Goldman Tells the Suicidal Man to "Jump"
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With the U.S. economy deteriorating and the Fed on hold, traders just needed a little push to hit the sell button. Well they got that Thursday from a Goldman Sachs strategist who said short the S&P 500 (with a target of 1285, or roughly 5 percent below current levels). The firm cited the weak Philly Fed report.
The market ripple from call - made just before 11AM ET - was immediately felt. And as word continued to spread, markets drifted lower yet. Just after 2PM, the Dow is down 211 to 12,613 and the S&P 500 is down 25 points to 1,330.
But let's get one thing straight: it wasn't the Goldman call that moved the market.
For the past month or so, a U.S. economy that had been looking like it was on amends has been showing major cracks. This is in no small part due to Europe. The Philly Fed data was just the latest in a string of worse-than-expected economic data points.
All the while, the Fed is not only pushing on a string - the Fed is stringing the market along. The Fed is using the proverbial QE3 carrot, and the market and the Fed both know that with rates "zero bound," the current methods to stimulate demand via the bond-buying program and operation twist are showing little fruitfulness (Although the fed may have something up its sleeve.)
That said, the Fed always has the power to create inflation. If worse came to worse, the Fed could devalue the dollar. Hopefully this will never come to pass. That being the case, the Fed may need to expand its balance sheet further. Before doing so however, the Fed needs to see the blood in the markets eyes. Maybe a market drop of a good 10 percent.
Meanwhile, Congress is an ineffective lame-duck mess. No one counts on them to get anything done on the fiscal side.
The negative feedback loop is developing and astute traders smell it.
So in essence, Goldman's call was just like telling a suicidal man to "jump."
The market ripple from call - made just before 11AM ET - was immediately felt. And as word continued to spread, markets drifted lower yet. Just after 2PM, the Dow is down 211 to 12,613 and the S&P 500 is down 25 points to 1,330.
But let's get one thing straight: it wasn't the Goldman call that moved the market.
For the past month or so, a U.S. economy that had been looking like it was on amends has been showing major cracks. This is in no small part due to Europe. The Philly Fed data was just the latest in a string of worse-than-expected economic data points.
All the while, the Fed is not only pushing on a string - the Fed is stringing the market along. The Fed is using the proverbial QE3 carrot, and the market and the Fed both know that with rates "zero bound," the current methods to stimulate demand via the bond-buying program and operation twist are showing little fruitfulness (Although the fed may have something up its sleeve.)
That said, the Fed always has the power to create inflation. If worse came to worse, the Fed could devalue the dollar. Hopefully this will never come to pass. That being the case, the Fed may need to expand its balance sheet further. Before doing so however, the Fed needs to see the blood in the markets eyes. Maybe a market drop of a good 10 percent.
Meanwhile, Congress is an ineffective lame-duck mess. No one counts on them to get anything done on the fiscal side.
The negative feedback loop is developing and astute traders smell it.
So in essence, Goldman's call was just like telling a suicidal man to "jump."
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