I was asked for my thoughts on this meteoric rise taking place in the “markets.” Here was my response. Infer from it what you will, for as I keep saying (and truly believe) nobody really knows, and I mean just that: nobody. To wit:
Question: “What’s your view of the markets as they currently stand today?”
Me: There are two issues that keep nagging at me. First:
Is the rally a direct result (based on policy implications and such) of the election and the winner? Or, is this rally something else, based entirely on something far different, which no one is interpreting correctly? i.e., The root for the causation isn’t what everyone believes it to be. It only appears that way.
And if so – what could that “something” be?
The second is:
If it is something other? What (if any) reversal or damage could portend if it’s realized all the assumptions (e.g., for the rally) were wrong? Remember: it’s a pendulum’s backswing which can have far more devastating issues than its original, because much like the eye of a hurricane – everyone believes the worst has past. Then….
So, as to address the “first:”
It’s quite possible the resulting knee-jerk sell off as the election results came across were the “markets” set direction of where it believed the markets, as well as economy were heading. Let’s not forget, the president-elect’s stated policies and banter were not seen (or at least viewed) by Wall Street as “friendly.” That’s not conjecture, that’s public knowledge. So why the rally? And we’re not talking just some rally, but a rally from lock-limit-down to never before seen in human history highs rally. Why?
And here’s where the second part might answer the first:
What if the rally was based (as I’ve argued previously) that the “market” interpreted a Trump victory not for what his policies will do, or be (for his policies can’t be enacted until at least January 2017.) Rather, what the Federal Reserve and their implied policy statements and enactments won’t be, or do? e.g. Raise rates this December.
If I’m correct in that assumption (and I feel the odds of just that are in my favor) then what we’re currently witnessing is a front-loaded, front-running of both the December meeting, and an anticipation to run them (the “markets”) even higher into year-end. Giving Wall Street (and it’s HFT cabal) not just one, but two bites at the caramelized apples. And if you think that’s off base? Think of it through this prism:
Do you believe Janet Yellen is now going to become “Super Hawk” and rally her subordinates into a raising of rates when A: In her last meeting there were fewer dissenters than the previous? Or, B: Wants to paint a “bullseye” on not only herself, but the Fed. as an institution should things go awry resembling anything such as 2008?
And let’s not forget there is also a C: China (remember them?) with its currency currently in total free-fall, and is hitting levels that have the word “record” affixed to those moves near daily.
As I said earlier – what happens next is anyone’s guess.
Including the Fed.
© 2016 Mark St.Cyr