Mystery Trader

Are Fed governors talking out both sides of their mouths, hawkish and dovish at the same time?
See my comment of June 16, 2006, at the bottom of this page.
Do they even know what they are doing?
Or, do THEY know exactly what THEY are doing, at all times?
Are traders overreacting to both hawkish and dovish Fed comments?
This volatile mix obviously makes for a wild trading environment.
I expect more of the same.
We’ve got to TRADE, not invest.
The presence of so many loose cannons rolling around on deck offers mucho volatility, and that offers potential for both big trading profits AND losses.
Of course, this calls for discipline to strictly limit losses without hesitation when our trades don’t work.

Prices are looking higher thanks to end of quarter seasonal tendencies and some hopes that inflation and economic trends might not be as bad as feared. With crude oil rising back above $72, I am skeptical. The FMOC statement today could take away such hopes.

Univision Communications agreed to be bought by an investor group for $12.3 billion.
Barr Pharmaceuticals agreed to buy Croatian drug manufacturer Pliva for $2.2 billion.
Citizens Banking Corp. made a $1.05 billion deal to buy Republic Bancorp.
The market is lower than it was before any of this merger news.
Clearly, merger news is not good news.
The market is weak. The peak is past. The trend is down.
Look out below…

Destroying Stockholder Wealth
U.S. stocks gapped higher today on news of several big merger deals, including a three-way $40 billion merger in the mining sector by Phelps Dodge and Johnson & Johnson’s acquisition of Pfizer’s consumer-products business. Both Phelps Dodge and Johnson & Johnson fell on this news.
Will merger deals save the market or sink the market?
Mergers are a sign that it is very late in the financial cycle when corporations have more money than intelligence. After all, most mergers don’t really work and end up actually Destroying Stockholder Wealth.
Nevertheless, our friends in the media always tell us that mergers are good news. But the market tells us mergers are not good news.
Who do you Trust, the market, or the media?

The big news of the day is Anadarko Petroleum’s agreement to acquire Kerr-McGee and Western Gas Resources in separate all-cash transactions totaling $21,100,000,000.

All this really means is that oil companies are making too much money by taking it out of YOUR pocket every time you fill up your tank.

That leaves you with less money for other necessities, such as soaring medical costs.

Now really, is that good news?

It is only a matter of time until reality sets in and stocks decline substantially to rational levels.

Wednesday’s last hour fade away sets the stage for further stock price weakness.

The ominous specters of inflation, higher energy prices, and ever rising interest rates should weigh on stocks.

Better than expected earnings reports are old news by this time. Better than expected earnings are EXPECTED. Wall Street analysts low ball earnings estimates in order to give stocks a boost. The game is old hat, and the earnings trick is not working beyond a few minutes immediately after the report. After knee jerk dummies react, the rally is over. Wednesday’s pop in Morgan Stanly after the blowout earnings news lasted only 35 minutes.

The ever-hopeful bulls are talking up better-than-expected earnings reports for Morgan Stanley and FedEx this morning.
But the problem is that this market is not responding to good news.
And THAT is very BEARISH.
I continue to use rallies for short selling, until proven wrong by the market itself.
The market is the only true guru, and it often speaks with forked tongue.
So there you are.
If you want a sure thing, buy T Bills—small return for small risk.

Our good friends in the always bullish media tell us that stocks are indicating a higher open on news of stronger-than-expected housing starts and analysts upgrades of Applied Materials and Costco.
Yeah, right. We saw how well such good news worked for the bulls yesterday.
I’m taking any good news as another opportunity to get off short sales at relatively high prices.

Look both ways before you cross the street.
I see indications of split and choppy trading, with ups and downs.
The main trend probably has turned bearish, but the bulls are hoping that good corporate news and analysts upgrades this morning will save the day.
But professional traders know that news and rumors and hope offer the best SELLING opportunities and poor BUYING opportunities.
Sell em when they want em, buy em when they hate em.

6/16/06 9:00 a.m.
War, what is it good for?
St. Louis Fed President Poole said U.S. data may understate inflation.
The data may not capture the entirety of the inflation picture which would naturally expose the markets to uncertain risks.
This is not the kind of talk the market needs to sustain a rally.
Will these Fed Governors ever shut up and let the markets do their natural thing?
In a word, no.
Today, Fed Governor Kohn will be speaking at 11, Olson at 11:30, and Kroszner at 1:15.
It promises to be a roller coaster session. Whatever you do is likely to be wrong…therefore, you should act immediately.