Standing There Like a Fool

Don’t look for justice!

It’s pure math and the numbers clearly say that we’re not near the end of the reset.

When I saw yesterday’s market action, I got the same feeling I had in March 2020 and in December 2018 – that of reaching a major breaking point, one that causes the tides to turn.

Something has to give, and you can’t be going through one of the most bearish years in stock market history, with more weekly negative closes for the S&P 500 than in any other year, while the retail public injects a $1bn per day into equities.

What we’re waiting for is the Federal Reserve and other major central banks to tell us that interest rates have been jacked high enough and that their efforts will be concentrated on reducing their balance sheets.

Courtesy: Zerohedge.com

It doesn’t take a genius to realize, though, that the dollar’s strength, hitting all-time highs in most denominations, is a real back-breaker.

I bring this up because, when I look at the previous times that the 2-yr bond yielded more generously than the 10-yr did, gold hit major lows!

The only exception to this was in the late 1970s (and I believe this to be a true exception), when gold actually peaked – not bottomed – right along the inverted yield curve.

Courtesy: Zerohedge.com

I want to explain where I sit with all of this:

• It’s clear that the Federal Reserve believes and was probably told by government officials and members of Congress that it’s their (the FED) ass that’s on the line, if inflation doesn’t come down and isn’t put on a leash.
• It’s also been my observation that the FED is attempting to lay the groundwork for as much telegraphing as possible, without actually doing any of the heavy lifting.

The problem that the Federal Reserve and other major central banks are facing is that they’ve conditioned investors and money managers not to take them at their word.

There’s a lingering doubt, a sense that the FED can’t really follow through on its plans, because it’s not in the habit of punishing markets for too long or of blowing out bubbles.

I, on the other hand, think the FED has played its hand.

Here’s the deal — raising rates doesn’t solve everything, just like lowering rates doesn’t.

I don’t care about what the FED will do in November and December, unless they’re going to be bold and shock markets with their action, which I think is less likely… what I care about is what they say.

We need to hear a different tone.

• The markets will embrace the FED again, if they acknowledge that their actions seem to have done the trick.
• The markets will truly appreciate the FED, if they don’t raise rates by 75bps in November, and another 50 bps in December, if they frame it in the right context.

What can I say? It’s not looking good.

Best Regards,

Lior Gantz
President, WealthResearchGroup.com