Monday, August 29, 2016

Fed Talk

So the Fed thinks the S&P 500 has gone up too much too fast.  So what is there best weapon to wring out the animal spirits for a moment and get the pullback they want?  Talk hawkish but do NOTHING.  All talk, no action.  That has been the Fed for most of the last couple of years.  Always talking like a rate hike is just around the corner, but then when it comes time to hike, they find excuses.  They found it last September with China.  They found it in March with the down market.  They found it in June with Brexit.  There is always an excuse coming to do nothing.

That is why they have lost what little credibility they have.  The bond market has fallen for their tricks and heard the boy cry wolf too many times.  They are ignoring the Fed until the bond market shows that the rate hike odds are well above 50%.  And they are not there yet.

Don't believe the Fed when it comes to their rate hike talk.  Believe the bond market.  It has been the one that has been the most accurate and is the one that drives the market, not Fed blather.

We got the strong one day pullback that has been a long time coming.  It took a somewhat hawkish Yellen and Mr. Tough Guy Fischer to do it.  But we know it is one thing to talk tough, it is another thing to act tough.  And unless the stock market cooperates and acts nice.  So is September possible?  It would be a big surprise considering how chicken the Fed has been all these years and would be very uncharacteristic of their typical behavior.  So December or next January is much more likely.  I don't think Yellen is so certain of a Clinton victory that she would risk giving Trump the election by tanking the market ahead of November.

Still don't have much conviction in this market, and I have the done very little over the past month.  If I had to make a call, I would say that we pullback for another few days and then chop back higher in early September.

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