25 Basis Points. Sure That'll Do It.
This is not an "I told you so" post. Far from it. It's a lesson in paying attention to every point of view and assessing possible outcomes for yourself.
I’ll start by saying we are by absolutely no means out of the woods economically. If anything, today was a wildly depressing day if you’re a normal everyday person who has worked hard and diligently saved for what you hope will be a comfortable retirement. Dollars are not a safe asset. With year over year consumer price inflation just a tick away from 8% in February, we now have a Fed Funds Rate at 0.25% in March. Jerome was only able to muster the smallest possible increase off the floor to fight the worst price inflation consumers have experienced since the 1970’s. And that’s using the inflation number the BLS wants you to believe. The real number with the old methodology is much worse.
In hindsight, it would have been appropriate to move earlier.
That was Jerome Powell while speaking with reporters after the announcement of the 25 bps increase. Why would it have been appropriate to move rates up earlier? Because as it turns out, inflation was never transitory even though they swore up and down that it was. Some of us called BS in real time:
The central bank is trapped and I think they probably know it. Unless you actually believe them when they say inflation is transitory. I’m not sure why you would though.
That was me in July 2021 from a piece called Fun with Numbers. We hadn’t even seen a CPI above 6% yet when I wrote that. Now we’ve had three consecutive months with inflation above 7%.
It was published pre-Substack syndication so many of you have probably never seen it. Regardless, I watched Powell’s entire interaction today and it feels like we’re all watching a simulation. Call it performance art or Kabuki theater. Whatever you want. In my opinion, we watched roughly a dozen unserious reporters lobbing mostly softball questions to an unserious central bank leader.
I can’t come to any other conclusion. It is so incredibly obvious at this point that there is nothing that can be done to stop the continued destruction of this currency. It’s working exactly as intended. Only now it’s so late in the life of this particular currency by decree that they’re barely even pretending they’re trying to stop its collapse. Some of us totally expected a big move up in stocks today.
Others though seem to not understand what we’re witnessing unfold.
This tweet would be funny if it wasn’t from a person who is considered one of the top anchors on Bloomberg TV. Again, it’s performance art. It has to be. If we’re to believe the market is truly forward looking then today’s hike was priced in months ago. Look, I don’t know if the stock market will cruise to new all time highs now that the market has a rate hike roadmap. It might. It might not. I am very concerned about a recession in the next 12 to 18 months, if not sooner. That’s bad for stocks because companies will go out of business.
But what happened today was not a difficult call. The Fed is clearly trapped and can’t fight inflation with any real sincerity. If you believe, as I do, that the powers that be plan to roll out a central bank digital currency (CBDC), the path of least resistance for national adoption is one paved out of crisis. Kill their purchasing power enough and the filthy masses will practically beg for something new.
Given all that, it’s hard not to be pretty bullish equities for the short to medium term given how stellar that close was for bulls. Here’s what I see on the S&P chart:
Yesterday I shared the breakout of the “Wedge of Jerome,” today the market opened with a massive upside gap that was filled after the rate hike announcement. After that gap filled and immediately reversed higher, I knew it’d be off to the races. The first move after FOMC is almost always the fake one. And in this case, the first move was down. None of this means the market will definitely close higher again tomorrow. But unless there is a complete bottom drop out and bears take out today’s low, the bulls are back. And we have trades to make. Don’t miss them.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice. I’m not featured on trustworthy financial news sources like CNBC or Bloomberg and I don’t wear a necktie when I make my trades.
Since I cannot bear to watch Powell speak, I don't know if he discussed asset purchases and "tapering". Any input on those?