Hey There Income Hunter,
It was incredible to witness Jay Powell’s hideous performance on Wednesday.
After all these years, it’s still wild to see how clueless the Fed truly is.
His analysis this week was not backed by any factual data. It was all made up sound bites in hopes of convincing disgruntled hard working Americans that the Fed is still in control.
(To be honest, the White House is doing the same thing. Karine Jean-Pierre has been struggling mightily as Biden’s new press secretary – and the administration is losing the messaging war.)
Well, at least the market reaction illustrates a shift in America’s confidence in the Fed.
This is a major breakthrough and, although it means more problems ahead for the economy and the markets, it also means we could see serious reform in the Fed and banking system in the long run.
For some reason the Fed continues to look at backward-looking data, which means they will continue driving by looking in the rear view mirror.
Hop in the car and try to do that – it won’t go well!
Today, I will present the recent forward-looking data and the signposts that will signal a pivot back to printing money into oblivion (QE infinity).
Powell Bloopers
First, the opening paragraph, “Overall economic activity appears to have picked up after edging down in the first quarter.”
Notice “appears to have.”
That’s Fed speak for CYA (cover your ***).
No doubt, the Fed had to say what it did to justify its 0.75 point hike. Otherwise, it would be admitting it was hiking into a recession, which it is.
Besides that, the housing data is falling off a cliff and consumer confidence is the worst in history.
Next, Powell actually said in the Q&A that the Fed is “reacting to incoming data” …
The Fed only cares about two sectors of data: inflation (CPI) and unemployment (because that is their official mandate).
So, stable prices and full employment – both are backward-looking data.
And here’s why it is moronic to rely on backward-looking data in both sectors
- Focusing on old CPI reports as we face a prolonged energy crisis, especially after ignoring high CPI throughout 2021, is inexcusable.
- Employment data is the laggiest of lagging indicators on the economy and is already showing signs of turning down.
5 Reasons the Fed Will Go Back to QE
A fund managers survey came out this week and respondents listed five potential reasons why the Fed would pause tightening or pivot back to QE in 2022 …
- If headline inflation drops below 4%.
- If initial jobless claims rise above 300K.
- If the S&P drops below the “Fed Put” level (expressed as 3,500).
- High yield credit spreads breaking out above 500 bps.
- Oil dropping below $90.
I do not think we have a chance for No. 1 or No. 4.
The Fed can’t print oil … or any commodity for that matter.
We are in a most severe stagflation environment driven by an energy crisis, which is locked in due to geopolitical risks revolving around sanctions and deglobalization.
Bring It Home
I think we will see No. 2 and No. 3 in the near-term (by September at the latest) … and I believe the market will slowly price in fewer hikes in the weeks ahead.
As a trader you never want to wait for the fact to put the trade on. “Buy the rumor, sell the fact” is a great rule for trading and in today’s digital world it is more relevant than ever.
Next week I will be doing a live presentation to get into more details on what is happening underneath the hood of the markets.
I will also offer a trade that will be potential huge money maker as the Fed transitions from a hawk to a dove
Stay tuned and have a great weekend
Live and Trade With Passion My Friend …
Griff