A few weeks back I showed the following chart of what I was currently watching. Here it is again. To wit:
I’ve had a few inquiries concerning if my original thoughts had changed in light of the latest “market” machinations. My response was: no.
However, with that said, I thought it was only fitting to put up an updated version for those that may want to know why, as I had explained to them. Here is that updated version as of this morning before the U.S. markets open. Again, to wit:
Basically nothing has really changed in what I was watching from a technical perspective other than, the pattern has developed displaying a few more details such as time and what is now shown to be a “fake out” styled sell off.
So, now including that “fake out” dip, I’ve just moved a few lines to encompass what is now a larger pattern. But the implications to my eye appear the same as before.
Just to reiterate, that shaded box at the upper extreme is at the same levels as the prior observation weeks ago. Nothing has changed except for the fact that we are finally knocking on that door.
Can we go higher? Sure can. Actually, we can go much higher via a technical view such as to make new “never before seen in the history of mankind new highs.” Yes, the above certainly supports that appraisal. However…
It’s the failure of doing so that has the real implications for the “markets.” And that is the reason why I’m still watching how this all plays out this week. For this week – may be one for the history books.
Just which story as in, good, or bad, is now what needs to be shown.
As always, we shall see.
© 2019 Mark St.Cyr
To be, or not to be, that is the question:Prince Hamlet in “Hamlet” Act 3, Scene 1
Whether ’tis nobler in the mind to suffer
the slings and arrows of outrageous fortune,
or to take arms against a sea of troubles,
and by opposing end them: to die, to sleep
no more; and by a sleep, to say we end
the heart-ache, and the thousand natural shocks…
On Wednesday of this week the Federal Reserve will conclude its latest conclave and announce to a “market” with bated breath precisely what it is. i.e., Is it the market’s b*tch, or not? (Not my choice of moniker, that’s how much of Wall Street now openly defines it.)
This is the only question the “market” wants answered, and it wants it answered via deeds – not words.
The scene from Hamlet aptly fits what should be taking place during this upcoming FOMC (Federal Open Market Committee) meeting, for this is both the time and place where the usual mealy mouthed “Fed speak” just won’t cut it. In other words: all words and examples used to explain the current policy and signalling had better include a plethora of past tense verbs such as “paused” or “halted” and so forth. It must be one thing, or the other.
Anything approaching terms like “the future” as in “We will evaluate as we go along and come up with something at future meetings to possibly conclude ending something by end of year blah, blah, blah…” is not going to work this time. The Fed is now in that “to be, or not…” moment. There is no middle ground this time. Period.
The issue now confronting not only the entire Federal Reserve, but rather, its Chair Jerome Powell directly, is that it is they that have allowed (and also reinforced) the current delusion that the Fed has “paused” anything.
I must repeat for the billionth time: the Fed has not halted anything. Nothing as in zip, zero, nada.
January’s non-event for any interest rate move was baked into the “markets” long ago. A January raise was never anticipated or thought credible. The only reason why it needed to be adjusted for odds in possibility terms was because Mr. Powell back in 2018 announced there would be a presser after every meeting going forward in 2019. i.e., an adjustment into the calculation models for a Jan. hike went from, let’s say, .01% probability to maybe .5% That’s about it.
However, after the December debacle both the mainstream business/financial media, along with the willing chorus at the Fed, made it appear as if there was some implied 50 fold probability that there would be a hike in January. And when the Fed didn’t move? That now, in some way constituted some mythical verification that the Fed had indeed “paused.”
Again, January was never a serious consideration via Wall Street even as far back as early 2018.
But today (or should I say Wednesday) will be a far different matter for what the definition of “pause” truly means. For there has been one thing that has not been paused. And it’s the only thing the “market” cares about. e.g., The Balance Sheet Roll Off Process (QT)
Not only has the QT process not been paused – it’s been running on “autopilot” -and- running at light-speed!
Since January every business/financial media outlet with their assortment next-in rotation fund managers, Ivy League Ph.D economists, think-tank aficionados, buzzer-bangers and more has built this canard that the Fed has “paused.” And because of this so-called “pause” the Fed has made it abundantly clear that it “has the market’s back” so buy, buy, buy! After-all, as the signalling goes, “Just look at these markets!”
