Federal Reserve Chairman Jerome Powell said Wednesday the central bank would fight the next economic downturn by buying large amounts of government debt to drive down long-term interest rates, a strategy that has been dubbed quantitative easing, or QE.
Of course, they will. The fix is always in, isn’t it? Wouldn’t want to let a system and associated economy so far out on a brittle limb weighed down by exponential debt leverage go it on its own, now would we? Wouldn’t want anything like a naturally functioning economy because until an utter and complete crash and clean out, there can be no such thing. So more debt manipulation it is!
“We will use those tools — I believe we will use them aggressively should the need arise to do so,” Powell said.
The Fed has traditionally been able to slash interest rates to fight a recession often by as much as 5 percentage points. But that’s impossible now because the Fed’s benchmark rate is currently in a range of 1.5%-1.75%.
The Nasdaq bubble popped in 2000 after motoring upward on increasing volume in two separate phases. Volume rammed upward and RSI diverged. Like shootin’ fish in a barrel, it was, except that at the time I was too inexperienced to see it. It was a steep slope and blow out.
The 2006 bubble in copper made a consolidation and a steep slope and blow out of its own with a little help from rising volume, but nothing like the above. No notable divergences here. The inflation trade of the time was starting to rotate, and rotate commodity herds did… Continue reading "What An Expiring Bubble Looks Like"→
Once again I have to disclaim that at the moment (and for quite some time now) I hold not one single short position, in anything. I am only long US and global stocks. But also managing cash and portfolio balance as usual while feeling as though I’m playing a game of Musical Chairs while the music still plays (nothing nearly as good as Keith’s style, which has always resonated with me beyond most others).
I have to disclaim the bull positioning because book talkers tend to talk about their book. My book is only long insofar as I have equity positions because in a manic up phase I have little interest in eroding the situation with short hedging. Besides, gold stocks are doing that balancing job right now and that balancing act has been working well since June.
Anyway, here is a tweet from a well-followed commentator that is framed so logically and paints the 2008 crash as merely a blip that you or I could do standing on our heads.
Equities… just stay in and prosper! No problem in real-time because the US stock market always comes back… ALWAYS. This is the kind of stuff that appears near tops; like stuff that uses ultra long-term yearly charts in log scale to smooth out the problems.
So the next time this happens, try to forget that it was caused by epic policy distortions within the system the likes of which have been amped up exponentially since and just remember it’s actually a smooth ride assuming the next thing is like the last thing and you live long enough to reap the benefits.
“Many Christmases ago I went to buy a doll for my son. I reached for the last one they had, but so did another man. As I rained blows upon him I realized there had to be another way!”
This year markets are going another way.
We have been managing a potential Christmas Eve close-out sale in the stock market since SPX hopped the Bull Turnstile, negating topping potential and confirming bullish ascending triangles (not shown below as they appeared on daily charts) and its own major trends by breaking upward. Here is the most recent chart (from NFTRH 582) used to illustrate the situation.
Please consider this weekly chart for reference only. We had a lot of words in #582 about what I think is in play, but ultimately this public post is simply illustrating what is currently in play. And that is an upside extension (with associated sentiment readings to be updated this weekend in NFTRH 583) that would be roughly equal and opposite to the 2018 downside blow off (note: though the chart allows for higher levels, SPX has already qualified for a price and sentiment close-out, in the general spirit of the season). The blue box is the same height as the yellow shaded area. It’s more art than TA, but there you have it… some frame of reference. Continue reading "A Market Festivus"→
The Continuum (the systematic downtrend in long-term Treasury yields) has for decades given the Fed the green light on inflation. Sometimes it runs hot (as per the red arrows) and sometimes it runs cold. One year ago people were confused about why a declining stock market was not influencing Fed chief Powell to reverse his relatively hawkish tone.
The orange arrow shows exactly why, per this post that will be one year old tomorrow (Dec. 19)…
Inflation is what the Fed does, after all. But it needs periodic deflationary episodes in order to keep the racket going. I will stick with my original view that the Fed is not adverse to a market correction or even a bear market. It is exactly what is needed to reload the next inflation gun.
The “BOND BEAR MARKET!!!” stuff ran very hot on this cycle as the 30 year yield broke the Continuum’s limiter (monthly EMA 100) before failing over the last few weeks (to the surprise of many, but not us ;-)). As I have noted previously, in my opinion the Fed does not want a bond bear (breakout in yields) or its running mate, a breakout in inflation expectations because the Fed is an inflation machine. But it has inflated against this pleasant continuum of declining yields over the decades that has encompassed the entire training of most of us as market participants.
I am not saying that a red dashed line is the be all end all of market analysis. But it is a marker that we have used in NFTRH since 2008 in order to correctly interpret the macro situation. My interpretation today is that the Fed has countered the cost-push inflationary pressures that by definition are injected through fiscally (political) stimulative policy by withdrawing liquidity until something breaks. Ironically, that has involved raising the Fed Funds interest rate and withdrawing QE, which theoretically would raise long-term yields. But when something breaks, the risk ‘off’ herds buy the bond driving yields down.
Fast-forward to today. The herds bought the bond alright; they bought it for most of 2019 amid ‘trade war!!’ and ‘inverted yield curve!!’ headlines and associated economic fears. And so the Continuum dropped again, along with inflation concerns and logically, the Fed’s hawkishness after the Q4 2018 orange alert. Continue reading "Wooing Inflation"→