What a circus. I imagine there’s a big sign in every Fed building in America: Don’t drop, fragile, handle with care.
Janet Yellen, while no longer in a Fed building, committed the cardinal sin of pointing out the obvious yesterday: Rates may have to be raised in response to rising inflation.
The response sequence was as predictable as laughable:
Saved. pic.twitter.com/DA7Ega47vo
— Sven Henrich (@NorthmanTrader) May 5, 2021
“We may have to raise interest rates”
Markets drop
“We didn’t really mean it”
Markets rally
🤡 show.
— Sven Henrich (@NorthmanTrader) May 5, 2021
Recognizing the market’s reaction of the unthinkable: Selling, the comments had to be caveated to immediately erase the damage of a near 3% drop in the tech sector.
Yes, this is how conditioned investors are, this is how pitifully everything is centered around policy makers where the slightest hint or thought of even just thinking about reducing the free money spigot may cause selling of equities.
And it wasn’t just Yellen coming to the rescue of her unforced error course. In the last 24 hours alone a multitude of Fed speakers coming out nearly every hour to assure markets that they either have the tools ideal with inflationary pressures or that inflationary pressures will be transitory or even moving the goalposts outright:
Already moving the goalpost.
They’ll never stop. https://t.co/wdNr3YSbnB— Sven Henrich (@NorthmanTrader) May 5, 2021
Don’t worry is the message, you can always count on the Fed to fix everything. No really, that’s the message sent to investors on a daily basis:
“I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” Yellen says at WSJ CEO Council Summit. https://t.co/FTpNqOtnxq
— WSJ Central Banks (@WSJCentralBanks) May 5, 2021
What is this? Markets need hand holding every minute of the day?
Imagine the carnage if the Fed raised rates by a measly quarter point tomorrow. Instant combustion.
This is how fragile this entire construct really is. It couldn’t handle a quarter point rate hike without first “communicating” it ever so gently with 200 Fed speeches for a year or two.
It really is pitiful for it highlights the reality of the trap central bankers have created for themselves and the world. The asset price inflation monster they have created, now having ballooned to more than twice the size of the economy, requires constant hand holding, assurances, and yes, the obvious: Manipulation.
Makes one wonder how scared they really are of a major market correction. Indeed the entire episode is once again revealing. The very fact Yellen felt compelled or was compelled to clarify her earlier statement within a mere hours of markets selling off speaks to how sensitive policy makers are to any market downside. It also again reveals what markets really are these days and have been since 2009: A cheap money OnlyFans page, an artificial construct that lives off distorted liquidity injections:
Q1 2021 updated M2 and M2 velocity.
In case you’re wondering what the real economy may look like without the money printing mirage. pic.twitter.com/SAISJ7IUnU
— Sven Henrich (@NorthmanTrader) April 30, 2021
But it all works. The buyers keep on coming as long as the politburo assures the loosest financial conditions ever to remain in place concurrent to the fastest growth period in over 50 years, a reckless policy construct in any setting, but one that this Fed is all too eager to maintain for it’s afraid of the beast it has created.
People may think all this is confidence inspiring. I disagree. It reveals how precarious our market bubble is if it requires this much daily jawboning and minute by minute communication “fixes”.
An old adage comes to mind:
Don’t confuse a bull market with brains. pic.twitter.com/nfcsBx78Sr
— Sven Henrich (@NorthmanTrader) May 3, 2021
When do we know things have changed? When the jawboning no longer works and markets fail to make new highs and selling commences on its own. For it looks some have already decided to leave this party:
The Fed is desperate to keep this party going. Their words and actions make this plain. Worse, they know they have willfully created an asset bubble while publicly denying it as evidenced by Fed advisors and former Fed officials.
Derelict I say:
The Fed knows it’s created an asset bubble in the misguided view that it’s acceptable to fix the economy.
I disagree. Asset bubbles can cause major damage to the economy if and when they pop.
Worse, publicly they deny it & the resulting wealth effects, while they actually know. https://t.co/OFTidDXhLo
— Sven Henrich (@NorthmanTrader) May 4, 2021
Reckless bankers in the face of mounting reality. We’ve seen this movie before haven’t we?
Still the greatest financial crisis explanation rant ever.
See if you note anything different 10 years later.#wankingbankers pic.twitter.com/FHutYeSJqD— Sven Henrich (@NorthmanTrader) January 24, 2019
But as long as the party keeps going the consequences to come are ignored. In the meantime: Don’t drop, fragile, handle with care.
For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.
All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.
Categories: Opinion
Draw the trendline from the 2011 and 2014 highs — we could have a final pop to ~4375 on the S&P here. But then the results of the Maricopa audit make landfall, and we will have a CONUS crisis as the Biden coup is exposed. Get ready.
Sven, I think we have entered into the FUBAR stage.
When, not if, central banks are forced to turn on the spigots, they will make the accomodations by the Fed during COVID look like child’s play. When will the day come when investors look at the flood of printing and realize this isn’t good as opposed to thinking, “GREAT! more fuel for the fire!”
The carnage will be unlike any decline seen since the days of the late 1920s and 1930s….But WHEN will the collective investment mond tilt to FEAR from GREED?!
Another Bull time for Sven and friends.
“Tools” – I’m using one of the colloquial meanings here: The US Federal Reserve has 19 tools, they sit on the FOMC. They will never run out of tools, LOL.
“O Oysters,” said the Carpenter.
“You’ve had a pleasant run!
Shall we be trotting home again?”
But answer came there none—
And that was scarcely odd, because
They’d eaten every one.
After US close, 11th May. My hunch is some big hands are starting to cash in their chips. Expecting a mild bounce to start tomorrow to sucker in some BTFD money but my target for 21st May close is 3800 SPX.
Well, I was overly bullish on that. I expected SPX to save around 4100 at lunchtime ET and rally a bit from there in the afternoon. Instead it ended close to 4060. Hot inflation and interest rates were the main push, US 10yr almost at 1.7%. There should be a tradable bounce Thurs or Fri but take care, a further -250 SPX points may be on the cards by the end of next week.
Did you enjoy the bounce? Hope you caught some of the ES00 90 point trade. Time to step aside and watch for the next move, it should be down but we may get a little more up on VIX crush Friday.
Something else of great note: WTI oil is above $65 for the first time since Oct 2018, it crossed above $40 early Nov 2020. This has very big implications for inflation and interest rates – as in US 10yr to 2%+ very soon with all that implies. Macrovoices podcast out Thurs evening will have things to say about this methinks.