When the Fed was raising rates earlier this year and the market was still in an uptrend, there weren't too many complaints about Jerome Powell and his relatively hawkish stance. Now that stocks are in a downtrend and there is more pain, the Fed critics are growing louder. They want the Fed to back off, and by doing so, they think stocks will go up. Even famous investors like Stan Druckenmiller are begging the Fed to stop rate hikes and balance sheet contraction. Its interesting that his employee, Kevin Warsh, is also a co-author of the article, as if to give the opinion piece more "cred".
It used to be common opinion that Kevin Warsh was a hawk, but apparently hawks are an endangered species at the Fed, as deep inside, they are all doves. There are no benefits to being a hawkish Fed governor. All the Presidents want a dovish Fed chairman, so the easiest way to get the top job at the Fed is to be a cooing dove. That is Neel Kashkari's strategy to move up to the top, although he has looked foolish begging for the Fed to not raise rates for years and then relenting this year as the data started coming in hot, only to backtrack now that its fashionable to be dovish again.
The begging and complaints have done their job, as Powell has now clearly gone from hawkish to dovish as the SPX melted down in October, and convulsed into a high volatility mess in November. Now everyone is expecting a dovish hike this Wednesday. The crowd is right, that is what is going to happen, but they are wrong about what that means for the stock market. Stocks will not go up just because Powell is talking like a cooing dove. He will need to stop the balance sheet contraction and start cutting rates to actually catch the market's attention. Stopping is not enough at this point. Eurodollars pricing out the 2+ rate hikes from early November to now only pricing in less than 10 bps on hikes in 2019 hasn't been enough to get stocks to rally. A move from 3.25% to 2.82% hasn't been enough.
Over the next several weeks, this market will be feeling the pressure of a slowing economy but a Fed that is still in a transition from rate hikes to pausing. The market wants it to go straight from rate hikes to rate cuts. A Fed pause isn't good enough anymore. It is mostly priced in anyway. Unless Powell comes out and surprises the market with an announcement to stop balance sheet contraction and saying that the Fed is now at neutral, you will not see a sustained rally.
I got long SPX on Friday near the close, but its only a short term trade. I will not be sticking around beyond the FOMC meeting. This a long term shorter's market, and that will be my approach after this trade is closed out.
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I went long the IWM 139 March expiration calls at 139 today. My target sell is 150 which corresponds to around 173 SPY imo.
I meant 273 to 275 on the SPY
Got in at a good level. I see a rally into the FOMC meeting. I don't know about 150 as a target level, that is greedy. I would be satisfied with a 3% up move and get your points and get the hell out of the battlefield. The battlefield is littered with dead heroes, and there will be more victims soon.
The roads are still full, people still have jobs, the stores are still busy. The economic slowdown thing is overblown and I think stocks got decimated enough that the valuations are out of whack. Once tariffs get resolved that should be the catalyst for a large downtrend correction. Too much 2008 bias
It is a two tier economy now. The real economy and the finance economy. Real economy lags the finance economy. Just got a gut feeling about January that tells me its gonna be similar to January 2016.
You feel that we bottomed?
Yes, Monday felt like a bottom. Most of the funds are going to be done selling this week, so next week should be bear-free for the most part. It could get volatile Wednesday if Powell doesn't talk very dovish, but we hit 2530 and bounced off that level so a bit more confident of a bottom. Saw some panic on that nasty close yesterday.
Felt some panic too lol
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