Stock market investors, hungry for more pork, are demanding Fed Chair, Jerome Powell, land on their table on a silver platter with an apple in his mouth at this week’s congressional testimony. Will he deliver? Powell has a thin red line to talk, or this overFed market, which he and is cronies have nurtured, dies this week from its own morbid obesity. On the other hand, if he does what they want, it’s a major blow for Fed independence. Powell proves he is the market’s slave, and he bows to President Trump.
A tough trend to break
Receiving delivery of the Powell pork is the only way the market will punch through the enduring ceiling shown in the chart below. If Powell walks a tight line perfectly in congress this week, the market will impatiently await his delivery of pork bellies at the end of the month. If he looks like he’s trying to create wiggle room to walk away from rate cuts that the market has perceived as a promise, the wiggly little pig is going to get his bacon burned along with his porcine friends on Wall Street.
As you can see below, the upwardly soaring trend of the Trump Rally (that first steep rise in late 2016 and all of 2017) lost all of it potency on January, 2018, when I said it would because Powell’s Great Recovery Rewind doubled down on the Fed’s rate of monetary tightening. You can also easily see how the market really fell to pieces when tightening got up to full speed at the end of September, 2018, at exactly the moment Powell announced the Fed’s rewind would continue at full speed on autopilot for the foreseeable future.
Apparently the Fed could not foresee very far, for the Fed couldn’t rush fast enough to abort that plan, at least in word, by that December at the graph’s lowest point. As you can also easily see, the market made an instant burst for recovery when the Fed announced it would change course. Yet, the market still failed to recover back to its new sloped ceiling, stopping at the same level it had the time before, because the Fed didn’t really change course. That was all somewhat of a head fake, as the Fed stopped raising interest but continued tightening money supply as rapidly as ever. Hence, the failed attempt once already this year to recover to the ever-so-slightly upward trend line and now another run at the same, which is, again, failing.
The only way out of this succession of ugly bull traps is for Priestly Powell and his Fed monks to do everything they can to reinflate asset bubbles as quickly as they can. Unfortunately, they still plan to continue tightening at half speed through September with Powell as Trump’s whipping boy the entire distance for not going with the Trump agenda. It would be highly peculiar for the Fed to lower interest rates at the same time they are continuing with their monetary tightening regime. Still, Powell is finding himself boxed in tight and may do anything. That tight spot couldn’t be happening to a nicer guy nor a more deserving organization. So, I feel no sympathy for any of them.
Good luck with the next couple of weeks, Jerome.
Ever-increasing irrational exuberance
Even if the Fed blows all the hot air its board members can muster to reinflate the bubble just back to that pathetic upward trend line, how far can you blow past that before the bubble pops in your face because its sides are getting so thin already? I maintain they can no more blow the bubble up much further than they can let the air out slowly without the bubble getting away from them now that stocks are all-in on betting for a Powell put at the end of the month. If the market punches through that thin red line, it will end quickly as bubble splat all over the Fed’s faces and everyone else’s.
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