and start making money again before it is too late. You can't stop the Obama Bull Market from going higher. 
Jul 11, 2013 11:46PM
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Har har har! I be a gettin' richer, and I love it. 

This market will soon exceed 16K and be headed toward 20K where I predict it'll peak sometime in the next four years or around 2017!

Yup I have accurately predicted the markets direction since the early days of the crash. Being well versed in market history and investor behavior plus a profound depth of knowledge in economics, finance, and the Federal Reserve has made it easy for me to see into the future!

The nonsense about the "taper" will quickly abate and be totally forgotten as the economy gains momentum and strength. The Fed will quietly remove the excess reserves from the banking system without any shocks or stress to the economy. In fact, it can be simply done by increasing the reserve requirement from the current 10% to say 20%.  

The focus on  the size of the Fed's balance sheet or the amount of the reserves is total rubbish. A bunch of numb skulls are making an issue out of something that isn't. The Fed is a huge powerful institution and can easily handle the tools that it uses to conduct monetary policy. The real problem is all the morons who think they understand what the Fed is doing and don't. 

Well I hope all you idiots continue to deny this bull market while I get richer and richer and you all poorer. And my final comment:

Har har har me mateys ye hardly make even a tasty meal for the fishies!

Jul 11, 2013 8:43PM
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Ben is smarter than all of us. He will keep up this game until we recover or die. No one will help him. He is out there on a limb. Pray for him.
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