Market Analysis


We can’t print ourselves out of this crisis again, but that isn’t stopping the Federal Reserve from trying. Thursday’s intervention program, the latest in a string of panic moves to keep the financial system afloat, constitutes a complete takeover attempt of the market ecosphere, only the buying of stocks directly is last missing piece of eventual complete central bank control of equity markets. But seizing control of the bond market is the nearest equivalent step.

Not only that, the Fed is buying junk corporate debt propping up companies that should be let to fail as Chamath Palihapitiya pointed out poignantly this week. But not this Fed, no, with its actions it is again setting up the economy for yet another slower growth recovery, financed by even more debt.

QE doesn’t produce growth, that is the established track record:

Nobody wants to talk about the consequences to come following this crisis, but that doesn’t mean the consequences won’t be a real and present reality.

No, the Fed, while trying to save the world, is once again engaged in vastly distorting asset prices from the fundamental reality of the economy. It is in essence again laying the foundation for the next bubble, while the bursting of this bubble has yet to be fully priced in.

Even the Wall Street Editorial Board has made it perfectly clear what this is all about:

Asset price inflation to save markets in the hopes of trickle down growth to come.


The message the Fed is again is sending is to invite reckless behavior on the side of investors, the same reckless, TINA, fueled behavior that got us the bubble blow-off top in February.

The Fed’s actions are driving and creating these asset bubbles:

And so, in the midst of the greatest economic crisis of our times investors are once again led to believe to chase asset price now back to 128% market cap to GDP:

Please. As of Thursday’s market close market valuations are back far above the historic norm on a GDP basis, a GDP basis that will be shrinking hard now which will lift these valuation ratios even higher. Based on what? Massive earnings growth? Give me a break. Past recessions brought valuations into the 50%-75% range, currently we are 20% above the peak of 2007, not the bottom, but the peak.

Look, I have zero problems with the recent rally. I’ve been clear on the technicals, the need for a technical rebalancing of a market that went through an extreme shock, and a realignment. Heck, I’ve even been pointing out the bullish patterns in the charts this last week for $SPX and $RUT and made the case for higher prices to come.

And some of these higher prices may still come. But make no mistake here, these prices are entirely inconsistent with the fundamental earnings and growth picture. $NDX is now down only 5.66% on the year, and back at December 2019 levels when $NDX made all time highs driven by a handful of stocks and fueled by the Fed’s ill conceived liquidity programs then. They didn’t just start printing yesterday, they started printing last year. Have things improved since then? Of course not, they have collapsed. There is no fundamental justification to see prices back at these levels.

The reasons we are here now is partially technical based and partially driven by insane liquidity thrown at these markets in the form of stimulus and Fed intervention. 2008 was child’s play compared to what is happening now and is still to come:

But be clear: NONE of this is producing economic growth, it’s propping up zombie companies, it’s exacerbating valuations driven by a Fed that never is willing to let the system sort itself out and of course it is again skewing the wealth inequality equation. None of these trillions are going to the American workforce who is suffering greatly as a result of this shock trigger and the excess that has been created in the favor of the top 1% over the past 10 years.

This shock will not magically cleans itself out of the system. Spending behaviors and financial realities will be much different than coming out of this crisis compared to just a few months ago. Yes you will have a catch up in spending once the crisis is over but $1,200 in rescue funds is not making up for the lost wages, incomes and financial well being of American families. Not even close. Spending will be curtailed especially as there remains lots of uncertainty going forward.

No, this renewed rescue attempt is again missing the mark:

And suddenly we find ourselves at a critical juncture of control. Valuations once again driven above the fundamental reality of the economy, fueled by ungodly sums of liquidity and technical chart patterns that leave room for more upside in markets but also distinct bearish patterns in charts that suggest the possibility of an entirely different out come in the weeks and months ahead: The possibility that this rally here is simply a bear market rally and that the Fed’s efforts will be greatly challenged by fundamental reality, a reality that suggests that valuations are way too high still and that the real cleanse in markets still has to filter through markets no matter how much the Fed tries to prop asset prices up in its latest attempt of saving capital markets.

The message: This takeover of capital markets may fail. But whatever happens be aware there is no way for the Fed to come out. They will never able to extract themselves from this monstrosity no matter how confident Jay Powell may claim it is only temporary. We’ve heard this lie too many times. We heard it in 2009, we’ve heard it on the road to QE2 and QE3, we’ve heard it during during balance sheet roll-off on autopilot in 2018, we heard it last year during repo. All lies. The truth is the Fed’s only weapon in preventing reality from taking hold is to ever farther disconnect asset prices from fundamental reality and they are trying again, never learning their lessons and never taking responsibility or accepting accountability.

Don’t get me wrong: Yes, the Fed should intervene in this crisis, they are supposed to, that was their original charter, to be the lender of last resort. But now they are the lender of permanent resort, never able to extract themselves. And by doing so they are hurting the economy, making it weaker cycle after cycle, settling it with ever more debt, encouraging ever more risky behavior as a result of TINA, all of which creates ever greater financial bubbles, ever slower recoveries and ever more wealth inequality.

