90 Day Macro View
Increasingly, competitive crosscurrents are creating notional Equity Directional disturbances.
A large number of Investors/Traders have convinced themselves the Federal Reserve was attempting
to Bluff the Markets.
Running Indexes up off the Mid-June at the greatest rate of change in history once the SloMo began
to move through its varying psychological attributes. Momo gave way to Fomo which quickly reversed
off Resistance overhead.
Normal behavior, so far.
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The underlying Malfunction is beginning to see signs of light in the tunnel of love.
Powell's recent admission will not repeat Arthur Burns's misdeeds of the past provided an interesting tell.
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We can expect to see broader Market Ranges in the coming 90 Days as confusions abound and will be resolved.
Permit me to explain.
The FOMC Minutes were Negative as FOMC Participants observed Inflation remains unacceptably high.
Reduction of Treasury and Agency Debt was re-affirmed.
EFF vs IR @ 2.53 versus 8.5%+ - 600 Basis Points and 237% Divergence while the Objective remains 2%. If
we were to factor in the BLS Basis adjustment (Jan. 1, 2022) - it is easily Double.
Although they indicated the potential for a pause may be within their purview... the catch is they remain
Data-dependent. A nebulous and arbitrary hedge.
Aggressive EFF Increases with a pause somewhere on the Horizon was my takeaway.
The additional admission of a weakening Consumer provided the coup de gras for Data Dependence.
Building a better box for further confusion and delay.
EFF vs 2YY @ 2.53 vs. 3.28 does indicate a 75 BPS Hike for September, not 50 BPS - at present with the
Yield Curve Inverted out to the 7's.
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Where is the FED indicating they need to bring EFF... 3.5 to 4%.
I've paid close attention to the QT Schedule - which has remained rather jiggy. Prior to June 15th, we observed
the Fed begin the largest reduction in some time. Effectively reducing the Balance Sheet by $81B while $90B
was to have been removed by August 15th.
Remember, on September 15th they stated reductions were to increase to $60B / Month. A significant increase
over notional distributions since June 15th.
Measures of Liquidity have come down significantly, clearly, the FED is concerned about a dislocation now.
MBS Markets have seized up. M2 Velocity is at its lowest reading, many Mortage lenders are on the verge of
Insolvency, M2 is in its 5th month of contraction - all of this has been roundly ignored by Invertors / Speculators.
Quantitative Tightening has tread ever so lightly with the specter of a looming 100% increase in the Balance Sheet
reductions per month.
The FED is moving at a glacial pace as Economic Conditions have weakened precipitously.
For context, it is important to remember - Assets on the FED's balance sheet were $4.16Trillion prior to Covid.
MBS requires 90 Days to settle, The FED was buying up until June 15th knowing they had time to square into September
15th, this trick escapes Retail attention, understandably so as the FED never discloses these nuances.
For Treasuries, maturity is reached on the 15t and 30th/31st of each month, hence the rally off June 16th, there are
no accidents.
Mid-Month usually generates Liquidity issues around pivotal dates for Time, squaring occurs closer to Months end.
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By the time we get to the first week of October, the Fed's roll-off will become extremely evident.
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Investors have focused solely on Rates, one-half of the real FED Agenda.
QT is more important at this point, far more.
I indicated the effective break rate for the Indices would be 3.5% for the 10 Year Yield. We saw the results of this
level for the Indexes.
It is important to remember the Bulk of prior Funding from 2002 onward was done below 30 months on the curve,
increasing the refunding needs exponentially. Thank Timothy Bitsberger from Goldman for this, as it was an intentional
and extremely devious plan to collapse Debt over time.
QT will have an extreme effect on Liquidity at a time where Liquidity itself is coming under immense duress Globally.
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The November FOMC may see a pause due to the Mid-Terms, we will see - Apolitical appearances and all.
They will not pause QT, it will remain ongoing as a background operation of vital importance.
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Investors survived the first wave of FED Adjustments, they will not be imbued with the same again.
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The most important communique from Jackson Hole will be how it directs Monetary Tightening to take effect
as Rates take a backseat to a further Liquidity Squeeze via QT.
Bulls want to believe the FED will back away - I'm leaning towards Economic Activity and its attendant Depression
remain pervasive.
Sentiment will begin to worsen.
The New Congress will not be seated until April 2023.
Any hope for Stimmy direct to Citizens/Consumers is DOA until then.
Global Economic conditions are rather Dire.
