At times, I have described Good News as Bad — meaning that is could encourage the Fed withdrawing its accommodation, raising rates, pressuring margins, earnings and equity prices.

Today’s coordinated central bank intervention is the opposite: A Euro-zone bank on the verge of collapse prompted this extraordinary action.

So this a case where the news is so Bad it becomes Good for stocks: The financial system is so (choose 1 or more) vulnerable / compromised / inter-related / fragile that it required the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank to coordinate a joint liquidity event. So Bad News (near collapse) becomes Good News (equity rally).

The volume was so-so, except for the end of month/quarter buy on close surge; Monday’s volume was light as well. So this runs to 1250, maybe even 1300. Does it have legs? Will the surge suck the traders in (or trade the suckers in?)

Of course, these actions reflect the underlying weakness, and adds to the eventual bill to be paid (interest and penalties continue to accrue).

But tonight, we drink !

Category: Bailouts, Federal Reserve, Markets, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

49 Responses to “Intervention Rally: Good, Bad or Ugly?”

  1. Kelja says:

    Bad. What happened today was in response to what the Central Bankers did. Why they did what they did was they know something we don’t know. Quoting Bradbury — Something Wicked Comes This Way. This should make us uneasy.

  2. M says:

    Nicely covered S&P’s downgrade of occidental banks anyway.

  3. Dedona says:

    i just saw something on a major american new network the that just scared the hell out of me — This is what the topic was:

    Stock soar 500 point most since 2009

    The 3 rocket boosters were:
    1)world central bank step in the rescue Europe European banking system
    2)most job created in over a year
    3)china cut rate to boast it growth

    So the advise was investor should not panic and stay invested full invested. I know they need to keep people spending and buying not selling stock but I am appalled.
    1)world banks did not rescue the European banking system. The system is still in serious trouble look at yields and interbank lending rate at level not seen since 2008 2009 they also failed to mention that a major bank was about to do a lehman on us.
    2)most jobs were seasonal workers ups and fdx planned to add 100k this holiday do you actually believe companies are hiring they are cutting or ready to cut
    3)china is slowing just look at pmi for last 3 month you cannot just turn on growth

    So bottomed line we are in a banking crisis but if you saw the new tonight you would think we were on the way to recovery and buy stock tomorrow.

    They love to brainwash the American public — Remember we in 2000we have no tech bubble in 2007 housing is not a bubble subprime is contained the public are fools but it can last for a spell

  4. albnyc says:

    Paddling madly against the current; filled with foreboding.

  5. Rouleur says:

    …inter-related…of the choices offered, is the most apropos

    …inter-related by astronomically-sized time bombs called CDS against each other’s bank debt failure…

    …ISDA – blatant self regulation “f”uckery…not withstanding…they (the CB’s) gotta keep the River of Debt flowing…btw, it is not the “net” exposure on those CDS, it is the “gross” that is relevant…it is that inter-related…

  6. louis says:

    (.TEDSP:IND)
    Year To Date: +186.02%
    Previous Close: 52.90 52-Week Range: 14.51 – 52.89 1-Year: +260.94%

  7. mark says:

    “A Euro-zone bank on the verge of collapse prompted this extraordinary action.”

    Saw this elsewhere too but also with no link or corroboration. Anyone got anything?

  8. BigSpooky says:

    I think its an effective measure to stop the forced selling of euro debt by the big banks. I also think its scary that after years of time to get out, little has been done to delever some of the biggest european banks. DB has assets equal to 90% of German GDP – that would be the equivalent of BAC having $12trillion, compared to its relatively modest $2tril.

    For equities, I’m not sure its really such a huge deal and was frankly surprised at the outsized rally. Euro debt problems and the potential for banks getting scared with counterparty risk was weighing on stocks before, but I think global slowdown, euro recession, and likely US recession with limited traditional monetary policy options was also weighing on stocks, and I don’t see this measure as really helping with any of that.

    If I thought that measures like this would cause everyone to refi, or demand for business loans to mushroom it might make sense, but thats not at all what this measure is about – its about making sure banks have short term liquidity lined up.

    Apparently I was also the only guy on the planet caught short going into this move, so there may be some bias to my views.

  9. RW says:

    @BigSpooky, you weren’t the only one (caught short).

  10. nofoulsontheplayground says:

    S&P 500 put/call ratio says smart money was positioning for a pullback to the tune of 3:1 on those options today. A ratio of 2:1 is pretty typical, and 3:1 is often a set-up for a pullback in a day or two.

