Janet Yellen rides to the stock market’s rescue

Janet Yellen to the market's rescue! (Composite derivative art by Ponick)
Janet Yellen to the market's rescue! (Satirical composite by Ponick)

WASHINGTON, October 17, 2014 – Vague but clearly dovish comments yesterday from at one Fed member, followed up Friday morning by similar observations from Fed Chair Janet Yellen, helped stem Thursday’s continuing stock market cliff dive, helping to inspire an impressive rally this morning that continues unabated at 1:00 p.m. EDT.

Markets have been extremely oversold, of course, at least short term. And there’s been some indication that the Federal government has finally begun to arouse itself from its stupor, at least with regard to the badly mishandled Ebola problem.

Adding these facts to the usual antics that occur at the end of monthly options expiration week—which happens to be today—and you have at least a temporary tonic for Wall Street’s continuing Jimmy Carter-era malaise.

Thursday’s Fed noise involved the quiet mention that, while QE is still supposed to conclude this month, that doesn’t mean interest rates will be going to the moon any time soon. Hints were even dropped that some form of QE4 might, maybe, perhaps, be in order if commodities continue the ruinous price deflation they’ve exhibited for several weeks at least.

This morning, Janet Yellen came in riding her white horse like Brünnhilde, waving her magic spear at the bad news bears and rotten robber barons who’d like nothing better than higher stocks, lower wages for their employees, and everything else that’s continued to benefit the 1% since at least 2007.

Well, she didn’t exactly say that, but in prepared remarks, she pointedly addressed her concern that income inequality in the U.S. is now at a 100 year high.

The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression… By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then…. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.

Clearly and correctly, Yellen is increasingly concerned that this increasingly and painfully obvious flavor of class warfare is not doing any good either for the American worker or the American spirit, an observation that both Washington’s entrenched Marxists as well as any sentient libertarian or conservative would likely endorse, at least on a factual level.

For this reason, it’s been clear for several months now that the current Fed chair is in no real hurry to jack interest rates until she sees not only a drop in the real (U-6) but never-cited unemployment rate, which remains remarkably high and stagnant at 10-12%, but an increase in worker’s wages as well.

Re-iterating this point, when adding to yesterday’s soothing comments, seems to have put a floor under stock prices, at least for today. Whether this temporary era of good feelings will spread to most stocks and bonds next week is an open question, which also might get tangled with the general fear still being generated by the Ebola ineptitude and the Administration’s patently stupid non-war against ISIS and other assorted international flotsam.

These other issues include the growing and hated realization among all voting persuasions that this Administration will remain true to past form, fully intending to administer another full measure of fiscal and political torment very soon, but only AFTER the upcoming November elections.

It all makes for an unstable Wall Street and an unstable voting environment. Hence, at least part of the stock market’s current difficulties. There’s more involved than just this, of course, including Russia’s continuing shenanigans and Europe’s insane, obstinate pursuit of ruinous deflation. But for today at least, traders are happy, brokers are generating commissions, so what the heck.

Special note:

FINRA has put into effect a temporary trading halt that seems to be limited to stocks that trade on what’s known as the OTC bulleting board (OTCBB):

FINRA has imposed a quoting and trading halt in all OTC equity securities as of 11:05:06 a.m. ET due to a lack of current quotation information currently available in the marketplace for OTC equity securities. FINRA will notify the market when quoting and trading in all OTC equity securities may resume.

So far, at 1:15 p.m., there’s been no word.

Today’s trading tips

We’re rolling off some of our short ETF positions as the market strengthens. It’s a reverse defensive move. We held so many of these negative bets to hedge our remaining stocks that, when markets reversed course, the hedges started going negative, big time, so it’s best in such circumstances to remove some of this protection.

There could be some nice buys, particularly in the oil patch, which has been hammered mercilessly for several weeks now but most severely over the past ten trading days. But we will likely wait until Monday’s action to see whether some things like the oils are worth getting back into, or whether this is a bull trap in a continuing correction.

Averages have been down around 10% more or less, indicating correction level. But things can go a lot lower if traders and investors remain as unhappy and nervous as they’ve been.

So why not head into the weekend with the security of holding a lot of cash. There’ll always be some place to invest it. Just maybe not today.

Have a great weekend.

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