Thursday, June 30, 2011

QE2 Ends in No-Resistance Window Dressing Rally

Stocks made outsize gains for the fourth consecutive session; with the end of QE2 marking the end to more than $600 billion in monetary stimulus, traders, fittingly, went on a buying spree on the final day of the second quarter, whipping up stocks to sell to anybody willing to buy somewhere down the road.

The finality to the Fed's second attempt to re-invigorate the US economy has had some dubious effects, such as pushing crude oil and other commodities - with the notable exception of the precious metals - to nose-bleed levels, spiking interest rates (the 10-year is up more than 40 basis points in just the past three days) and generally applying relief to the banks, who have parked excess reserves at the Fed, without having done a thing to improve the horrific states of the housing and jobs markets. The US dollar is also down substantially against other currencies.

When the history books are written, QE1 and QE2 will be seen from the prism of a new present, and the look back will reveal whether or not the stimulus help or hastened the end of the fiat money era. For now, it continues to be an exercise in futility to bet against the Fed. Shorts have been burned repeatedly, as the flavor of fresh, daily money proved too difficult to resist for speculators.

With it over, the markets will have to go it alone, without the assistance or accommodation of the Federal Reserve, though it should be noted that the Fed stands ready to print more dollars and pump the banks further with liquidity at extraordinarily low rates. On top of that, the federal fund rate remains at 0.25-0.00%, an historical low, both of level and time. The rates have been down at those levels for nearly three years.

With half a year in the books, the major indices sport marginal gains for the year, bolstered by the past four days of hope and reckless buying. The markets even ignored another in a series of poor reports from the BLS on initial unemployment claims, which again came in higher than the rosy expectations, at 428,000, a drop of one thousand from the previous week, which supposedly was reason enough to cheer.

With one trading session remaining before the 4th of July holiday, not much is expected on Friday, as most of the big players will already be at their beach homes in the Hamptons or aboard their yachts. Yes, it is good to be rich.

Dow 12,414.34, +152.92 (1.25%)
NASDAQ 2,773.52, +33.03 (1.21%)
S&P 500 1,320.64, +13.23 (1.01%)
NYSE Composite 8,319.10, +90.60 (1.10%)

Advancers led decliners, 4774-1827. NASDAQ new highs: 103; new lows: 35. NYSE new highs: 112; new lows: 12. Combined, 215 new highs, 47 new lows. Volume was consistent with Wednesday's flow rate, nothing surprising there.

NASDAQ Volume 1,837,387,750.00
NYSE Volume 4,199,619,000

Crude continued to rise, gaining 65 cents, to $95.42. Expect to be gouged for gas no matter where you live in America this weekend. Though the price of oil has fallen over the past month, it has surged in the past week.

Gold dropped $11.90, to 1499.90, while silver also took it on the chin, losing 20 cents, to $34.68.

It should be clear to everyone by now that fighting the Fed is a losing proposition, and, with the markets front-loaded for the primary dealers, there's no margin for error for the individual investor. For the present, it's up, up and away for stocks. Let's see how long it lasts.

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