Friday
September 18, 2015
1-855-RWT-0008
NEWS:
Fed left rates unchanged
Sept 30th is the expected government shutdown
“A pessimist sees the difficulty in every opportunity;
an optimist sees the opportunity in every difficulty”
Yesterday and Today
Yesterday
Markets were the most calm they have been in weeks leading up to the release of the Fed decision. Eminis were in a 5 range and roaming that range at a very slow pace.
Once the Fed announced that there was no rate hike the Dow ran up 100 points and came right back down to -40. The Eminis were up over 10 and fell to down -9. Eventually things calmed down as they read the minutes of the report and off we went again. Futures ran up over +20 and the Dow was up to 16,933 which was a net change of over +190 points.
Then Yellen started to field questions and things took a turn for the worse. It was more of the same from the last meeting. This time the contradictions were here saying that “they did not discuss going to a negative rate environment”, and then minutes later Ms. Yellen stated that one person did suggest a negative rate environment. Hmmm…maybe I am being too lawyer-like, but that sounds like a contradiction to me.
Ms. Yellen then stated that part of the decision to not raise rates was based on the weakness in the Chinese economy. Now I have to pause with a “WTF?”. China is not a friend nor an ally. They have repeatedly gotten into currency wars with us, stolen intellectual property, and hacked our corporations and government. Why should we make any accommodations to them? And you know the answer…..Ms. Yellen succumbing to political pressure from politicians. You see, no Fed Chairman will be nominated these days unless the Senators feel they can manipulate them.
That was all the markets needed to hear to start selling off again. The Fed was working with a difficult dual mandate, and all of a sudden we found out they were working from a triad mandate. When hearing our central bank was the central bank of the world (not the US) people sold. People now began to believe that there will always be some country with financial problems that our Fed is concerned about, and they will never raise rates.
Remember the dual mandate the Fed laid out for raising rates was:
1 – Price Stability
2 – Unemployment below 6.5% (it is now 5.1%).
Of course this is as big of an overreaction as people were making about Trump’s talk in NH yesterday. Some semi-literate pin-head asked him about Muslims, Obama and training camps in the same sentence, impressively without his false teeth coming out or dropping his bottle of Mad Dog 50/50. Trump said that “we are going to look seriously at those things”, meaning training camps. But the biased media, which handpicks what words they want out of a sentence, are having a field day with Trump now. So maybe people were reading too much into Yellen’s words as well?
So at the end of the day Eminis closed at their lows, down -12.75. The Dow closed down 65 points. The TLT closed up 1.45, as expected, but less of a positive change than I was expecting.
The only winners of the Fed were biotech stocks which seem to always do well on days Yellen speaks. Stocks associated with interests in China (AAPL, QCOM, BABA, etc.) were losers on the day.
TODAY
This is a tough one for today. We have the SPX expiration on the open, and this can cause havoc. Typically after the open the day is done and we drift around for the remainder of the day. The day after the Fed announces is usually more volatile than the day of. Last time the markets fell hard for four or five days in a row, with the 3rd day being Aug 24th the day we dropped 1100 on the open. Yet a couple Fed meetings prior we ran up 350 points the next day, even though the day of the meeting we closed about unchanged.
Next week is when the fun starts.
There will be talks, meetings, etc. in an attempt to prevent a government shutdown – so the politicians are saying. I don’t buy it, and it will politics will prevail over the good of the country. Obama has already said he is not willing to accept any deal that cuts funding from Planned Parenthood. Now that is an open mind.
The deadline to avoid a sequester is September 30th and we will likely go right to the end, if not longer. Now the crap, rhetoric and lies coming from that will rock the markets (if last time is any gauge). Like oil declining in price is good for the economy, a government shutdown is good.
OPTION TRADERS
The VIX did get down to 18% yesterday, a day earlier than I anticipated (if you look back to previous updates), but should get there today again if we don’t fall hard.
What a day. Eight updates. After the markets ran up 20 Emini points we bought risk reversals to hedge our long deltas and turn long call spreads into long condors. We turned short put spreads into long condors. We took our long 200 deltas down to zero, and then got even more short near the close. We are short deltas for the first time since August 20-24.
POT is held each Wednesday night at 7:00pm eastern.
Contract the office at 1- 855 – RWT – 0008 for more details.
Too True To Be Funny
The headline is too open for me to limit it with a wise crack.
Attorney Stuff
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