Market Analysis


In our age when every market disturbance is subject to intervention don’t be surprised when new intervention is coming.
Last week’s bond jiggle got plenty people nervous. Velocity being the operative word as the 10 year flew toward 1.6% in a hurry. Hence my comments in Yield Shield.

The Fed from Powell on down put on a brave face claiming the rise in yields is just a sign of confidence in the recovery.

Other central banks were having none of it:

Indeed the ECB has kept the virtue signaling up all week, ready to do more, all options on the table:

The signaling worked as the 10 year managed to revert back below a critical technical level by week’s end:

That save laid the foundation for the rally into Monday also spurred by seasonal inflows and the saving of the $ES trend to the dot:

So Monday’s rally was not a surprise especially in context of some of the technicals and historic scripts that set up for a early March bounce:

And of course the Fed ready to signal that what they said previously may not apply after all:

Hence speculation is running rampant, or at least wide spread begging for the Fed to step up and intervene:

“While the Federal Reserve may not raise its benchmark interest rate for years, there are growing expectations it may tweak policy soon to address some of the recent tumult in the bond market.

The moves could happen as soon as the upcoming March 16-17 Federal Open Market Committee meeting, according to investors and economists who are watching recent action closely and expect the central bank to address some distortions that have occurred.

One possible move would the third iteration of Operation Twist, a move the Fed last made nearly a decade ago during market tumult around the time of the European debt crisis. Another could see an increase in the rate paid on reserves to address issues in the money markets, while the Fed also might adjust the rate on overnight repo operations in the bond market.”

Yes, the old twist or repo, whatever it takes to get those signs of confidence under control.

For the threat of rising yields and inflation is actually real as yesterday’s ISM data so amply showed:

Before you know it all that confidence in the form of rising prices will eat into margins of companies priced to perfection thanks to constant interventions already in place.

Hence all eyes will be on Jay Powell on Thursday to see if he follows the steps of Bernanke and hints at something like Twist. After all it was big market hit 10 years ago also following a market correction:

After all it’s all about credibility and not signal for second that not more will be done if needed:

Always more, never less, always intervene at the slightest sign of the consequences of intervention filtering through markets. And this is how you end up with massive asset bubbles which require ever more maintenance and intervention to maintain.

The ECB, the BOJ and the Fed won’t admit to the bubble consequences of their policies, but their cousins in China just called them out:

Powell will again be on the spot. Having tried to smooth talk markets last week the words and actions of other central banks reveal his words to be empty rhetoric and now faced with increasing calls for intervention Powell is now again sitting in the self constructed trap: Appease markets and hint at Twist, repo or similar, or face the wrath of the bond market ready to challenge him and risk a major down move in equities if he doesn’t comply.

The battle line is clearly drawn:

The market is in laying in wait with the same demand it has made for the last 12 years: Gimme more stimmi. Keep the easy money flowing. The market wants more intervention, this time in the form of yield control. It’s up to the Fed to deliver or face the consequences for if yields are not brought under “control” the good news of the coming stimulus package may actually turn into bad news if yields skyrocket higher. The Fed has claimed it has the tools to control inflation. Markets want proof and it’s now up to Powell to aim to deliver a similar result as Bernanke did in 2011 and see markets race higher in relief or be prepared for a major challenge in the days to come.

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Categories: Market Analysis

17 replies »

  1. Sven The question I have is after so many years of the FED using tools to control every thing and made up inflation # along with data that is so fluffed for agenda. Looking at how big this bubble is and now China even saying so? Would it not be better for Powell to let some air out of this bring it down so he can keep control. Because if he does not and keeps adding knowing that at some point time is up and he will lose total control and the house of cards will come falling down so hard! I would love to hear back on this form you as I know you have a time line. Thanks so much for your good work and your wife’s great chart work! I look forward to your e-mail on this question!

    • I can’t recall one time when the Fed undertook a policy to “let the air out”. While it is totally logical, probably difficult to implement without causing a mini-crash. And under Powell, the whole focus has been about driving markets higher. As much as I have disagreed with Fed policy over the last decade, I learned to accept their tactics and try to invest accordingly. The only thing that would force the Fed to re-think their tactics since 2009 would be a massive long term crash of the market where they would be forced to admit to errors in their thinking and change strategies. But rignt now, see that highly unlikely.

  2. “The Fed has claimed it has the tools to control inflation.”

    Of course the Fed can claim to have the tools to control inflation, because the Fed refuses to acknowledge any inflation at or above 2% it will never have to disclose these non-existent tools. There are none so blind as those who will not see.

  3. Just to be fair CB The Feds formal for inflation is a big key to distort # and we all know Data is fluffed big time and framed for there agenda as to why they change formals time to time. But as raw cost go up this they will not be able to control but of coarse they will talk it down?

    • The key is the labor markets. When you see real wages start to increase, then we have an inflation issue. We all understand the asset inflation bubble. But from the CPI perspective, you have to have rising wages to make the formula go higher. This increase in raw costs carries a smaller weight and there are a number of examples where raw costs rise and overall inflation does not increase. Also, many of these raw cost increases are due to supply bottlenecks due to COVID and most likely will be temporary in nature. But watch wages. Highly recommend the Hoisington Quarterly Report by Lacy Hunt for a good overview on what impacts inflation and it is free to read.

