A Hawkish Pivot

At the November FOMC meeting, Powell was about as dovish as you could be for someone who was starting to normalize policy.  He's transformed from his straightforward tell it like it is style from 2017 and 2018, to word salad mealy mouth statements used to appease the financial markets, and thus receive praise.  I don't know if he's being honest (unlikely) and is completely incompetant, or is just being Machivellian (more likely), doing whatever it takes to please the markets, politicians, and get renominated and maintain his power.  Mainly telling bold faced lies about inflation.  

You can tell inflation is starting to get to Biden when he's begging OPEC to increase supply and keeps threatening SPR oil releases in coordination with other nations.  Biden's poll numbers are about as bad as the worst moments for Trump, and he never really had good approval ratings.  Its getting clearer and clearer that the general public is starting to feel the pinch from higher prices, especially those that don't own stocks.  And even as out of touch as Biden is about the public mood, this inflation is so over the top hot that its even getting his attention.  

And when inflation starts worrying the President, then it will start worrying the Fed.  Because the politicians are the ones that pick the Fed governors.  There is no such thing as Fed independence.  Politicians don't want to see inflation go any higher, and if they had to pick their poison of higher inflation / higher stocks or lower inflation/lower stocks, they would probably pick the latter now.  That's usually not the case, and that's why the Fed is usually dovish.  

The politicians and central bankers, the liars that they are, have already tried to talk it down, pass the buck, and blame the inflation on everyone but themselves and their inflationary policies.   But there is only so long that you say transitory inflation until even the dumbest of the Fed believers see through the BS and get sick of hearing it.  

The nonsense about supply chain problems due to Covid is repeated so often that everyone believes it as gospel, not be questioned.  They say inflation is due to lack of goods supply, lack of labor supply, not due to excessive demand from bazooka stimulus.  Since its a supply chain problem, they say, it can't be solved by fiscal or monetary policy.  No one questions the logic.  If it was a supply problem, how do you get so many earnings beats and so few misses?  Shouldn't the lack of supply limit consumption and cause revenues and thus earnings to go down?  How many revenue misses have you seen?  Shouldn't S&P 500 revenues be down if supply chain problems were so bad?  Shouldn't retail stocks be getting destroyed?  Why are revenues and earnings so strong?  

Anyway, back to the market.  Very resilient and hanging tough near all time highs, Covid "bad" news was good for about a few hours of overnight weakness on Friday, and then people realized that these "soft" lockdowns are good because it slows down monetary policy normalization, and keeps them dovish, while having almost no effect on the overall economy.  Russell 2000 has been a very noteable laggard, and that's not bearish.  Its only bearish if you get Russell 2000 weakness along with bond market weakness, and that's not happening yet.  With the year end bullish forces at work, as long as 10 year stays under 1.70%, you are going to have to either have a serious flattening of the curve from a Fed hawkish pivot or a black swan to take this sucker down for more than just a retest of the early Sep. highs at SPX 4550 for the remainder of the year.  Betting on anything more than a quick 100 point pullback with shorts is getting greedy and begging to miss the exit point and get caught in a meat grinder higher till year end. 

That doesn't make me bullish, I do expect a sharp pullback of 100-150 points sometime in the next 3 weeks, with call activity over the top and complacency everywhere, and with bullish sentiment seeming to wane a bit from very bullish levels, which is actually not good for short term returns.  Still, I would rather be reactionary and be a buyer of the dip rather than try to predict when this solid uptrend turns and gives you a good short trade.  But it is getting tempting to try on a short for a quick gain sometime later this week, as we're approaching a window from post Thanksgiving to the 2nd week of December where seasonality is neutral.