I say: Sure, but, what happens when the “market” has to deal with the reality of the moment on Wednesday? Why? Hint: there has been no pause. Period.
To reiterate, I have been stating this warning since January when this idea of “pausing” or “capitulating” was first being presented as fact by all those mentioned earlier. As I said way back then, to wit:
As I’ve stated ad nauseam at every post meeting since the “autopilot” debacle there is, and will continue to be, $50Billion less per month for Wall Street to play with. Again: every – single – month.
Since there has been no declaration via the Chair that there has been any alteration to the process. And even reaffirmed that it was still going on as advertised, where the committee itself agreed and voted that it should continue on unabated means, that from now until March, almost $200Billion will be removed (generalization for example math, but you get the point) or allowed to be rolled-off until Wall Street has another glimpse into what happens next.
And “next” just might be another $100Billion (e.g., April) till the next meeting. Think about that, again very carefully.“Did he or didn’t he?” Jan. 2019
Again, for this point can not be made forcefully enough, as I have warned ad nauseam: there has been no “pause” of the balance sheet.
As a matter of fact the “autopilot” sequence for the month of February was so that it actually exceeded the $50 Billion quota by some 25+$Billion! Meaning: the Fed needed to reinvest the overage as to stay true to the original plans of “autopilot.” The “markets” received this confirmation just 10 days ago.
Now the “markets” are entering the “black out” period for what shows to have been the only true other driver of recent “market” moves alongside of the Quad-witching expiry process. e.g., the corporate buy-back window.
Hint: there goes anything left of the already pathetic volume measurements, no?
So now you have February confirmed for $50Billion with March about to confirm another. If nothing is “paused” Wednesday, as I iterated prior, by April’s meeting one would need to conclude that another $100Billion would have been pulled. The “markets” are already running on fumes and I feel can’t wait another month to “see.” The Fed needs to deliver what the “markets” are anticipating in toto on Wednesday. No if’s, and’s, but’s or maybe’s will do. Again, period.
How important is what Mr. Powell declares during Wednesday’s presser truly? Well, sticking with the Shakespeare theme, let’s just say…
Anything inclining that there may be a “considering,” or “looking at doing,” and so-on and so-forth as in future tense, as opposed to past, will be seen as having the same superstitious curse or effect of saying the word “Macbeth” in a theater. i.e., will cause a disaster.
All I’ll say is: Buckle up!
© 2019 Mark St.Cyr
When it comes to super-heroes there is only one thing that matters: either you have the ability to save the world and crush all comers via some extraordinary superpower. Or, everyone must believe you do and not challenge it.
Yet, as we all know, there comes a time when bluster just won’t cut it. As any good comic series has shown – there’s always some circumstance (or villain) ready and willing to put all claims to the test.
Today’s super-heroes are falling faster than their box-office ratings. Now it appears the once unchallenged superpowers of central bankers has now entered this same universe. And that’s a very real problem, for all of us.
Last week the once unquestioned power of Mario Draghi (aka “Super Mario”) president of the European Central Bank (ECB) with his unwavering declaration to supply “whatever it takes, and it will be enough” launched another barrage of shock-and-awe styled stimulus upon the European economy. The shock-and-awe description should have fit since this was a complete reversal from the track the ECB said it was following. The result?
It would probably be more befitting that the shock-and-awe reaction was not displayed via the European markets rather, it would probably better describe Super Mario’s reaction. In other words – nobody was buying it, literally. And the markets sold off, and kept selling.
This is the antithesis for the once knee jerk reaction (e.g., vaulting higher) the markets would display in times past. It appears releasing another round of “whatever it takes” of monetary easing, after just trimming said policy, makes others now question everything. i.e., Sounds great, but I’ll take my money now, thanks.
What’s happening in Europe is not an isolated event. It’s happening across the globe to central bakers everywhere.
The Bank of Japan’s governor Haruhiko Kuroda did similar in December where he signaled the banks readiness to ramp up stimulus if needed. The result? See above for clues.
