As The Hopium Deflates The Faith Trade Keeps It All Aloft

Over the last several weeks I’ve received quite a few notes or calls from colleagues asking for my take on the current happenings within the “markets” and what they may portend. I’ve found it both puzzling, as well as amusing.

As always, when things seem to reward even a monkey throwing darts at ticker symbols, the steadfast trust in the opinion of that monkey has been resolute. i.e., When my phone doesn’t ring – I know it’s them.

It would seem by the tone and tenor of these latest calls I’ve summarized the following: The monkey now appears quite agitated and is no longer throwing darts, but rather something else. And its new target of choice appears to be a fan. Yet, so far, not as successful, but it’s not for any lack of effort. Their concern now is – will it stop? Or, is the fan about to get bulls-eyed? My Answer?

“As you put your trust and money in the monkey’s ability to hit ticker symbols – I’d do the same.” This is where I believed to hear a sigh of relief. Then I follow with, “But I’m picking the fan.” That’s when the phone goes silent and I need to ask, “Hello? Are you still there?”

A bit tongue-in-cheek I’ll admit, but not by much. I’ve heard from people I’ve not heard from in quite sometime now appearing to be desperately seeking out anything, and everything in terms of trying to figure out what the “markets” will do next.

It would now seem evident that the impending great angst that myself and a few others have been cautioning for, that would appear as prelude to a meaningful correction, is in fact now emerging. The problem this time is that “meaningful” correction has the weighted probability of moving past meaningful – into outright market mayhem.

Nobody knows the future, and things could go on just merrily the way they have these last 8 years. However, with that said, the determining clue that one needs to be cognizant of (and far too many aren’t) is the factors that propelled all this “market” to begin with – is being removed.

One of those factors has been realized, and the other is about to be, all with the possibility for a simultaneous increasing of any prior funding for those trades to begin with. The first factor is what’s known as the “Trump Bump”, or “Trump Trade” or “Hopium”, etc., etc. The other is balance sheet reduction, along with interest rates.

Over the last week or so what we’ve witnessed in the “markets” (all my opinion, of course) is the realization of this to the first, and has been in direct correlation to it. For not only has that promised legislation not happened. In fact, it’s looking more and more as if it may never happen. At least in any measurable equivalent to what was sold. And I’m not even adding in the debt ceiling uncertainty. And the “markets” have noticed, acutely.

Add too all this the latest CEO pile on? And the “hopium” began deflating faster than what was seen during the Hindenburg tragedy. The only reason why the same catastrophic results didn’t morph just as quickly, and has seemed to be rescued miraculously, with near godlike powers, was made possible by the only force equivalent to the task: The faith in Janet trade what I’ve now coined as the FIJT.

This is where, I am of the opinion, faith in false (monetary) gods is going to reassert itself with a vengeance in its consequences.

As I type this the “markets” are rebounding as the BTFD crowd, one of central bankers most fervent belief holders, reasserts itself. Although, their once unabashed optimism seems to be subdued, for the “markets” rebound is far more muted that prior events.

This I believe is due in part to that realization that the “Trump Trade” has moved from DOA status to dead and buried. At least for the foreseeable future. And now, it’s all about Janet, along with her compadre meeting at the Jackson Hole Symposium in Wyoming. And the stakes couldn’t be higher.

It is widely expected, as well as reported, that all the financial “experts” along with their next-in-rotation fund managers see with near 100% certainty that the Fed. will not raise rates in September, and see December as being the only possibility. I have argued and believe that view to be misplaced at best.

What has also been made apparent is this same gaggle seems quite comfortable with the idea that the Fed. may indeed begin the process for balance sheet reduction to begin in September. This was/is/has been the largest concern for the “markets” since it all began at the beginning of the crisis when first enacted by the then Chair, Ben Bernanke. And today’s reaction? Meh.

If that isn’t misplaced faith – then I don’t know what is.

I’m more of the opinion it’s all more akin to; whistling past the graveyard, while mouthing prayers, and thumbing rosaries. So much so I can no longer watch, read, or listen to much of the financial media. It’s gone far beyond proclamation for one to be subservient to the idea of central banking largess. It now seems to be demanding of it with inquisition styled regard.

Yet, the bankers themselves seem to be implying quite the contrary.

So far we’ve heard from Fed. officials just a few days ago like San Francisco Fed. President John Williams that the Fed. is about “half way there” in regards to rate hikes. We’ve heard from others like New York Fed. President William Dudley saying not just, “I would expect — I would be in favor of doing another rate hike later this year” But added to the discussion and reasoning when it comes to balance sheet reduction, “In the last FOMC statement, we said that we expected this to happen relatively soon. So, I expect it to happen relatively soon.”

But here’s the money quote, in my view. Again from the Bloomberg™ article, to wit:

A political debate over the debt ceiling is unlikely to have a “big impact” on that timetable because the central bank could announce the start of the program but delay the actual date.

Janet Yellen is scheduled to speak this Friday at around 10AM. Should Ms. Yellen send anything other than pure, soothing, dovish tones, whether in prepared testimony, as well as any publicized Q&A? Look for any remaining faith to leak faster than the hopium, along with…

That monkey finally acquiring its target.

© 2017 Mark St.Cyr