As I’m typing this the tenor, tone and outright absolution as to the consensus of both Jerome Powell and the entirety at the Federal Reserve is summed up in one word: capitulation.
Again, via every media outlet I have perused, both mainstream and specialized, the consensus is that Mr. Powell along with the FOMC capitulated and folded to the “markets” whims making a cheap suit envious.
This may be entirely correct, however, let me ask you this: What did they actually do? Not – what he said they could do.
Again: Did they pause the balance sheet normalization process (QT) or even reduce its size from the now still running on cruise control $50Billion per month?
Hint: No. And that should tell you far more about what you truly need to know rather, than what the Fed is telling you you should hope for.
Over the weekend I laid out what I felt were important harbingers as to what may be forthcoming in terms of “market” gyrations and more. In that piece I noted some earnings, trade talk consequences and of course The Fed. As I type this I am still of the same opinion. i.e., “Good luck, you’re gonna need it.” Here’s why…
The word currently is “All is clear! The Fed’s got your back. Buy, buy, buy, then buy some more!!!” The reasoning? Hint: Earnings are great, the Fed capitulated.
I’ll ask again: They are and did?
Apple™ beat a disastrous downgrading of its prior expectations. That’s not a “beat” rally taking place in Apple-the-stock via my interpretations, that’s a sigh of relief rally helped with a few scalded-shorts thrown in for good measure.
Hint: Does a $165 rally get Mr. Buffet back to break even? Think about that very carefully before you accept all the current hype.
Again, why wouldn’t they? It’s the 4th Quarter which means the holiday season. What needs to be seen is how all those ads paid off for retail over the holiday shopping season, for we do not actually know via any reports because of the government shut down, meaning: will those ads continue into the next Qtr?
To reiterate, once again, Facebook is basically one of the two remaining (Google™ the other) last-man-standing when it comes to hope-and-spray mindless advertising. 1st Quarter will be far more telling.
Remember, at the beginning of that Qtr. the consensus was “everything is great!” Then it wasn’t – but ad buys into a holiday season are already decided, as well as many already inked at that point.
Think about what everyone (as in media, as well as the Fed itself) was stating about the health and wealth of the economy as early as September of last year. Remember the narrative of the economy back then? It was doing so well that even the Fed decided it was so good terms like “more hikes” and “autopilot” were of little concern.
Then they said them – and it all came off the rails causing them to backtrack so fast and so furious it seems worthy of its own sequel titlling resembling its movie counterpart .
Then we have all this taking place within the same week of both a month end, as well as a new month for portfolio rebalancing and exposure. The “fun and games” of window dressing (as I stated prior) would probably go to 11. And so far, that seems the case. Again, all conjecture on my part, but I seem to be the only one stating what I believe is the obvious – not the trite and tripe I hear across the mainstream business/financial outlets currently.
Now to the Fed: Did they capitulate? Well, it depends on what your definition of is, is? Or, said differently, they did – sorta.
If one watched Mr. Powell’s presser I would like to ask you this very pertinent question: Is the balance sheet paused, or has the monthly $50Billion roll-off been reduced? By any amount?
Answer: No. Period, full stop. And that’s where you need to be paying attention. i.e., not what he said, but what they’ve done.
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.
Mr. Powell did give the impression that both he and the Fed would capitulate, or “pause,” or whatever should circumstances call for it.
However, Wall Street is a front-running surety type of entity – not a could, should, might, ____________(fill in the blank.) You don’t get rich on Wall Street, as they say “guessing.” Think Mr. Buffet guesses? If you do, I have some very nice oceanfront property in KY you can have for a steal – trust me.
The conditions and factors that the Fed introduced which caused the volatility in the first place are still there – and – are increasing (or rolling- off if you will) to the tune of $50Billion per month still.
The 2018 year-end debacle happened when the “markets” got their first glimpse of what that actually meant (e.g., $50Billion going “poof”.) It now has to deal with the same assumptions till at the least March, 20th.
Should the “markets” remain at these levels alone (i.e., scream sideways for an even longer duration) the Fed may be so inclined to stay the course on QT, but also may decide with such “stabilization” it warrants another rate hike. And if that happens? Hint: assuming another $50 or $100Billion removed and its consequences all rolled into the prospects or possibility of another hike. Think about it.
So, the question still remains: Did he or, didn’t he?
Answer, in words: absolutely. In deeds? Absolutely not.
I contend if the balance sheet normalization process mattered at all (which I have been one of the few resolute in the opinion of: it’s all that has ever mattered) then once this week ends and all the ancillary happenings that has helped fuel much of what I’ll still refer to as “window dressing based shenanigans” to continue – everything that scared the “markets” originally back in October returns with a vengeance, as in…
QT continues on, in “autopilot” until it has what may be called another car sequel comparison. Hint: see Tesla™ autopilot for clues.
As always, we’ll see.
© 2019 Mark St.Cyr