In China the same. Over the past weeks the PBoC has released almost as many differing rounds of policy interjections (e.g., RRR cuts, record setting direct money interjections, etc., etc.) as they have spinning plates. This is all under the guise of “prudent and neutral.”
It sure appears to any observer this has been more akin to, “We’re willing to throw everything including the kitchen sink and then some!”
Again, the result? Once again, see above for clues.
The interesting thing, as always, is if you look at any chart they all follow what can only be described as the ultimate superhero of central banks headed by the seemingly mild mannered Chair of the Federal Reserve, Jerome Powell.
So far his super powers have been put to the test twice.
In February and December of 2018 the “markets” suffered from an all out assault to their once unquestioned cloak of invincibility provided by quantitative easing (QE) and zero bound interest rates, enabling those with no-clue to BTFD’s (buy the f’n dips) with pure, unadulterated impunity.
Then, suddenly (Feb and Dec) watching BTFD genius became akin to watching people doing stupid things with horrific consequences on YouTube™. i.e., “Watch me, I can fly!”
After each of these incidents Mr. Powell’s response (or maybe Super Jerome?) has been nothing more than inclinations that he will do something. I must repeat this, even if it is for the billionth time:
As of this writing the Federal Reserve has not paused anything. The balance sheet has continued to be allowed to run on full “autopilot” and the non-raising of interest rates at the January meeting was already a well considered probability going back as far as September, if not earlier.
Remember: it was Mr. Powell’s decision to have a press conference after every meeting beginning in 2019 that made the odds for a rate increase at January meeting, for it now had to be considered “live.” That’s how confident the Fed was in its projections just a few months ago. Don’t let that point just go by. Ponder it vigilantly for real perspective.
In other words, “the signal” was that rates could now be raised at any meeting. But in reality markets never priced in a January raise to begin with. The “December Debacle” only solidified the issue.
His response (Super Jerome), so far, has only been words. e.g., “pause” as in we will, may, might, can, etc., etc. There has not been anything said like “did”, “have”, or any other past tense descriptor.
I have a suspicious feeling that’s not going to do it for the third.
And when is the third? Hint March 19/20. And here’s where the balance of the financial universe can suddenly feel itself thrown into free-fall that’s more like being sucked into a black hole than just some form of dark days reference.
As I have warned ad nauseam there has been no “pause” of the balance sheet. As a matter of fact, the “autopilot” sequence for the month of February was so that it exceeded the $50 Billion quota and needed to reinvest the overage as to stay true to the original plans set forth by then Chair Janet Yellen in 2017. And the “markets” just received confirmation of what I’ve been warning about this past Thursday.
For those who believed the incessant prognostications via the mainstream financial/business media that the Fed had indeed capitulated and paused, I can only sum it up with the one word we used to say back in my home town: “Su-prize!”
So much for the truth in the power of “pause,” no? And that’s where the real issue now lies.
The “pause” induced rally since the “December Debacle” has been historical in may ways. First: It’s been the most powerful since 1987. The flip side? To remember the historical fact of 1987, let me use this one – “Black Monday.”
Will history repeat? Who knows? But more importantly is this – will there be any rhyming? For that can have just as bad, if not worse consequences because of where we currently stand.
“Where do we currently stand?” you ask. Great question, for this is where the sum for perspective matters, maybe more than the underlying issues when taken individually.
Everything that was suppose to be going right is suddenly going wrong.
GDP seems to be not as strong as first thought, interest rates are cramping the housing markets globally, the latest employment report was a mess, trade wars are heating up everywhere, not subsiding, U.S. trade deals are seen to be collapsing into inertia, nuclear powers are once again shooting across each others borders (e.g., India – Pakistan)
Is there more? Sure is…
Russia is sabre rattling, China is also. The EU and UK with Brexit seems to be in a slow motion car wreck of a situation. German banks are floundering. Italy, Spain, Greece and others are joining into the fray for political condemnation in solidarity with the “Yellow Vest” movement in France.