    The gap at SPX 1220 was going to get filled whether we bottomed at 1120 SPX or 1158 SPX. Today’s gap up created island reversals on many daily charts, and islands almost always get sunk. I was looking for a 100-point SPX oversold move off one of those levels, and it appears it came from the higher level.

    I like this intervention better than the possibility of the Fed buying EU bank bonds. However, I would have preferred the Fed do nothing.

  11. overanout says:

    The Monday rally based wild estimates of Black Friday had an odd look and now in hindsight the reality of insider information of the coming FED actions was clearly the driver. Oil prices continue to be a good indicator of how the FED will act.

  12. river says:

    It would seem like you are just one more bank failure away from losing your bet with your head trader.

  13. I think the drinking today started long before tonight. Cheers!

  14. MidlifeNocrisis says:

    river Says:
    It would seem like you are just one more bank failure away from losing your bet with your head trader.

    LOL That was priceless.

  15. Irwin Fletcher says:

    “But tonight, we drink!”. Best line of the day.

  16. Through the Looking Glass says:

    I have a big radar screen and what comes up on my screen is that everyone seems to miss is that the timing of this move occurred on the day that the last “occupy” movement was squashed in Los Angeles and elsewhere.

    Whew!…. today’s market news wont have to share the spotlight negative views of those who don’t have money in the stock market.
    Rejoice all is well, bullshit reigns supreme again and all that reality stuff doesn’t matter in a world of
    “I got mine , who cares about you dime less dullards” fresh out of college with hopes of getting a job in a world dominated by greedy assholes.

  17. uzer says:

    coordinated central banks dropping massive $$$ from helicopters – is the global ponzi scam that close to collapsing?

  18. Peter Pan says:

    Why do I get the feeling that there’s a head trader practicing the I-told-you-so cha cha cha dance?

  19. wrongtrade says:

    If it takes confusion, denial, grief, disgust, fear, anger, vertigo and nausea to be at the end of this bear market, thenI guess after today’s almost 500 point rally we must be closer to the bottom!

  20. GuinnessFan says:

    “But tonight, we drink !” Thanks, Barry. I needed an excuse to do so.

  21. Fred C Dobbs says:

    Doesn’t the fact that (1) this action is basically an experiment, (2) this action is taken by unelected self-appointed technocrats, and (3) takes the responsibility for making decisions off the elected politicians who are not doing their job by doing nothing? Shouldn’t there be a limit to the power of these people who, in reality, know nothing more than you and I, to screw up this nation for the next several decades experimenting with their unproven schemes?

  22. Bill Wilson says:

    What a difference a week makes.

    Since last Friday, things are somehow much better than I thought they were and much worst than I thought they were.

  23. SteveinMaine says:

    I’ve been sitting on the sidelines in all cash since jumping out in fall of ’07, with Dow around 13400. So today, I’m bummed, once again, that I may have missed a decent re-entry point at 11200 just a few days ago….

    I feel sort of lousy, essentially wanting the global economy to collapse and the Dow to revisit 7000 or so, but that’s where I’m at.

  24. BenE says:

    Big fan of your blog. I wish when things like “liquidity swap arrangements” became the news of the day that we would get a better explanation of what these are and what are the risks and repercussions of using such vehicles. I see them as meaningless words as I believe most people do. I went to wikipedia to get a basic idea of what this entails but Wikipedia has a limited descriptions. Can anybody point me to a good reference that would allow me to understand the mechanism of central banking (that is more thourough than wikipedia)?

    Anyways from the limited understanding I got, foreign banks that need US dollars to lend or exchange to their clients usually go to US banks to trade the currency. However, the central banks currently seem to think that this mechanism may be about to fail, that is, the US banks may stop exchanging enough US dollars with the European banks for the needs of their economy. Therefore, the central banks have decided to exchange currencies directly with the central banks of European countries which can then feed them to their banks and their economy even if the normal channels fail.

    Correct me if I’m wrong, but this seem to indicate that central banks have low confidence in the euro and the European banking system to continue functioning correctly.

    If these people at the center of banking, best in position to evaluate the situation, have lost confidence in the system, shouldn’t we be worrying?

  25. jaymaster says:

    “It was the best of times; it was the worst of times…”

    Does anybody read literature anymore?

    On the one hand, it shows that the central banks really, really, REALLY, don’t want major deflation to become a problem.

    That is good for more than just equities.

