Hey There Income Hunters,
Well, for most of the day the market did not know what to do.
I was watching closely yesterday and, as regular readers know, I have been writing a lot about the poor internal Invesco QQQ Trust ETF (QQQ) indicators for the past few days. (In fact, I have a bearish strategy in QQQ).
The market looked like it was just going to chop around throughout the day, but with half an hour to go, the QQQs headed south and kept going right into the close.
That was the reaction I was looking for.
Here’s why:
Jerome “The Reappointed One” Powell, is much more hawkish than Lael “The Pretender” Brainard would have been, plus Powell has always had an itchy trigger finger on the rate hike lever.
The market obviously believes that, too, as you will see based on its reaction.
Today we’ll break it down and lay out Fed policy in the months ahead — which is the key to stacking gains …
What? Three Rate Hikes Next Year?
I was very surprised that the market priced in three rate hikes by the end of 2022. I do not believe that will be the case at all.
The recent consumer data is nowhere near strong enough to handle three rate hikes. Check out consumer sentiment and real disposable income, which is adjusted for inflation …
As you can see, both indicators are making new lows since the initial pandemic collapse.
You see, stubborn inflation is already forcing households and traders to get into more debt.
Traders Living on the Edge
The growth in margin debt held at brokerage houses is incredible. (Margin debt is a way for traders to get leverage.)
It comes at a loft price — my account at TD Ameritrade charges 6%, when the overnight rate for banks is 0%.
But many traders forget that it works both ways. When the market corrects it can get ugly fast and wealth will deteriorate quickly.
It will always come down to debt — the economy is unable to grow without constant stimulus because of inflation and debt.
Inflation is already a tax on consumers. One recent study found that inflation at current rates is the equivalent of a 2% tightening by the Fed.
And the proof is in the much more expensive pudding.
Bring It Home
Yesterday’s hawkish reaction to Powell’s appointment was overdone and I am looking for opportunities to build positions in green energy raw materials like copper, platinum, iron ore, cobalt and lithium.
That is a trend that can build jobs and bring back manufacturing. It is also supported by both parties, so money will be spent on it and it could be in the trillions of dollars a year.
J-Pow may be back but he will still be lying to convince the public that the Fed is in control. When he does, just come back to this chart to remind yourself how out of control they have been.
The 1940s are a blueprint for you to see what is needed to shrink the debt down and get an economic reset.
That takes years of holding rates down and inflation up. Believe me, Powell is very far away from that goal.
Have a great day, and as always …
Live and Trade With Passion My Friends,
Griff