The New Old Experiment

posted Nov 3, 2014, 10:23 AM by Katie Shook

Central Bankers Unite!

What could drive this market toward a number like SPX 2147?  Start with a cocktail of Japanese and European stimulus, add in some geopolitical unrest, and falling oil to strengthen the dollar.  Then wrap yourself up in a nice carry trade with your currency exchange.  Foreign governments can support the bid for US Treasuries while hedge funds can leverage the currency exchange play.  Meanwhile, the stock market continues higher.

If I had to script the rest of the year, I’d guess the SPX continues to be really tough to outperform this year.  The underlying market would likely stay fairly choppy.  But don’t be surprised if volatility — and favorable options pricing — start peeling there way back out of the system again.  Basically, take a look at the page out of the market’s book after last February’s pull-back.  Then explain to me how ‘this time it's different.’  If you can’t, then more than likely the market will just keep doing what it’s doing.  (Because I know some of you were saying back then WE had QE from our own Fed.  But, from my vantage point, it looks like we simply shifted bond demand to foreign entities that need to hedge their own falling currencies).

Daily Digits

Daily Digits 11-3-14

Weekly Estimated Range

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