Markets Up 7 Days, Volcker Rule Looks Likely

Thursday, March 18, 2010

  • Tokyo gave back most of yesterday's gains down just under 1% last night. London is flat and US futures are near flat-line as well heading into quadruple-witching tomorrow.
  • Forgot to mention that I was dead wrong about the change in language in Tuesday's FOMC policy statement. The Fed kept the "exceptionally low levels...for an extended period" within the statement making it nine statements now reiterating that stance. Clearly, the Fed is erring on the side of inflating rather than risking changing course too soon. Looks like the Fed is dedicated to continuing the greatest expansionary policies we've ever seen until inflation overcomes the deflationary pressures of deleveraging and it shows in the numbers.
  • Great debate going on in the blogosphere on high frequency trading. Cameron Smith wrote an impassioned defense of HFT in Traders Magazine on March 17th claiming it "benefits all investors". My friends, Joe and Sal, over at Themis Trading struck back with a strong counter-argument on their blog. Smith's defense of HFT is overreaching, attempting to support the entirety of the field while the Themis guys see the detriments of particular abuses practiced in within the HFT arena. It is very reasonable to recognize the broad-based quality gains that have come with the ever-increasing use of faster and more efficient technology while understanding that not every player provides a benefit to the market structure as a whole. Check out the debate!
  • I am long Las Vegas Sands (LVS) overnight and looking for a move through $21 in the coming days. This is a high momo play with nothing in terms of upside resistance until $30 once $21 is cleared. I've got a small position now but will buy aggressively if and when the momentum picks up.
  • The dollar has been taking a break after its 10% bounce off December 2009 lows. The DXY Index is holding 79.50 so far. Is the long-term bottom in or has this been a short-term bounce? Time will tell.
  • Bernanke and Volcker were on the Hill yesterday testifying about financial regulation. The Volcker rule would inhibit commercial banks from having proprietary trading desks. This seems like a completely reasonable idea hearkening back to the days of the Glass-Steagall Act of 1933. Let's not forget, this Act served us well for 70 years before being repealed in 1999. It seems to me that most people agree that deregulation of financial markets took a step too far and re-introducing basic divisions between guaranteed institutions and risk-seeking firms makes a lot of sense. I wonder what Goldman Sachs (GS) will do? Probably drop access to the discount window and remain as a lone-standing large investment bank. JP Morgan (JPM) likely is forced to spin-off its large hedge funds.
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