Battle with the Final Boss

After the NY Fed clarified that John Williams was off his rocker by going supernova dovish in his speech last Thursday, the Fed wanted to finally tamp down the expectations for 50 bps on July 31 and called Blue Horseshoe (WSJ) and told them its going to be 25 bps on Friday. 

Yet the market is still pricing in about a 15% chance of 50 bps on July 31, so they aren't completely eliminating the possibility of a shock and awe easing cycle from Powell.   Now the ECB and their meeting today:  they are giving what the market expects.  The market wanted hints, anticipation of monetary goodies to come.  Who cares if the negative rates, TLTRO, QE, and TLTRO 2 have done nothing for the European economy.  Of course the counterfactual from the ECB officials:  if they did nothing then Europe would be in a depression, all hell would break loose, etc. 

I hear the argument about low rates justifying high valuations.  But if you question their argument by asking why US stocks are massively outperforming lower interest rate Europe and Japan, they are speechless.  Or they spew some crap about better growth in US and fiscal stimulus and tax cuts, etc.  Its not a logical crowd out there, and it never will be.  Even with all the algos running amok, at the end of the day, humans are the ones turning on the machines, and can change and turn them off whenever they feel like it.. 

It's the central bankers' world, and we're just living in it.  You can tell Fed and ECB officials love to mouth off and move the markets.  It gives them a sense of self-importance, trying to validate their existence and ego by giving out their two bit views on the economy and monetary policy.  However, they are outclassed by bond traders, both intellectually and psychologically.  That's why they have an inferiority complex towards them, obeying the bond market's directives at the drop of a hat. 

We got some good news this week with the US China trade discussions going "well", with a meeting in China scheduled for next Tuesday.  I'm sure it will be the same old song, China asking for tariffs to be removed and unwilling to change its laws to stop IP theft.  You have to give China a lot of credit, they are playing the White House like a fiddle.  Xi is playing the long game, willing to string out Trump and his chumps until they run out of patience and totally capitulate.  Its just a matter of time, as the global economy is weakening and the weakness is about to hit the shores of the US.  A weaker stock market will be the trigger for the White House to capitulate and make a quick deal with China to try to keep the stock market bubble inflated at least till November 2020 (Presidential election).  Until then, Trump will keep kicking the can, as the stock market isn't yet upset that there's no progress in trade talks. 

I have finally decided to enter the ring against the nearly invincible monster, the SPX. 
SPX has finally gotten back to levels (3015-3020) where I was waiting for to put on shorts, so I got short yesterday.  This is a longer term trade, so I won't be covering on any minor dips.  I am looking for a bigger move lower into autumn, as the lagging global equity indices I mentioned on Monday and the already high easing expectations built into the STIRs and Treasury market make it a good risk/reward shorting opportunity.  I am leaving room to add more in the next couple of weeks if I like what I see.