    On the other hand, it shows that we are really, really, REALLY close to collapse of some major banking systems.

    That is not good for more than just equities.

  26. b_thunder says:

    Good, bad or ugly? How about CRIMINAL, as in Insider Trading criminal?

    http://blogs.wsj.com/marketbeat/2011/11/30/was-the-fed-swap-line-decision-leaked-on-monday/

    http://www.zerohedge.com/news/fed-made-decision-bail-out-europe-monday

    First – leaks about Op. Twist. Then – Hank Paulson talking Fannie/Freddie with his ex-Goldman buddies. Now -leaks about this “easing.” When will it end? Isn’t letting banks “earn” (aka steal from the savers) trillions thanks to QE, ZIRP, etc is not enough? Don’t they have any shame? (silly question, of course they don’t.)

    And how much “coordination” (aka arm-twisting) did it take to bring the Chinese onboard? Remember, this rally, especially in oil and other commodities, was in large part due to the Chinese CB reserve requirement cut and new hopes of soft-landing (whatever that might be – the Central banks have yet to engineer one.) When gas prices start catching up to oil and move toward 4 bucks in 2-3 week time – let’s see if the black friday sales will have any follow-through.

  27. dsawy says:

    IMO, short term good, long term bad.

    It shows just how badly the system is still broken when intervention such as today’s is still needed three years after the problem first became impossible to ignore.

    But ignore it we did, and here we are.

    All that today’s actions amount to is kicking the can further down the road. Today, a whole bunch of morons decided to tie their boots together and kick at the same time, that’s all.

  28. ToNYC says:

    “A Euro-zone bank on the verge of collapse prompted this extraordinary action.”

    “When you have eliminated the impossible, whatever remains, however improbable, must be the truth”
    In this case, my best bet was that the top banks in France went Lehman to precipitate this action. They were stuffed de rigeur by Eu-sovereign obligatory debt and hey, like it was their turn.

  29. BenE says:

    Thinking about this further. These swaps don’t ‘support’ the banks as the news seem to imply. They rather replace the banks, or at least an important part of the banks by getting various currencies as close as possible to international businesses without having to go through the normal banking system.

    Could the central banks be moving towards taking over critical global aspects of banks as preparation for some of these banks failing?

  30. louis says:

    Setting Precedent has gone Global, Tomorrow the Hangover.

  31. patfla says:

    Click on the pdf for #19.

    http://www.bis.org/statistics/derstats.htm

    It appears that the total notional value of derivatives worldwide dipped slightly as of June 2010 but then took off again and as of June 2011 we’re at, what I assume to be, an all time high (high indeed) of 707,569 bln – so 707 trln.

    That’s more than 10X world GDP.

  32. patfla says:

    BenE> there’s a run on the Eurzone banks by American investors and institutions. (I’ve grown to dislike the word ‘investors’ because I think it greatly misleads).

    So the Eurozone banks need to borrow dollars to redeem American ‘parties’ pulling out their money.

    The cost of doing so (borrowing dollars) had grown exceptionally high and today’s action brought that price down.

  33. evigod says:

    Both the Daily Telegraph and Zero Hedge assert a major French Bank was about to go under Tuesday. I trust these two publications (the former no doubt grinning as the Euro collapses and the price of Bordeaux and Brie decline in GBP terms).

    Apart from some temporary interbank lending and short squeezing some contrarian investors, this policy move is another politically motivated quick fix. QE3 is clearly delayed until spring 2012, if ever.

    Higher input costs and the same declining salaries/purchasing power will do wonders for ordinary folk. And the bank losses reach, what, 10,000,000,000 X infinity X quadrillion bernanke bucks? At what point does someone say all bankers are just too crooked to run Banks ?

    USA needs to watch It’s a Wonderful Life and remind itself what the purpose of Banking is. And it’s not owning a mansion in the Hamptons.

  34. BenE says:

    ok thanks patfla, that is what I am starting to understand.

    Am I correct in saying the banks are not really being ‘supported’ but partially replaced? Isn’t it normally the bank’s job to provide this type of liquidity but instead the central banks are taking over? I mean they are being ‘supported’ in that the solvent parts of the system (including some banks) should be less affected by the banks with questionable solvency.

    Isn’t it more a measure to protect against contagion to the real economy if/when parts of the system fails?

    If I understand correctly, the swap money is there to allow banks on the verge of failure to continue lending foreign currencies to their local real economy while they await restructuring or bailout.

