January 27, 2011 - Another Nail in the Market's Coffin

Featured Trades: (ANOTHER NAIL IN THE COFFIN FOR GLOBAL MARKETS), (SPX), (SPY), (TNX)

1) Another Nail in the Market's Coffin. I think it was very interesting not to see what happened today, but what didn't. The Federal Reserve announced that it would continue its purchase of $600 billion in debt securities and keep interest rates low for the indefinite future. What did the markets do? The Dow rose by 0.07%, the S&P 500 by 0.42%, and yields on ten year Treasury bonds rose by five basis points. Everyone was expecting a bang, and got a whimper instead.

To me, the muted reaction is another nail in the coffin of the current rally in global asset prices. We could get a bump in markets on Friday when Q4, 2010 US GDP comes out better than expected, possibly as hot as 3.5%-4%. Then you get the new monthly asset reallocation on Tuesday, February 1, which will almost certainly favor paper assets over hard ones. Beyond that, I don't see much on the horizon to keep powering prices higher for the short term. We are at the stage in this party where the waiters are piling the chairs on the tables, flickering the lights, and all of a sudden, the few remaining available women all start to look beautiful. If the S&P 500 does tack on a few dozen points in the next week, I will be inclined to double up, rather than run from the shorts that I already have.

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