Today is the second time I write in English since I joined this blog. I just want everyone out there to read me loud and clear. But don’t worry – I will soon come back to my native language.
Everyday, the opening of US financial markets is antecipated by readings in equity index futures. Although the S&P500 and the Nasdaq cash markets close regularly at 4pm New York time, equity futures that reflect those same specific indexes keep trading overnight. Among these derivative assets, the most notorious is the S&P500 index future. The cash market only trades between 9:30am and 4pm NY time, but it is possible to estimate a quote for the S&P500 at midnight or at any other time of the day. Just take the S&P500 index future, add in the fair value component, and wham!…you have a quote for the S&P500 cash market.
Yesterday before the open, futures were antecipating higher cash markets. Behind the numbers, word was out that a team of analysts at Goldman Sachs – the most prominent investment bank in the world – had stated that the Federal Reserve would lower interest rates once again and that, in fact, they - Goldman - weren’t ruling out an intermeeting rate cut. This piece of research sounded ludricrous because the next rate meeting scheduled by the FED is next week. Why rattle the market with an element of surprise – and may I say, desperation – when just a few days ahead the bank of governors is supposed to meet? It made no sense. As the afternoon progressed, market gains faded and the S&P500 closed lower and just shy away from its previous 52 week low.
However, today, just before the open, the FED announced a new temporary lending program. Minutes after, equity index futures were antecipating a +2% open in the S&P500 cash market. The US central bank will lend an additional amount of Treasury securities worth 200 billion dollars for 28 days to primary dealers. The FED is increasing the terms associated to regular, overnight, repurchase agreements already in place. In practice, it is opening yet another liquidity window. In essence, it is equivalent to lowering interest rates.
The Goldman Sachs analysts that yesterday seemed so dumb, now look quite smart. In fact, too smart. Goldman Sachs is the top house in the field. Last year it had the biggest corporate profit in the financial services industry. Its CEO – Lloyd Blankfein – is the best paid. And, guess what, Goldman Sachs was the only major investment bank that escaped the subprime debacle. Indeed, rumor has it that Goldman made money on short subprime bets. The current Treasury secretary – Henry Paulson – is Goldman’s former CEO. And the chief for liquidity injections at the New York FED – Tim Geithner – also came from Goldman, personally recruited by Paulson. The firm is everywhere. Unfortunately.
So, from now on, “don’t doubt Goldman”. This week’s chain of events certainly leads us there. And it also reminds every speculator out there that there’s another Wall Street adage: “Don’t fight the FED”.
Everyday, the opening of US financial markets is antecipated by readings in equity index futures. Although the S&P500 and the Nasdaq cash markets close regularly at 4pm New York time, equity futures that reflect those same specific indexes keep trading overnight. Among these derivative assets, the most notorious is the S&P500 index future. The cash market only trades between 9:30am and 4pm NY time, but it is possible to estimate a quote for the S&P500 at midnight or at any other time of the day. Just take the S&P500 index future, add in the fair value component, and wham!…you have a quote for the S&P500 cash market.
Yesterday before the open, futures were antecipating higher cash markets. Behind the numbers, word was out that a team of analysts at Goldman Sachs – the most prominent investment bank in the world – had stated that the Federal Reserve would lower interest rates once again and that, in fact, they - Goldman - weren’t ruling out an intermeeting rate cut. This piece of research sounded ludricrous because the next rate meeting scheduled by the FED is next week. Why rattle the market with an element of surprise – and may I say, desperation – when just a few days ahead the bank of governors is supposed to meet? It made no sense. As the afternoon progressed, market gains faded and the S&P500 closed lower and just shy away from its previous 52 week low.
However, today, just before the open, the FED announced a new temporary lending program. Minutes after, equity index futures were antecipating a +2% open in the S&P500 cash market. The US central bank will lend an additional amount of Treasury securities worth 200 billion dollars for 28 days to primary dealers. The FED is increasing the terms associated to regular, overnight, repurchase agreements already in place. In practice, it is opening yet another liquidity window. In essence, it is equivalent to lowering interest rates.
The Goldman Sachs analysts that yesterday seemed so dumb, now look quite smart. In fact, too smart. Goldman Sachs is the top house in the field. Last year it had the biggest corporate profit in the financial services industry. Its CEO – Lloyd Blankfein – is the best paid. And, guess what, Goldman Sachs was the only major investment bank that escaped the subprime debacle. Indeed, rumor has it that Goldman made money on short subprime bets. The current Treasury secretary – Henry Paulson – is Goldman’s former CEO. And the chief for liquidity injections at the New York FED – Tim Geithner – also came from Goldman, personally recruited by Paulson. The firm is everywhere. Unfortunately.
So, from now on, “don’t doubt Goldman”. This week’s chain of events certainly leads us there. And it also reminds every speculator out there that there’s another Wall Street adage: “Don’t fight the FED”.
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