Coronavirus is the virus that infects our bodies, but the Fed is the financial virus that has infected our entire financial and economic system. And there is no cure, except for the Fed to lose control and the consequences to be revealed to the population at large which is largely unaware of the Fed’s role in creating a zombie economy. Only then can structural changes be made that can set us on the path of improvement and eventual higher organic growth to come to fruition. But first the pain must be endured. The Fed is selling a fantasy that is doesn’t.

But while this battle is unfolding investors and traders can follow technicals and they continue to matter greatly even in this Fed driven environment.

This week’s technical market assessment:

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13 replies »

  1. This is going to reverberate until the end of this financial and economic system, not just for years, Sven. There have been several occasions in the last decade when different choices could have been made by the Fed / US administration (and others) which, though somewhat painful, were survivable and henceforth possibly sustainable. But each turn was made for less pain / more short term gain for markets and the top 1%.

    Unless all that was known about economics and money theory prior to 2007 was completely wrong they have baked a certain collapse, redemption is now near inconceivable and the highly probable end is likely within a couple of years. What is now necessary is a full reset akin to a global version of the Weimar Republic inflation event of the 1920s. There is a fair chance that financialised assets will approach zero value in the foreseeable future, act accordingly, and LEARN TO GROW FOOD!

    In a similar vein Jimmy Carter, in his ‘sweater chats’ asked the american people to take a little pain to avert global climate change and energy bottlenecks. Americans didn’t take kindly to the idea of a little pain and sacked him, we are beginning to glimpse how that ends.

    Are humans more intelligent than: lemmings? yeast? Please discuss citing empirical evidence.

  2. There are some who see this as a major opportunity to capitalize on a zero interest rate market similar to 2009…and will anticipate equities going up in a similar fashion as 2009-2019…With the addition of central banks even mentioning the purchasing of equities and the overall thought process that the Fed will support these underfunded pension plans and the overall markets you have to ask, “Whats there to lose?” The market may meander for a period similar to 2007-2009 but then the pending recession will be possibly over and off to the races….Can anyone make the case based upon past history why being in equities is the riskiest form of investment?

  3. Sven,

    I actually had saved buy orders for Ford, Delta, Junk bond ETFs, etc and made about 15% with the latest bailout by late Friday afternoon. I sold half, and will most likely sell the rest this coming week. I am also stepping up my shorts with every tick toward SP 500 reaching 3,000. I hope we hit 3,300 as the optics and reality check will be so bad by late May, we could see SP500 over-correct to 1500-1800 range late Summer to early Fall, versus the 2000-2200 range it should be sitting at without a fed bailout of everything. Once we get past this pandemic, SP500 will be at 4,000 quickly as the Fed mandates nothing less (Main Street could be in a depression while Wall Street is booming, thanks to central banks globally). I am way past the morals of what is right or wrong, as this is the same pattern the fed followed in the last crash in 2009, magnified by a factor of 50. Get rich(er) now, as in 4 to 8 years, the 99% are going to be so poor and pissed that the next game will be how to hold onto this fake wealth without it being taxed away, as MMT socialism is going to be our future as having the top 1% own 95% of everything in five years will not work long term. As we already own 85-87%, only 13% to 15% left to go…what could possibly go wrong?!?!?

    Play the game, no reason to get emotional. I donate a lot of my gains to help others who are not playing the game, as I really do not need the money. The rules have changed, but it is the same twisted game that existed before this latest fiasco. The fed is now completely predictable, with the next logical step of buying the SPY ETF after the dumb money goes all in at highs and the algos pull the rug out beneath them on the next leg down…what could possibly go wrong?!?!?

  4. What could possibly go wrong? What is there to lose? In a word…


    Including life and reality as you (think you) know it.

  5. Thank You so much for all your work. You have saved me so much pain in the markets. You should have your own channel on TV.

  6. Hi Sven,
    Enjoyed the article, video and charts. Thank you for your analysis!

    “They will never able to extract themselves from this monstrosity no matter how confident Jay Powell may claim it is only temporary.”

  7. Brilliant… just one question: in this “driven” (i would say completely RIGGED market) what is the point of “technicals”?

  8. An interesting read about the leaders who’ve performed best against COVID-19:

    In my working life I’ve been fortunate to work for about a third of bosses that were female and found that they were unanimously more competent than my male superiors. If they had a slight lack I’d say it was in imagination but I could supply that.

    I don’t know what markets have been smoking the last couple of weeks but they are in for a very nasty come down over the next few weeks and months. All the money that can be printed in their wildest dreams ain’t going to help much, and will probably make the long term pain even worse.

  9. When will the Fed step in to purchase stocks openly? Of course, they’ve been actively involved in the market thru their proxies for years. Too bad that they felt the need to bail out the world. This is bad policy. And, where is the Congress? Might as well send them all home permanently. They are totally asleep at the switch.

  10. Feds real, covert charter is to make wall street rich, and fuck everyone else. And to provide public fedspeak about how they are helping the economy and citizenry. If you believe that, they could not be doing their jobs better at the monent.


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