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Option expiration tomorrow.
The market action is weak and listless, and prone to short term manipulation by the bigger players.
The action next week could be fairly intense as we approach the QE3 event horizon.
NEW YORK, June 15 (Reuters) - Bill Gross said the Federal Reserve next week could signal that interest rates could be capped if warranted due to soft economic growth.
The world's largest bond fund manager said on Twitter late Tuesday: "QE3 likely to take form of 'extended period' language or interest rate caps on 2-3-year Treasuries."
Gross, the co-chief investment officer of PIMCO, the world's top bond manager, also said on Twitter: "Next week's Fed statement will likely stress 'extended period of time' language or even a period of interest rate caps."
The Fed will hold its next policy meeting on Tuesday and Wednesday, and will issue its policy statement after the close of the meeting.
The recent soft patch of economic data has increased speculation over whether U.S. policymakers will perform a third round of bond purchases, an unconventional monetary measure known as "quantitative easing," or QE2. The second round of QE2's $600 billion in purchases will conclude on June 30.
But Gross tweeted that the Fed could signal a cap on interest rates as a form of QE3.
Mark Porterfield, spokesman for PIMCO, confirmed to Reuters the content of the tweets. Pacific Investment Management Co. oversees more than $1.2 trillion in assets.
While the 10-year Treasury bond is one of the most widely watched securities as it sets the benchmark for almost every other interest rate in the U.S. economy, Fed Chairman Ben Bernanke has long considered the two-year Treasury note as an effective tool.
In a November 2002 speech, entitled "Deflation: Making Sure 'It' Doesn't Happen Here," Bernanke said: "Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates."
Bernanke, who at the time was a Federal Reserve governor, went on to say that the two-year Treasury note is a long-term maturity and that 10-year notes are "longer" maturing securities.
Bernanke said: "A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years).
"The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targetedyields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well."
Stocks slid hard today on poor economic news from the US, more significant signs from Europe of a test of the European Union and a Greek default that might cause repercussions in the global banking industry.
There was a flight to safety into the US dollar and into gold and to a lesser extent silver. Gold looks to be making a move to break out of its consolidation range, but it has not done so yet.
Silver continues to struggle after the big smack down, but the inventories on the Comex are still in a very steady decline. Someone sent me a piece from Ted Butler in which he says that over the years he has not been able to correlate the price of silver and the Comex inventory levels.
Well, I think if there is plenty of available supply that makes sense. If the inventory gets low, then the dealers would just procure more.
However, when available supplies start to tighten beyond a certain level, especially after years of price manipulation causing distortions and underinvestment on the supply side, then a demand supply trade off comes into play and the correlations and the significance of the data can most decidedly change.
I was a little disappointed with his analysis since he has studied the Comex for the past twenty plus years, but offered no insight into Comex deliverable inventories from an historical perspective, and in particular, as a percentage of open interest. What was the prior low, and what else was going on in the industry at that time? How low was it?
I will make one prediction. The deliverable Comex inventory will not fall below zero. And that is exactly where is has been heading, slowly but surely, for the past three years, like a train wreck in slow motion. Should there be any sort of default incident, Obama should find a new head for the CFTC.
If you have seen the movie 'Super 8' you will understand it when I say that one can only wonder what ugly thing will be crawling out of a Comex train wreck, looking for payback after years of abuse.
VIX spiked over its 200 DMA today. Keep a close eye on where it goes next.
I shifted gears on my short positions late in the day, from triple short to the same units in an SP index short. Both sides of the paired trade were working for the account as gold spiked higher. I did take a few more profits. I own no miners now except for one special situation.
This is still option expiration and even with Greece overhanging the market, the wiseguys are more concerned with their bonuses than with anything else unless it hits them in the face.
Carlyle is doing a review of the investment banks to see who can claim the honor of handling their prospective IPO. I wonder how much of that resume will include managing the market in order to get that pig out in rough waters. If that's the case look for JPM and Goldman to have lead roles.
My first thought is that the Carlyle IPO would mark Land's End, and the cliffside boundary. Let's see what happens.
