Menu is putting out an EXTREME VOLATILITY WARNING to all of its members this week.
If you don’t know how to trade volatility or more importantly…. if you can’t stomach it, get out. It may be time for many of you to cash up in our opinion, the next few days could have some very significant up and down days as we move into the FED meeting. We do expect the FED to ultimately disappoint the markets, however this is pure speculation as the fundamentals of our economy have NOTHING to do with our larger indexes like the Dow Jones.
Will the computers that account for 80% of trading today go ape sh**, only time will tell. But remember, it doesn’t matter how good of a company you hold, in a broad market sell off almost all shares see losses.
Right now our staff is focusing on some potential winners for our members, ones that are significantly undervalued and may be as close to “as good as gold” as you can get!

Look for our analysis of the markets later this week, as well as potentially the next big company we plan to start accumulating before the real QE3 (Big Print) is announced later this summer.

By Front running QE, Did The Market Make QE Impossible?

Ever since the beginning of the year we have been saying that in order for the Fed to unleash QE, stocks have to drop by 20-30% to give political cover to the Fed (and/or ECB) to engage in another round of wanton currency destruction. Because while on one hand the temptation to boost stocks is so very high in an election year, the threat to one’s presidential re-election chances that soaring gas prices late into the summer does, is simply far too big to be ignored. Yet here we are: stocks are just 4% off their 2012 highs, even as bonds are near all time low yields, and mortgages are at their all time lows. As such, even with the latest batch of economic data coming in simply atrocious, the Fed finds itself in a Catch 22 – it wants to help the stock market hoping that in itself will boost the “economy”, yet it knows what more QE here will do to the priced of gold and inflation expectations: something which as Hilsenrath himself said yesterday does not compute, as it runs against everything “Economic textbooks” teach. What is more important, is that the market, like a true addict, is oblivious to any of these considerations, and has priced in a massive bout of Quantitative Easing to be announced tomorrow at 2:15 pm. There is one problem though: has the market, by pricing in QE on every down day – the only buying catalyst in the past month have been hopes of more QE – made QE impossible? Observe the following chart from SocGen which shows 6 month forward equity vol. What is obvious is that due to precisely being priced in, QE is now virtually unfeasible, irrelevant of what Goldman and its “FLOW QE” model tell us. As SocGen simply states: “More stress is needed to trigger ample policy response.”

Naturally, SocGen is not the first to get this. Recall that this is precisely the logical espoused by both Citi a month ago which warned of XO crossing above 1000 bps first, and then Deutsche Bank this weekend saying a crash may well be needed to jar Europe out of inactivity like last fall. Not to Goldman though. Goldman is confident that the 4% drop in the S&P from its highs is enough to unleash an epic episode of monetization. Well, the chart below begs to differ.

Of course, if Goldman is right, and the Fed does indeed go ahead and launch some version of a Flow-based easing program, with a $50-$75 billion monthly monetization total, then kiss it all goodbye, as going forward the market will consider even a one tick drop in the ES a sufficient reason to kill the USD, and buy every ounce of physical gold available. In the process, of course, the Weimar wheels will start turning.

Furthermore, while stocks are always in their little world, and always, absolutely always wrong in the long-run, recall that the fixed income markets are saying something totally different: no bombastic LSAP program, but a very timid Op Twist expansion, where the 3 year selling threshold is extended by one year to include 4 year bond sales. An outcome such as this will send stocks plunging as it is merely more sterilized easing – the kind of intervention that has had no real impact on risk at all as all risk gains in the past 9 months have came solely from Europe’s $1.3 trillion LTRO-based balance sheet expansion.

So what will it be? More QE, whereby the Fed admits defeat and hands over the monetary apparatus to an increasingly more petulant market, or no QE, and a wholesale risk crash in one day.

Tune in later today at 2:15 pm to find out.