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The Return of the 'Hilsenrumor' image

Good Morning. Long-time readers know that I am a big believer in the idea that markets don't make "big" moves without a reason. And based on the fact that stocks came into Thursday morning's session looking more than a little weak, the closing gain of 180 points on the DJIA definitely qualified as "big" in my book. However, I admittedly spent an inordinate amount of my day not understanding what was happening.

Maybe it was the three conference calls. Maybe it was the birthday well-wishes from family and friends. Or maybe it was the impromptu photo shoot we did to get a decent picture of my son and I for the websites that kept me distracted. But in any event, I found myself first scratching my head and then eventually yelling at my screens by the time my late lunch had been consumed.

In between calls and before lunch, I had assumed that it was the turn in the yen that was causing the algo gang to push stocks higher. Unlike the two days prior, every little decline was greeted with another buy program. After all, the short yen/long stocks trade had produced some big gains this year and the recent spike in Japan's currency was cited as a major reason for the stock market's corrective phase. And since the yen had gotten very overbought, a move lower, which would, in turn help stocks, was to be expected eventually.

But the moves that began happening after lunch on Thursday were more than your run-of-the-mill buy programs. No, these programs were relentless as the S&P wound up moving up a total of 28 points from the morning low and about 20 points from 12:30 pm alone. As such, it appeared that something else was up.

Then I saw it on my news ticker: "Fed likely to push back vs. market expectations for rate increase--WSJ." I quickly clicked on the link in the StreetAccount report and boom, there it was - a new article by none other than the Fed mouthpiece himself, Jon Hilsenrath.

If you'd like to read the full report, here's a link. However, the bottom line is that according to Mr. Hilsenrath, who has a habit of dropping FOMC-oriented and market-moving articles on the market late in the afternoon while the NYSE is still open, Ben Bernanke's gang is none too happy about the market's perception that a rate increase is likely to come sooner rather than later.

The opening and closing lines of the article are all you really needed to read to get the point that Ben Bernanke may start giving the market a tongue lashing about the idea of the Fed raising rates anytime soon. Hilsenrath opened the article with:

"Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back on its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates. Investors aren’t listening."

Although the Bernanke Bunch have made it very clear that the Fed isn't likely to even stop stimulating the economy in the near-term, traders have been trying to front-run the eventuality of a rate increase by sending selling bond, which has sent yields significantly higher. For example, since the beginning of May, the yield on the 10-year has moved from 1.614% to Wednesday's high of 2.23%. And in the bond market, that's quite a move.

Apparently "Gentle Ben" has noticed. According to Mr. Hilsenrath, "It’s a point Chairman Ben Bernanke has sought to emphasize before. The Fed, he said in his March press conference and again at testimony to Congress last month, expects a “considerable” amount of time to pass between ending the bond-buying program and raising short-term rates. He seems likely to press that point at his press conference next week..."

The key Mr. Hilsenrath (who is said to have the Fed Chairman's ear) is making is that the Fed is nowhere near a rate hike. Thus, the QE program is likely to continue for some time yet and it may be mid-2015 before there is any expectation of higher rates. And because of this, the idea is that traders can continue to borrow money at uber-low rates and put it "to work" in the stock market for some time yet.

So there you have it. In the morning, traders were worried about stocks breaking down and embarking on another leg down. But with a turn in the yen and the latest "Hilsenrumor" it looks like the bulls might be back in business. Time will tell.

Turning to this morning... Although the majority of the overnight markets finished with green numbers, investors in the U.S. are less than enthusiastic in the early going today in front of another batch of economic data. However, it should be noted that the early futures readings have had little bearing on the outcome of the trading day of late. So, while there may not be much action at this stage, stay tuned because you just never know what will catch traders' fancy.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Shanghai: +0.64%
- Hong Kong: +0.39%
- Japan: +1.94%
- Germany: +0.56%
- France: +0.37%
- Italy: -0.09%
- Spain: +0.30%
- London: +0.13%

Crude Oil Futures: +$0.35 to $97.04

Gold: +$3.20 to $1381.00

Dollar: higher against the yen, euro and pound

10-Year Bond Yield: Currently trading at 2.128%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +0.34
- Dow Jones Industrial Average: +14
- NASDAQ Composite: +0.35

Thought For The Day...

The man who does not read good books has no advantage over the man who can't read them. - Mark Twain

Positions in stocks mentioned: none


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editor and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

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