  4. The Fed has to start buying coupons again. The Primary Dealers can’t tolerate much above 1% TNX because too much of their inventory, financed short term, is then underwater. A possible existential problem.
    This version of not QE will be called Managing The Yield Curve. It isn’t a scandal because nobody cares. 100% of anyone who is anybody and 95% of nobodies want more money. It is what it is.
    Recommended theme song for the upcoming Fed meeting.

  5. In the first hour 50% of the day´s volume, then nothing until the last hour.
    An ever ever fraudulent game of the Fed, buying and selling to theirselves???
    Better be out

  6. MrMarket: Hey Jay, let’s twist again like we did last summer!
    JayPowell: What you rambling about M?
    M: OK, it wasn’t last summer, was a few years back, you copy?
    J: You lost me M
    M: Operation twist, you gotta buy some of the long dated shit
    J: Ah, I get your drift
    M: You don’t even need to do it for now, just pretend and promise, like usual
    J: That may be an idea, M
    M: Great, let’s do it tomorrow, OK?
    J: Hmmm, hmmm
    M: You can sell some of the shorter shit to balance the fiddly books
    J: We’ll see, M
    M: It makes everyone happy, think of your ETF’s J
    J: We’ll give it due consideration M
    M: Glad we agree J, see you soon

    • M: You’ve been a bad, bad boy J
      J: How so M?
      M: I thought we had an agreement
      J: May be our understandings differ, J
      M: I got a bunch of well pissed off folks down here, I told them you were twisting
      J: They’ll get over it
      M: Maybe they won’t, some could be turning vigilante, on dem bonds ya know
      J: That would be unfortunate M
      M: Too damn right J. It could be twist now or cross the Rubicon later
      J: Hmmm
      M: You fucking cogitate on that bro, be seeing ya.

  7. We’ve now broken below 128.23 in XLK just as i mentioned in the comments in Sven’s article Yield Shield. This could be a point where the right neckline of a head and shoulders top could form and the completion of 5 waves down or wave 1 on the larger time frame. We might get some chop and back testing around this level which will serve as a wave 2 on the larger time frame to form the right shoulder of the head and shoulders top in XLK.

  8. Well, we got within 3.5 of my SPX 3720 target, but too soon, I don’t think that was the test. Nice 50 bounce once Jay STFU then trench warfare into the close. I was a little surprised it didn’t break one way or t’other, perhaps that’s for tomorrow. If VIX crush Friday is still the plan we should expect a bounce to above 3800, if not and 3720 breaks then expect 3670 smartly.

    US 10yr is now highest in over a year, above 1.54%. DXY is highest since 30th Nov 2020, above 91.6. Gold a tad below $1700.

  9. After hours a bit stinky, down about half a percent nearly 4 hours after close. Notably AAPL and TSLA are their lowest in 3+ months, will be an interesting Friday.

  10. Friday was another VIX crush, stocks declined for a couple of hours (-50 SPX) then ramped steadily for the rest of the day (+100 SPX), nice to trade. Now Sunday night, will we get a ‘to the moon’ or a ‘sell the news’ on covid stimulus passing the senate? After 20 minutes it’s ambivalent to positive, up about half percent. But beware: US 10yr is near 1.6% and DXY near 92; bets for SPX nearer 4000 than 3700 come Friday night look good for now, we shall see – I think a touch of 3720 is in the cards for this week.

  11. Fed idiocracy has turned “Risk Free Return” treasuries into “Return Free Risk” WMDs, all in an attempt to create financial stability? How are treasuries losing a years worth of interest in one single day helpful in creating “financial stability”? The most destructive human on Earth is J Powell. This idiot is not only destroying global capitalism, he is moving forward the negative consequences of global warming as money he prints to infinity and beyond is used to buy energy, and with infinite money comes infinite energy and perhaps infinite energy can occur with vodoo economics, but not for the rest of us pheasants living in a real world that in ruled by physics and the hard sciences.

    In any other era an unelected indivdual who controls the entire global financial system would be seen as a world dictaor, not the savior of humanity. What we have created is a financial cult, and I for one do not look forward to the day when they ask us all to drink the final, “special”, cool-aid (for the greater good, or course!).

  12. Financial Intention by the Fed. Everything else intervention by the govts. Read that they are including forgiveness of taxes on the upcoming “$50,000 student loan forgiveness” in the lastest stimulus bill. So now we have tax forgiveness on loan forgiveness, of no fault of their own to pay for an advanced worthless degree, of course.

    So why again do we pay taxes, of the govt does not even the student loand payments of $50,000, or even the taxes due on the $50,000 gift of studet loan debt forgiveness? Is there not any rules that prohibit the govt from buying votes? How is this not illegal bribbery? Vote for me, I’ll give you $50,000 was the slogan. Next election, why not vote for me I’ll give you $1,000,000? This is not democracy, this is something else.

    • I don’t know why you pay taxes. I pay taxes so key infrastructure, education, healthcare, is provided mostly efficiently and fairly and mostly free as needed, and so fair elections can determine who governs us. But I live in UK, I don’t think these apply in US. I suggest you FIX THAT.

  13. Just as I mentioned above, we would get a backtest after breaking $128.23 in XLK. This back test represents the completion of wave 2 on the larger time frame. Wave 3 down has started and will drop down to $108.00 in XLK.


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