    Also wouldn’t high usage of these swaps reveal that a lot of banks are at high risk of failing? A bank that is known to be solvent shouldn’t ever need to use them.

    I guess the swaps are good to have, because they will soften the blow to the economy if/when banks fail but today’s equity rally is weird because these swaps won’t help until banks start failing.

  35. streeteye says:

    The rumored bank issue –

    http://www.forbes.com/sites/greatspeculations/2011/11/30/big-european-bank-failure-averted-what-central-banks-did-not-tell-us/
    http://ftalphaville.ft.com/blog/2011/11/30/773851/

    The banks are already drawing massive liquidity from ECB facilities, which avert insolvency every single day.

    Worth noting that since the weekend everything but the kitchen sink is being floated – new treaties, ECB accepting Eurobonds, laundering ECB helicopter money through the IMF to bail out Italy … and now the CBs are coordinating to put their money where their mouth is and send a message.

    Desperate measures? Market manipulation? A new commitment to doing everything possible, instead of the minimum to avert disaster? Is it too late even if they did?

    Not sure… but s*** is getting real.

  36. Greg0658 says:

    bad days for currencies and good days for corporate stocks .. hey – what is a corporate stock going to give your cash back IN when you ask for it? not gold. not corn. not oil.

    I think what we have here is air cash buying the corporate stocks private ….. that is sorta where I think we need to go ie: wipe out the double novas .. BUT and only IF we can control monopolies with the political system AND THAT is worrysome

    get back to milleniums old cash flow – the borrower is expected to pay back or the system takes a bite out of y’ass

    I still contend the corporate whoosy mooshy unregulated empowerment is the cause of all this

  37. bear_in_mind says:

    These wild market swings are really beginning to remind me of the last legs of the late 1999-early 2000 bull run. Feels like another suicide trade for the retail investor. You’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk?!

  38. Greg0658 says:

    patfla Says at 11:54 pm
    “BenE> there’s a run on the Eurzone banks by American investors and institutions” .. I don’t think (maybe wrongly) the word “American” can be pulled from what’s going on … really – the USFed is filling only the vacume created by us as a gesture of friendly neighborism? a repatriot move?

  39. JerseyCynic says:

    Strike up- the music -the band has begun….

    While they’re dancing
    Everybody’s cares are quickly gone
    Sweet romancing
    This goes on and on until the dawn.
    They’re so carefree
    Gay with laughter, happy as can be

    They stop to have a beer
    Then the crowd begins to cheer

    They kiss and then they start to dance again.
    http://www.youtube.com/watch?v=WCXwTcZ1mAA

  40. kenny powers says:

    In late Oct 2008. the central banks did a similar stunt. The market (SPX) rallied hard, up 8% in a matter of days, before falling 32% to a final bottom in 09. We are back in the same situation now as then, or worse, when it comes to the itnerbank market. Hence, I think we may be a couple of days away from a major sell-off.

    PS: TA geeks note: For those of you who have DeMark on your BB’s it might be interesting to note that we are very close to a TD Sequential Sell in the S&P 500. When this set-up fits the overall terrain, it is worth keeping in mind.

  41. TLH says:

    The more the manipulation and volatility, the more the public will say no thank you. It will be machine trading against machine. The leverage needs to come out of the system. After four years you would not think we would be discussing this. If our corrupt government does not restore confidence, this will end badly. Both parties are only interested in enriching themselves. The political elite want their money.

  42. dead hobo says:

    BenE Says:
    December 1st, 2011 at 12:41 am

    Am I correct in saying the banks are not really being ‘supported’ but partially replaced? Isn’t it normally the bank’s job to provide this type of liquidity but instead the central banks are taking over?

    reply:
    ———
    The central banks are dong exactly what they are supposed to do and were intended to do when they were created. Banks loan money. If everyone wants to make a withdrawal at the same time, the banks can not accommodate. No bank on Earth can.

    In Europe, everyone wants to withdraw at the same time because they are afraid of bank runs. This also makes banks afraid to loan money out because they are afraid their customer may not be able to repay the loan because their bank is suffering from a run. This is called liquidity risk. If allowed to expand, it creates recessions and depressions. This is at least 1/2 of the cause of the recession in the US in 2008 & 2009.

    The central banks just eliminated liquidity risk from the equation, exactly as they are both designed to do, are intended to so, and promised to do. Now Europe can resume the focus on credit risk.

