The Fed’s Real Unintended Consequence Problem

The problem? It looks like the Fed just proved the President correct.

Can you say “Uh Oh?”

The real issue now facing the Federal Reserve is not only may they have just crushed any remaining credibility with their complete and utter reversal of monetary policy going forward. But, they may have done it leaving one of the most unpleasant aftertaste they’ve ever considered.

Regardless of what side of the political aisle one stands, if the “markets” falter or the economy tanks – it will be they that will be blamed, with non-other than the President having the evidence to both point the finger and tweet the charge.

Why? Both the “markets” as well as GDP began falling at the same time as they pursued an aggressive schedule of both raising interest rates, as well as shrinking the balance sheet. Something the President railed against to the sheer publicly visible repudiation through non-answers and verbal queues via Mr. Powell during conferences and interviews.

Again, regardless of what side of the political aisle one sits, the complete reversal, and then some, of what the Fed delivered yesterday in comparison to what they were proposing and promoting just two meetings ago, along with their articulated defenses of how and why they were able to do it, is nothing less than astonishing. Period – full stop.

It now appears via their own actions that for as much as they were dissing the President – they proved by their own actions yesterday that it was he that was correct. i.e., “They’re hurting all my good work!”

Again, doesn’t matter what side of the political aisle one stands – those are the facts as they stand. Whether right or wrong that’s the way it can now be spun politically. And I’ll bet dollars-to-doughnuts that’s exactly what you’ll begin to see happen should these “markets” and economy begin faltering.

Think about it.

© 2019 Mark St.Cyr

The Doubt Has Been Removed

The Federal Reserve via its own actions has now laid to rest any allusion that it was “an independent body.”

It has now made manifest via its own dictates, as others have declared, to be nothing more than “the market’s b*tch.”

What an abomination.

The only thing now is that the Fed had better hope and pray it’s enough. For if the “magic” is questioned because of the psychological rationalization that will surely follow such as “Just how bad is everything for them to be so concerned?” Let me just remind you of the term I’ve been stating all week…

Buckle up!

© 2019 Mark St.Cyr

An Update To: What I’m Looking At…

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:

(Chart Source)

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…?” The Fed’s Upcoming Hamlet Moment

To be, or not to be, that is the question:
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…

Prince Hamlet in “Hamlet” Act 3, Scene 1

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