Hey There Income Hunter,

 

You know what they say about opinions …

 

Well, I had my opinion coming in this week that there was a decent chance we could see a nice rally into the end of the quarter … 

 

However, yesterday’s move was extremely underwhelming.

 

No volume, VIX never moved open-to-close and the option flow, if anything, created negative delta not positive. 

 

Interest rates went higher, as did the bond volatility. So what gives? 

 

Today, we will take a look at the Fed headlines and where the trouble spot is.

 

A Lot of Barkin

 

My comments in italics …

 

• FED’S BARKIN: CONSUMERS ARE STILL SPENDING IN A ROBUST WAY. … maybe he did not see the last real retail sales number that fell by -.3% but after adjusting for inflation was down 1.3%. 
• FED’S BARKIN: THERE’S A LOT OF EMBEDDED SPEND DESIRE STILL OUT THERE FUNDING BY EXCESS SAVINGS.

 

Barkin must not even look at his own data. The chart below is from the Fed’s own website. There is not much savings left.

 

 

• FED’S BARKIN: BETWEEN NOW AND THE JULY MEETING, I AM FOCUSED ON ACTUAL INFLATION AND EXPECTATIONS.

 

Forecasts for end of year inflation are 6-7% as estimated by the Bloomberg survey and Hedgeye research, who have been very good with forecasts (see below). 

 

 

That’s enough of that … 

 

These guys have no idea what they are talking about. 

 

They must read words from a teleprompter designed to convince people they are in control. 

 

We will be getting a lot more bs from Fed members. Today is Patrick Harker and Charles Evans and Jerome Powell.

 

My guess is Powell will continue to be hawkish especially after yesterday’s rally. 

 

Why Powell Will Stay a Hawk

 

Now that Powell is confirmed he can make his mark, he wants to be the second coming of Paul Volker and he wants to help the lower class out.

 

Here is the answer … crush housing.

 

If Powell can break the housing market he can achieve his aims. And he is off to a good start with mortgage rates at 6%.

 

Just look at the chart below … Powell has done everything he can to protect corporate America. 

 

He held corporate rates low for years so even zombie corporations were able to refinance their debt at near zero rates. Notice how much lower the junk bond rates are relative to where they have been. 

 

Meanwhile mortgage rates are higher now than they were in 2008 and lending conditions are much tighter. That is a recipe for a housing crisis … again.

 

 

Take Advantage of the Powell Plan 

 

We did get a bit of a rally yesterday in real estate ETFs and one that I follow and trade is the iShares Real estate ETF (IYR) …

 

Notice the 200-moving average, which gives you a good sell stop target if you get a couple of closes above there.

 

I put on a JUL15 88.5/87 put spread yesterday for $.50 for starters, but will look to add lower strike spreads. 

 

 

The housing data is beginning to look pretty ugly as inventory rises and mortgage rates rise. With market sentiment this poor, you have to watch for short covering rallies.

 

Bring It Home 

 

As Mark Twain once said, history doesn’t repeat but it sure does rhyme … 

 

Well, I have been calling for a recession for many months and once the data showed it was coming I started buying US Treasury bonds because in recession they had always done very well.

 

Not this time and now I know why …

 

Join me this morning at 9:45 for my trade-the-open session for more details and as always …

 

Live and Trade With Passion My Friend,

Griff