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OH MY, The Stock Market Is Going To The Moon

Ladies and gentlemen, we have reached the promise land. Apparently, at least according to the Central Office Of Propaganda And Truth, we have never had it better.

Trump’s forecast of 4% GDP growth close to coming true as Americans spend tax-bill proceeds

  • Surging consumer spending is driving GDP well above prior estimates, and it is now tracking near 4 percent for the second quarter.

  • That’s almost double the pace of the first quarter.

  • Economists say the consumer is seeing the impact of the tax cuts and is spending, as a result of more disposable income

Damn, that sounds good. But it gets even better….

Fed is Rethinking Its Balance Sheet Unwind: Expect Lower LT Rates, Higher Gold

Four Consequences to Fed Delays in Balance Sheet Reduction

  • Downward pressure on interest rates : If Fed officials do opt for a bigger balance sheet and decide to continue telling banks to prioritize cash over Treasuries, it may mean lower long-term interest rates, according to Seth Carpenter, the New York-based chief U.S. economist at UBS Securities. “If reserves are scarce right now, and if the Fed does stop unwinding its balance sheet, the market is going to react to that, a lot,” said Carpenter, a former Fed economist. “Everyone anticipates a certain amount of extra Treasury supply coming to the market, and this would tell people, ‘Nope, it’s going to be less than you thought.”’

  • Upward pressure on gold

  • Downward pressure on the US dollar

  • More free money to banks at taxpayer expense

Still, some things are just not making any sense. 

The U.S. economy is roaring, but the yield curve is flattening. What gives?

If recent data is any indication, the U.S. is on track to reap a sterling quarter of growth, but that hasn’t stopped the yield curve from flattening toward an inversion, a precursor to a recession.

What gives? 

Let me attempt to dismiss this bullish narrative in one paragraph or less.

Today’s market is a speculative time bomb caused by the FED’s monetary policies. Trump’s tax cuts should be viewed as a Morphine shot to a dying and highly leveraged economy. Total S&P earnings jumped from $88 in 2016 to $110 today. Just about where they were in 2014. What growth? When you factor in the fact that most of this earnings growth came from the weak dollar, tax cuts and short-term stimulus, well, things are not looking very good.

In other words, this apparent prosperity is nothing but a giant Ponzi Scheme waiting for its day in the sun. If you would like to find out exactly when the stock market will crater, based on our mathematical and timing work, please Click Here

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Posted on

The FED, Yield Curve Inversion & A Sense Of Impending Doom

The stock indices were mostly lower on the FED’s decision to hike interest rates. Let’s take a look at the latest…..

Fed Hikes Again, Modifies Accommodation Language, Plans on 2 More Hikes in 2018

The Fed’s “Dot Plot” part of the Fed’s Projection Materials, show a majority of FOMC participants now expect the Fed to get in two more hikes this year.

I side with the two brave souls who suggest none. Regardless, the key point is we are very close to the end of tightening. The participants expecting 4.0% or even 3.5% rates are in Fantasyland.

Yield Curve Collapse Signals ‘Policy Error’ Looms After Hawkish Fed Statement

“The current shape of the U.S. yield curve is consistent with a recession in early 2020”. One more rate hike and this is inverted!

It is also important to note the extent of the tightening cycle here.

To give all of the above context, this FED tightening cycle has been unprecedented in many respects. The FED funds rate is up close to 200% since tightening started in late 2015. The 10-Year Note Yield is up 100%. The yield curve is near inversion and some inflation readings are picking up.

That is to say, if history is any guide all sings point to a major bloodbath in the stock market. Well, unless it is truly different this time.

Our work tends to agree. If you would like to find out exactly when the stock market craters, based on our timing and mathematical work, please Click Here.

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