    Cynical me suspects some hedge funds that hoped to profit from European liquidity failure due to CDO insurance, are really pissed off now.

  43. mathman says:

    coupla cartoons to illustrate our predicament:

    http://thinkprogress.org/romm/2011/11/30/378537/toles-cartoons-on-climate-and-the-1-percen/

    Uh, while we’re all so worried about the financial fiction and money, meanwhile, out here in the real world we have an unfolding calamity:

    both here:

    http://thinkprogress.org/romm/2011/11/30/378412/texas-drought-historic-off-the-charts-says-state039s-climatologist/#jump

    and the rest of the planet:
    http://thinkprogress.org/romm/2011/11/30/377844/arctic-sea-ice-hockey-stick/

    Soon, it won’t matter what we do – it’ll be too late to do anything but suffer the consequences. Money won’t help at all.

  44. dead hobo says:

    I’m also starting the entertain the notion that Ron Paul is an idiot. While the Greesnpan fed was massively incompetent and the early Bernanke Fed was much the same, it appears the Fed has finally ‘got it’. True, they’re not perfect. Operation Twist was a failure from the starting gate and was incomprehensible in concept. But that’s a minor effort in the greater scope of things.

    Ron Paul does not appear to be able to differentiate the performance of necessary functions of a central bank from crony efforts that enable big bonus payments to favored Wall Street fund managers.

    If the fed was not performing necessary liquidity injections during what I suspect is a partially engineered liquidity crisis, the world would be living in a depression like stone age. The gold standard would not prevent this. In fact, the gold standard is the refuge of incompetent, but populist, economists.

    If Ron Paul can not differentiate between the necessary functions of a central bank and crony capitalism, then he is an idiot and should be ignored.

  45. rktbrkr says:

    So the fed has brazenly expanded it’s scope to be the quasi central bank of the euro zone? (From Island of lost Souls )”what is the law”?

    The Fed is lending money to banks that nobody else would lend to? Unsecured, what is the collateral? Bloomberg better drop another FOIL demand on them and be prepared to wait a couple of years.

    France got a credit downgrade yesterday from Jones, tip of the iceberg, unnamed big Euro banks are stuffed with soverigns that they have accounted for as riskless. Worthless might be a more apt description.

    In the short/med term what happens to the values of all Euro zone soverign bonds (except Germany) if the situation in Greece is finally admitted to be a default and one of two more PIIGS follow them and the Euro collapses as a currency. I think at least short term their bond values collapse, they can no longer be accounted for in the zero risk bucket and big european banks en masse have a systemic risk.

  46. rktbrkr says:

    This coordinated central bank move recognizes that there is truly a SYSTEMIC RISK close at hand , no?

    The Fed imposes inflation on Americans to save European banks from bad investments. Why is the US Fed acting like the European Fed? Generals don’t kill generals and the Fed wants to save all big banks, the small US banks “not so much” to paraphrase Borat.

  47. rktbrkr says:

    History. Has there ever been a currency zone like the Euro? Has any currency zone ever ended?

    What happens to the valuations of financial assets denominated in Euros if the Euro members return to their native currencies? Are the holders of Euro based soverign debt kept whole against exchange losses?

    What happened to bonds issued by the Confederacy, Nazi Germany etc?

  48. Jim67545 says:

    If a household overextends itself by buying too much stuff on credit to the point where it cannot pay for it, barring BK, it has to tighten its belt and/or get more income (side job, get a raise/overtime, whatever.) It could sell assets such as the jet skis it really doesn’t use. It can renegotiate its debts and some other marginal ploys. Of course, any income must be real, not imaginary such as planning on a hoped for raise. If it cannot get more income then it needs to tighten its belt not only enough to make payments but to repay the debt. That means a double whammy of reduced lifestyle.

    Nationally here and in Europe, on a larger sovereign scale, we have the same unpleasant choices. As the guy on the Kyocera commercial says, “It’s really not that difficult.” But right now the politicians are afraid to even whisper the idea of depriving anyone. Even if they do, they target those they think are unpopular or represent a small block: the 1%, tobacco users, (fuzzy notion of) government, government waste, foreign aid, etc.

    Until or unless Europe, and later this country, faces up to the need to implement measures that probably will temporarily reduce living standards on a near universal scale in order to raise the funds to reduce the debt, it will not happen. We need to grow up.

  49. wj says:

    Is our hero Bernanke just creating another bubble, like Greenspan did?
    I remember folks lionizing Greenspan, as well………………….