Tomorrow (e.g., Wednesday) there are two important events that have the ability to upend everything that is now held sacred and dear, which is: “Markets can only go up, because the Fed has my back.”
Those events are, first: The Fed’s FOMC decision on interest rates and more. Then: Mr. Powell’s following presser, beginning at 2:30pm ET.
Both have the potential to throw the “markets” into gyrations that could make a washing machine blush. Together, they have the ability to make a dam failure look down right uneventful. But, make no mistake, this is quite possibly Mr. Powell’s most important presser of the year, because there is so much potential for misinterpretations or missteps.
As of this writing the “markets” are in what can only be described as “tractor beam status,” inching higher and higher. However, what is important to understand about this phenom is that there is little to no volume (meaning stocks being bought or sold) contained within. That, is a glaring technical warning sign that has shown to portend issues in and of itself in days of yore (i.e., before quantitative easing).
Or, said differently, there are fewer participants actively buying and selling daily, at these record highs, than there has been on the slowest holiday session of the year (Christmas eve) which itself is only a half day. Meaning: If things are so good – where is everybody? Think about it.
Yet, we continue to climb higher and higher, so who am I to point out anything different. After all, “The Fed’s got the “markets” back, so just shut up and buy, buy, buy, then buy some more! Easy-peezy.”
People of late just love to point out how “wrong” someone like myself has been. “Screaming Casandra!” I think, if I remember correctly, is just one of many I’ve heard. Trust me, I get it.
And, with that said…
Although that has been true of these past 18 months, there are now a few not too subtle rumblings just below the surface that will need Mr. Powell to trade in his “dancing shoes” of press briefings past, for something a bit more aquatic, that will enable him the ability to walk on water, e.g., CPI (consumer price index) PPI (producer price index) and the repo-markets. All of which are showing signs of either overheating, as well as possible systemic failures. (i.e., inflation running hotter than normal with potential hyper warnings, systemic regarding repo-markets and the financial plumbing that relies on them to function.)
So far, Mr. Powell’s ability to “dance” (aka “stonks only go up!”) has only been facilitated by that tune known as QE and it’s latest iteration (sung to the beat of Pink Floyd’s “Brick in the wall”), “All and all it’s just another~$4Trillion in balance sheet expansion” over those recent months.
And, yes, for those keeping score: in all of these past 18 months the Fed has doubled its balance sheet from ~$4Trillion, to now $8Trillion and climbing.
Remember when the Fed said they were going to reduce their balance sheet and raise interest rates and I laid out not only will they not be able, but will need to do even more?
Now (another) $4Trillion later – a reversal of everything they said prior and more, much more. All the so-called “smart crowd” across the mainstream business/financial media complex wants to do is proselytize how this institution is allowing the “recovery” via their steady hand and god-like powers of forecasting to proceed unabated. So, don’t pay any attention to someone like myself.
Right, got it.
Here’s all I know and what I’m watching that some may want to know…
Nothing, repeat, nothing is going to happen of consequence (albeit there is always something that could happen in regards to politics or an outlier of some sort, but that’s always part of the equation) until the statement from the FOMC on Wednesday afternoon (2pm ET) is first known.
Then, depending on it and the consequential releasing of “The Dot Plot,” the “markets” will react. Yet, it will be the 2:30pmET press conference with Mr. Powell that will be the force multiplier. i.e., He may be able to tamp down any negative sentiment or, he could exacerbate it. ( e.g., Remember: “Autopilot?”)
Regardless of which, it will be a “one to watch,” that’s for sure.
Also, there is another “wild card” in all of this, which is, we are concurrently in a “Quad Witching” week. This is a week where anything can happen and usually does, sometimes greatly so.
As always, we shall see.
© 2021 Mark St.Cyr
Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.