QQQA - Change Of Perspective
Summary
- The Fed will hike until something breaks. And politicians in DC will not let Powell break inflation.
- Things are starting to break - the British pound, the Japanese yen, the German energy market.
- The market has been pinning its hopes on the idea that the Fed would pivot dovish and markets would rally. Investors seem to be throwing in the towel.
While the market has been holding out hope beyond reason that the Federal Reserve will just pivot dovishly and begin to lower rates soon, the reality of the situation hit home last week. Powell set the record straight in his press conference as he warned that “the historical record cautions against premature rate cuts” and admitted that it is “very likely there will be a softening in the labor market.”
In my mind, the selloff and change of perspective is a relief, in that this market was never going to go higher for the longer term until everyone gave up on that idea. It’s when everyone expects something to happen that something else will. We are finally getting to the point where investors begin to capitulate - sell the market - and we can find a bottom.
We have warned you of two things. One is that that the Fed will hike until something breaks. The second is that the politicians in DC will not let Powell break inflation. Breaking inflation inhibits their ability to inflate away the government debt and continue their profligate spending, but it is also unpopular with the electorate. High unemployment is unlikely to help any incumbent politician.
Chair Powell just announced another extreme interest rate hike while forecasting higher unemployment. I’ve been warning that Chair Powell’s Fed would throw millions of Americans out of work - and I fear he’s already on the path to doing so.
- Senator Elizabeth Warren ((MA))
Things are starting to break - the British pound, the Japanese yen, the German energy market. It’s not just the politicians that will stop Powell. The market has been pinning its hopes on the idea that the Fed would pivot dovish and markets would rally. Investors seem to be throwing in the towel. You get the feeling that the market is getting the message that something is about to break. That is usually the beginning of the end of the move lower. Time to make a list to bargain-hunt. This week has the end of the quarter and a large options expiration. The trend-flowing strategies are now short. The potential is there for a flush lower and subsequent short squeeze higher. Turnaround Tuesday?
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Change Of Perspective