Our views that the F_E_D had long ago started to lay the ground work for an exit from unprecednted acomodative policy started the same day QE3 was launched ironically. Accommodative policy has led to unprecedented market gains that are during a period of unprecedented economic weakness, disguised using smoke and mirrors, accounting gimmicks, stock buy backs and insane financial reporting standards that would shock China. All of this meaning that the F_E_D has built not only a sand castle within the stock market, but a virtual Sky-scraper out of sand.
By all logic, as they CONTINUE (as accommodative policy has already been tightened with the ending of QE 3 which had no ending date unlike previous QE-forrays) to unwind this monstrosity of an economic experiment that had its roots in the "Roaring 20's" which Ben Bernanke was an ardent student of the period, we should see equally as distorted declines to the downside, much like the end of the Roaring 20's was capped off with the 1929 crash and Great Depression.
As mentioned, Bernanke was an ardent student of a new F_E_D policy as led by the NY F_E_D's Benjamin Strong and his "New Idea" that the economy could be managed via F_E_D asset purchases, the fore-runner to QE. There's little reason to expect anything less than the same effects that were a result of assets purchases through the 1920's that seemed to produce a robust economy, but ended badly.
Benjamin Strong who led the asset purchases that Bernanke is so fond of, actually died in 1928, never seeing the end results of his disastrous policies which culminated with the 1929 crash and Great Depression. Since modern QE has taken Strong's ideas to a whole new level and have shown no progress at all in fixing the economy here in the US or anywhere across the globe where it has been employed (if it had, we would not have needed QE 2, Operation Twist, Twist lite or QE 3), there's no logical reason to believe that the end results will be any better than those of the 1920's F_E_D policies. In fact, at least in the 1920's the economy actually improved for a time before the whole myth came tumbling down. How much worse should we expect this time as the monetary experiment has lasted longer and has been brought to never before seen heights in a world that is more economically connected than ever before. It's like a spider web in which the US Sub-Prime scandal led to the periphery of Europe going down the tubes and needing multiple bailouts until the core itself was sick. It crossed the sea to China in which the great Dragon's advancer has stalled out. "The Butterfly Effect" is stronger now than it ever was.
If the Minutes didn't convince you that the F_E_D is on a pre-determined heading as they seem to be more worried about what will happen if they don't hike rates than if they do, then the immediate response to make F_E_D arguments F_E_D fact within hours should convince you. Not only is the BEA taking the F_E_D's "transitory weakness" to all new levels by legitimizing it and carrying out seasonal adjustments of seasonal adjustments until they reach the correct goal-seeker number that allows the F_E_D to hike without having to explain why, additionally Goldman Sachs immediately re-ran the US Economic FRB model to suggest "Little Slack" in the economy, a Yellen Catch-phrase , all within hours of the release of the minutes. If the BEA, the San Fran F_E_D and Goldman all seeking to turn "transitory weakness" in to GDP -calculating errors doesn't raise red flags about the sincerity of all of these efforts, perhaps today's disclosure that the US Department of Commerce has joined the fray and will also Double Adjust the economic data in what is now being given a name and a face, RESIDUAL SEASONALITY .
THIS CONCEPT WILL TAKE THE F_E_D'S DEFENSE OF WEAK Q1 DATA AS BEING TRANSITORY AND TURN IT IN TO AN ARTIFACT OR ERROR IN THE CALCULATIONS TO SUGGEST NOT ONLY WAS IT NOT MEANINGLESS TRANSITORY WEAKNESS, BUT IN FACT RATHER SOME MISTAKE IN CALCULATING THE ONLY THE FIRST QUARTER GDP AS TO REMOVE THE ROAD-BLOCK TO THE F_E_D HIKING RATES BY CALLING Q1 CALCULATIONS A MISTAKE.
So far from Yellen's speech today, I haven't seen anything to contradict anything above.
As to the market as the op-ex pin usually ends by now... Weakness. Our expectations for this week's market action from the The Week Ahead post of last Friday:
"I feel that we'll definitely be moving toward the 3rd trend forecast from last week, the one that comes AFTER the bounce.
I don't think the bounce is quite complete or its reversal process is not quite complete which means that my first assumption would be that the market would be rangebound and choppy in the area finishing the reversal process, but we also have some very easily recognizable resistance areas that are a hot bed for a head fake move, I have not doubt any head fake move or false breakout would be exactly that."
The two expectations that are near diametrically opposed one based on a strong concept, the other based on the charts, were both correct in a way I could never have imagined last Friday as I posted both ideas-both of which were 100% accurate...
The 60 min SPX chart for this week is as close as you can possibly get to the "Week Ahead " forecast from last Friday with a choppy, lateral range through the entire week!
Below the trend through all of the averages has been the reversal process or a trend of continued weakening in the averages' charts...
QQQ...
1 min shows a worse 3C position today
When we look at the start of the cycle, again May 6th and 7th come up time after time in different averages, assets, stocks, currencies, treasuries, indicators and more we see the 3C trend weaken systematically through the reversal process which can be seen as a large rounding top area.
Typically we'd look for the last head fake or the "Igloo/Chimney" price pattern with the rounding top which you'll see more of below and a chimney that is the last head fake move above the rounding top that serves as the best price based indication of an impending trend reversal or in this case, a DECLINE.
QQQ 2 min with some in line status, but an overall weaker position today as this has been the trend through the week.
QQQ 3 min showing the same continued weakening
As well as QQQ 5 min
IWM 1 min with weakness earlier in the day and in line since.
IWM 2 min chart with more weakness through today
The 3 min IWM chart since May 6/7th and weakening through the trend.
IWM 5 min trend from May 6/7th start.
IWM 10 min showing the rounding reversal process talked about last Friday and a weakening 3C chart.
SPY 1 min weakening further today
As well as the 2 min chart through this entire week, just as forecast in the reversal process playing out this week.
The 3 min trend showing the same through the entire week.
And the 5 min trend as well through the week
The 10 min SPY and this week's reversal process (yellow) with the "Igloo reversal process top" and a deepening 10 min leading negative divergence. I still would like to see 3C make a new leading negative low as I have drawn in on the 10 min chart in red.
I'll have the Week Ahead post out shortly.
QQQ...
Typically we'd look for the last head fake or the "Igloo/Chimney" price pattern with the rounding top which you'll see more of below and a chimney that is the last head fake move above the rounding top that serves as the best price based indication of an impending trend reversal or in this case, a DECLINE.
I'll have the Week Ahead post out shortly.
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