There
is no way the market can be totally satisfied nowadays! Since Powell took over
the Fed helm about a year ago, he has done 9 times news conferences following
the meeting and each time he was met with selloff as an immediate reaction to
whatever he would say. He started with a quite hawkish tone initially to give
the impression that his Fed would keep hiking interest rates for a long time.
The market was angry with furious reactions with “a lot of colors for Powell to
see see”. That’s why Powell got quite scared with a market crashing by 20% (see here). He got to do something to save the
market and he did just that. With the about-face, he drastically changed this
tone from very hawkish to very dovish to has basically raised this hands to
promise that the Fed would not raise the rate at all for this year. Yes, the
market liked what the new direction the Fed was taking after digesting all
dovish doses and has mounted a non-stop straight line rally for 4 months since
the year end. So one would expect the market should keep going up with a
positive reaction this time when Powell basically is singing the same song that
no rate hike is coming any time soon, right? No, nixie, uh-uh! The market again
was not happy and fell notably during Powell’s NC. This time, the market was
not satisfied by no rate hike anymore, it is actually looking for rate
reduction, i.e. a new QE to come soon!
Yes,
this bull market is the longest in history for over 10 years now. You can name
many factors that support this fantastic bull run but the most fundamental and
critical factor that must be available is the cheap money that can be printed
whenever is needed. In a way, the market is now like an addictive patient who
cannot survive without continuing to receive the “opium”, the easy money
printed by the Fed. As soon as it sees the possibility of their opium being
taken away, it will immediately show up its withdraw symptoms by tanking the
market that will frighten the Fed. Poor Powell/Fed! I don’t know how they can
ever really pull the market from this addiction. Although not an imminent
threat, it is just a matter of time, not if but when, the next debt-driven
recession will come. Given the debt load that is keeping piling up and we are
seeing a historically high proportion (1 in 6) of zombie companies that will
sooner or later fall apart due to their inability of generating even enough
income to pay the interest of their debt, a gigantic bubble blowup will come
inevitably. We are just waiting to see what is the last straw to drop to pick
the bubble. And the Fed will be forced to initiate another round or rounds of
QE for sure. Mark my word: this will be so severe that the Lehman Brothers in
2008 will be just like a beach walk when the next debt crisis tsunami hits us. I
obviously don’t have a crystal ball regarding the exact timing but we probably
will see more and more sign within the next 2 years that the tsunami is coming!
No comments:
Post a Comment