The now immortal line spoken by Clint Eastwood as “Dirty Harry” (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you’re investing as opposed to gambling? These markets are now poised to show everyone the difference.
From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn’t it be up here? After all, the economy is absolutely booming right? Right?
So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn’t. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.
As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the “inventory” figures as a good news catalyst. Only an economist can find “good news” in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.
Oh, and by the way, it was also this same so-called “smart crowd” who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let’s not forget – 1.5% GDP is now formulated with “double seasonally adjusted accounting.” i.e., If the print isn’t what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.
What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.
Looking at the markets “its hard to argue with price” is the old saw. And that price is, as iterated earlier, extremely high.
That’s just fantastic if you’re an “investor” with the tendencies of a river boat gambler. However, if you’re someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you’re out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now “What Fed. official will say what today?” Heaven help you if it’s the opposite of what they said the previous day. Like the title implied, “Do you feel lucky?” doesn’t seem that out of line.
So now here we are, back to levels that should be accompanied with a booming business cycle, yet, there isn’t one. This while all the rest of the corresponding data that should be giving the markets even more of a sure footing has been anemic at best. Consumer spending, housing, et al. All have shown to be going in the exact wrong direction we were told by the so-called “smart-crowd” would be showing otherwise by this time. Remember when people like myself were called “data-deniers” or, (the one I cherish most) “Idiots” for questioning all that supposed data? I’ll just let “the data” speak for itself.
All this once again brings us right back to today’s market strategy of “Do you feel lucky.” Because, “data” today whether good, bad, or adulterated means only one thing: what it means to a Fed. FOMC voting member. For it’s nothing more complicated than that.
“Piece-of-cake” should be the first thing that comes to mind. After all, with a Fed. such as this one with its expressed mission statements for clarity of forward guidance, coupled with its propensity to hit a microphone, TV camera, op-ed, and more harder, quicker, and with more authority than a reality TV star as to make sure the markets have no question to what might be forth coming. One should have no qualms or concerns. However, that’s simply not the case.
The Federal Reserve has delineated more confusing forward guidance than any in previous memory; coupled with more dueling press appearances of “good cop – bad cop” styled opposing viewpoints, all while simultaneously questioning, changing, and reinterpreting what weight should be given to any previously implied data points. This makes what the definition of “is” is, look as obvious as the nose on Pinocchio’s face. Not withstanding how many times they’ve not only moved the goalposts – but rather, switched both fields and games in mid play. e.g., Remember “international developments” and that other new-found interest (no pun intended) via their Dot Plot negative interest rates?
Just what do you think they’ll do next? All the so-called “smart crowd” is putting their money (well, actually yours) on the premise that they indeed feel lucky with what the Fed. will do next. After all; current CME™ Fed. Fund futures are now predicting a little better than 50/50 for a December hike (actually 53.5 as of this writing.) So, coin-toss odds are indeed the investing strategy of this millennium. Feel lucky? Wall Street does. Yet, why shouldn’t they? It’s only your money on the gaming table.
However, let’s get back to that “coin-toss” analogy. For the implications are far more duplicitous than any next in rotation fund manager or, economist will dare let on. Let alone state publicly.
Back in August the markets were beginning to show signs that it was taking the Fed. at its word (sounds just silly today no?) and began selling off in earnest at precisely these same levels today. Remember, there was no catalyst per sé. Just the impending realization that the “inevitable” hike was in play. Then came the real catalyst: China.
Overnight on Aug. 24th the Chinese markets realizing that they too would be at the mercy of the Fed’s rate hike also began selling off. However that selloff turned into spectacular fashion dragging U.S. markets the following morning into historic market moving precedents. e.g., The major index future markets halting and more. For let’s not forget: Fed. Fund rates today, like it or not, affects the global markets in ways far more consequentially than any time previous. Period.
Only after some immediate jawboning and more by officials did the markets seem to calm. Yet, within a little more than a week, they began to roll over once again. Not until the Fed. decided inaction was the action of the day did the markets not only stabilize. They propelled upwards in a near linear non-stop rocket ride boosted ever higher with every worsening data point released that the Fed. was not only painted into a corner of inaction, but handcuffed, bound, and blindfolded.
This October has resulted in being one of the greatest October’s ever for gains, in the history, of the markets. (#4 actually.) If your coin-flip of the Fed’s Sept. meeting implied there would be no rate hike – that bet just paid out in spades.
Forget investing acumen, it no longer matters (as I’ve reiterated for many years) you had gains for October matched only 3 other times in the history of the markets. So now is the real question for today’s investing maven: Do you still feel it? Lucky that is.
Now you have a Fed. with obvious “egg on its face.” And if there’s one thing an intellectual inclined thinker has a problem with is when they are made to look foolish publicly. Regardless whether by their own hands or not.
And if one is honest, the old saying of “Hell hath no fury like a woman scorned.” is only intensified when put into the context of indeed that someone just might be the very one being ridiculed by the markets themselves. A market by the way in which she has probably more power to inflict pain, turmoil, and wrath that Zeus himself would envy. Remember; It’s not their money – it’s Wall Streets. Or, need I remind you: yours.
Now I’m not saying the Fed. would do something such as intentionally hurtful or, out of spite. However, what I am saying is this: All the reasoning’s for not hiking in September seems to have been shown in ways conducive to the Fed’s own criteria as to have been a mistake. In other words, the China or “international developments” assertion along with the market bouncing back in historic fashion along with hovering within historic highs describes a market (via Fed. interpretations) with enough resilience to withstand a rate hike of such minimal increments.
Again, all this has been framed in a media context that “they should have moved.” And by media, I’m not saying just main-stream, but rather, those that the Fed. itself considers worthy such as the ones populated by their academic brethren.
October was a short squeeze of short squeezes. However, if indeed the Fed. is to actually move in December as many now imply is nothing more than a coin toss – what will the markets do from here? For if the Fed. is serious this time and doesn’t want to be the butt end of even more ridicule, it needs to signal ever more with even far more certitude: it’s going to raise come heck or high-water.
It can’t do both this time (i.e., more of the same mixed messaging) and save any remaining semblance it still believes it has of “credibility” if in fact it doesn’t move off the zero-bound in Dec. That luxury is no-longer applicable. They wasted it via their Sept. decision.
Now that the month end “paint-the-tape” market mayhem has closed the big bet is now: Will the markets take their cash winning off the table and go home? Or, will the “river-boat” style investor stay and let it ride calling the Fed’s bluff into a December showdown?
There’s not that much time to think or position. All cards are right now on the table, the stakes have never been higher, and the odds tell us it’s nothing more than a coin-flip odds based decision. Welcome to your investing casino. Where investing prowess, as well as a nations economic stability is punctuated with one’s ability for calling the right side of the coin.
Who’d a thunk it? Economics that required no math. How far we have come. Now all one needs to know is: Do you feel lucky? For along with no math – luck is now the “investing” acumen of the times. Until it runs out that is.
© 2015 Mark St.Cyr