Ambassadors are being called back home in alarming rates globally. N. Korea seems to have both began underground testing, as well as reconstituting idled nuclear facilities. Did I forget anything? Oh, yeah, there’s Venezuela, but I’m sure that’s it, right? Hint: It ain’t. Need I say Taiwan? And yes, there’s even more but I’ll stop here for brevity’s sake.
So now here rests the balance of the financial world, global markets, national economies and Geo-political salvation as it awaits the arrival of the only person presumably endowed with the true superpowers to arrest the collapsing universe created via central banks everywhere. e.g., Chair Jerome Powell and his protégés constituting the FOMC League of Monetary Justice.
So now that the “markets” have been put on notice that anything resembling the term “pause” has not been implemented – and – that “autopilot” has not only continued unabated – it’s been running at peak velocity. All while the above has manifested itself within the last few weeks, “what could possibly go wrong,” is all I ask?
Hint: Rhymes with “too little – too late.”
After all, isn’t that what happened in the last superhero movie known as “Infinity Wars?” It seems that maybe the once unquestioned powers of central bankers in their “QE to infinity and beyond” powers could also meet the same fate. Why? Because one of the truly critical requisites that solidifies a superhero’s power is in power – that others believe in it.
Today it seems the once unquestionable power of the “Superheroes of the Central Banking Justice League” is meeting a force that may be far greater than one they ever considered, let alone planned for. And it is this…
No one unquestioningly believes in their once unquestioned powers anymore.
We’ll know how this all concludes in about 8 trading days.
“Buckle up” is all I can say.
© 2019 Mark St.Cyr
I don’t do “politics” as most others. As I stress ad nauseam, I only entertain the topic when it directly effects business, as in, once laws are passed or proposed its what we now have to contend with, again, as in regulations, taxes and more. i.e., noncompliance is not an option.
Do I need to remind you of something called the IRS?
As of late there’s been a lot about the topic of socialism and more. Worse, there’s actually been socialistic ideas and principles looking for sponsorship and actual votes currently within congress. Again, need I remind you of “The Green New Deal” and its fervent new face for support known as “AOC?”
Here’s the real issue: businesses of all stripes (especially mom & pop styled) have been getting hit with one new regulation after another for taxes, property regulations and other compliance styled edicts that have been crushing the once backbone of most American down-towns, inner cities and yes, even in the suburbs. (Just look in SF at the oldest fortune cookie business now basically counting the days to oblivion.)
Just when you think it can’t get any worse – it seems to do just that. To wit:
Here’s another, again, to wit:
So here we are with members of congress pushing for illegals to vote which for everyone that is allowed (should it ever pass) could by dint nullify an American citizen’s cast vote – and – if there’s one more “illegal” than actual citizen voting, that election result will go to whatever the illegal voter wanted or was in favor of, whether its good, bad or indifferent.
So here’s why businesses need to understand what’s happening a little more clearly than trying to evade the subject in a just “keeping my head down because I’m busy running a business” mentality.
Don’t like the idea (or better yet can’t afford it) of raising the minimum wage to $15.00? Don’t worry, if what’s being proposed goes through $15 will look cheap. You better hope you don’t see “raise the wage to $25, now!” legislation for these “new voters” to vote on come even sooner.
Don’t like your current sales tax being used as a device to pay for everything making you noncompetitive with other regions or locales? (Hello Pennsylvania?) You’ll be thanking your lucky stars if that’s all you have to worry about and not some newfangled version of said “soda tax” to pay for anything they may now deem “owed.”
Let’s see – just what would a 16 year old think they are owed? Can you name any? Or, is there enough digital ink to list them all may be a better question?
Think about this all very carefully. Why?
Because the sound you just heard was a great-big-ole-bullseye being stapled onto your business checkbook. After all, who else do you think is going to be told to pick up the tab?
Remember, I’m not implying anything. The above is now the political facts of the day. I implied (as in warned) a while ago that stuff like this may be forthcoming if businesses kept giving all of it a blind eye.
But now its here, just like I implied when no one would listen.
Do you hear me now?
© 2019 Mark St.Cyr