As is the usual, when the “markets” are turbulent, I hear from a myriad of people I usually don’t hear from asking for my opinion on the current happenings. When the “markets” are rocketing higher, or seem to be in some form of rocket-ride status, I know the opposite will be true, as in: when my phone doesn’t ring – I know it’s them. But that’s life and I both get it, and I’m not offended. It’s the way of the world.
However, this makes the perfect time to put what I like to say: a few things in context. And with that I submit to you the following as a counter balance of all the so-called “insights” I’ve been watching across the mainstream business/financial outlets. To wit:
The above is of the S&P 500™ futures as I write this represented by daily bars/candles. As you can clearly see, you are now currently back to where the “markets” started some 14 months ago in January of 2018 when the now Chair, Mr Powell first took the helm of the Fed and implemented his former boss, Ms. Yellen’s schedule for balance sheet normalization and promise for raising interest rates.On the above I have annotated the peaks and falls and the Fed’s subsequent responses to each. To be clear: every peak and trough extreme was reversed via some Fed induced cause. i.e., interest rate hike, balance sheet tightening, or promise, or insinuation to pause, slow, rectify, etc., etc., etc. Although the summation is generalized (i.e., in using a 14 month chart) I had written at those times, in detail, the cause and correlation, again, in real time during said periods. So it’s not like I’m just trying to make an invalid assumption of timing. (As always, they’re in the archives for those wishing to validate.)
What the above highlights are two very ominous implications. The first: once again the “markets” have proven that without central bank interventionism – they can’t function as intended. The second: the Fed had to completely capitulate to the point of sacrificing its credibility to the former – and – the “markets” now rest precisely where they began and the Fed. can’t do anything about it unless they both cut interest rates and/or implement another QE program.
This is not an insignificant dilemma by any stretch of the imagination, that is, unless you’re one of those touting “Everything is great, just buy, buy, buy!” snake-oil sellers across the financial media landscape. But I digress.
The other question is this: So now what?
Here’s another chart of the same only a bit longer in time duration that covers when the former Chair, Ms. Yellen tried to begin the process of interest rate hikes only. For those that don’t remember? The “markets” then experienced near-death moves that were supposedly “never going to happen” when listening to both the Fed, as well as most across the mainstream business/financial media. Hint: remember when the “Bullard Bottom” was born? Again, to wit:
To reiterate, the only reason why the “markets” ramped to where we are currently (my conjecture, of course) was due to the tax cut proposals and subsequent passing. So now here they are at the very top, once again, and the Fed and other central banks have already capitulated on everything they called for prior.
Think about this very carefully for the implications are absolutely monumental should something suddenly go awry.
“What could go awry?” you ask? Great question here’s just a few:
- Jobs report portends something ominous.
- Trade deal is seen as unconvincing.
- Earnings report season comes in far weaker than anticipated.
- Brexit ends badly.
I could go on, but any one of the above is enough by its own. And all are 50/50 chances at best. Again: at best!
Then there are more of what are known as “The technicals” when looking across these “markets.” As I’ve stated prior: the uncanny resemblance of so many similar patterns developing across so many asset classes itself portends that there’s true danger lurking.
Since I made and have since been chronicling this argument I used the S&P 500 futures as the current avatar for them. As I type this today nothing has changed from my first observation except for how much time has passed. But the time passing is not invaliding my first interpretation, but rather – is enforcing it.
Here is that chart updated to this morning before the cash market opens. To wit:
As always, we shall see.
© 2019 Mark St.Cyr