Hope, apparently, remains ahead of the FOMC

It was a tough night for your scribe folks - clients calling at all hours, panic and fear well and truly setting in, so if this comment is a little haphazard blame it on the 4hrs of sleep I had.

Well I wrote about it a few days ago and sure enough here we are. Punters still have 2008 on their minds and last night’s price action simply served to confirm. Levels are all over the shop as soundbites, and Obama’s unwillingness to come to terms with the downgrade, continue to rule the airwaves. Below are a couple of quotes from Trichet and Obama;

ECB’s Trichet: “We have observed that our decisions on interest rates were not transmitted correctly to the euro area. Therefore we have decided on these non-standard measures to help restore the transmission of monetary policy”. He also commented that the ECB’s bond purchases were “undoubtedly significant”.

President Obama: “No matter what some agency may say, we’ve always been and always will be a AAA country”.

That about says it all really, 3 years of living in denial and fighting it the last to maintain some semblance of “control”. Too late fellas, too late.

The US equity market led the bloodshed last night, giving up over 6% on the move, with other high beta crosses and asset classes following suit. The AUDUSD had perhaps the most tumultuous night of all, trading below parity to come back over 300 points this morning. The EURUSD and Cable relatively unchanged, while Gold prints new highs almost every 5 minutes. The JPY strengthened as did the CHF and of course in accompaniment we heard chatter of coordinated intervention and other such nonsense.

Walking in this morning everyone is betting on QE3 or an allusion to it in tonight’s FOMC delivery, explaining much (if not all) of this dead cat bounce in US equities, with a sharp rally also seen now on the European indices. Don’t hold your breath people, this is just another sign of people looking for anything to hang their hat on and when all else fails, hope apparently remains…

I don’t believe it nor am I playing this market from that angle. Rhetoric tonight will no doubt include the continuation of extraordinary measure for an extended period, but after the last round of QE, some lessons should by now have been learned, at least the ineffectiveness of this policy should be burning bright in the eyes of our man Ben.

The only thing I will highlight for punters is Silver, which up until this mess began was the poor man’s Gold. But as Gold has rallied almost unstoppably, Silver (rightly so) has struggled and in my view is now poised for a correction somewhere in the vicinity of 8/10% to the downside. My suggestion, buy some PUTS!

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