Hey There Income Hunter,
Will Powell lose what if any credibility he has left today?
Let’s face it, every leader of a reserve currency central bank had an impossible job at the end of their bank’s 100-year cycle at the helm.
Its global trading partners demand the currency in order to settle their purchase of energy and other essential goods. It becomes a national emergency when they are short dollars.
Powell just happens to be the last man standing and he will have to perform some real magic today to convince America everything is under control.
Here’s the thing … It doesn’t matter what Powell says today.
Once banks start failing the writing is on the wall.
Today, we’ll take a look at what comes next in the markets and what the Fed/Treasury will do to keep the house of cards from crumbling.
So Far a 2008 Sequel
You will love this … It is wild how the cycles just repeat over and over in the financial markets …
The names of programs may change put the problems and solutions are the same …
March 11, 2008 the Fed announced that it would lend $200 billion to the banks …
Yes, the banks could not sell Treasury and Mortgage bonds into the secondary market because liquidity dried up …
On March 17 the Fed announced they would guarantee Bear Stearns loans, which amounted to $10 trillion in securities that would have become worthless without the backstop.
JPMorgan (Ticker: JPM) buys what is left of Bear for $2 …
Sound familiar so far? JPM helped out with First Republic Bank (Ticker: FRC).
By mid-May the S&P 500 rallied 12%.
Notice the chart below the market bottomed in March and peaked in May.
The rest is history and that brings us to today’s situation.
Tomorrow Powell will most likely raise .25% because that is what the market is pricing in.
The question is can Powell convince Americans everything is fine now?
I don’t think words will do it … Janet Yellen needs to deliver a guarantee for all depositors which would cause a similar rally to 2008.
Alternative Scenarios:
- Powell tightens .25%, comes across confident and hints at a possible pause at the next meeting. Market still rallies 10 – 15% into May.
- Powell tightens .25% and pounds the table that inflation remains their focus and the banks are in great shape. Market tanks and tests 3900 SPX …
The bottom line is the Fed and Treasury need to protect the bond market or a debt crisis will replace a banking crisis quickly. Also …
The Banks Need to Get Their Money Out
Now that the big banks are selling their underwater assets to the Fed at a premium …
They have the firepower to engineer a squeeze in the markets that will allow them to sell their assets at good prices.
Then when FOMO takes over the banks will begin getting short knowing the bear market will resume.
This rally could take us to new all-time highs into May then the banks will get short to make sure they come out the big winners .. Just as they did in 2008.
Join me tomorrow at 3:15pm to decipher Powell’s message and look at a few trade ideas that will take advantage of his shift in policy. Until then …
Live and Trade with Passion My Friend,
Griff