Powell is confused

It appears that the Market God is following exactly the roadmap I laid out recently: after an decent initial selloff towards 2750 (S&P) and then bounced back. We are now 140 points higher after touching 2730ish. I think we are going to challenge 2900 on this way up. But as I said before, don’t count a sustainable rally just yet. We will very likely see another wave of selloff later in the summer, probably much more severe than what we just saw. For the time being, it seems FOMO is developing and very near term, it is nose bleed overbought after today's fierce chasing highs. Some sort of minor correction is highly expected next week before we finally challenge 2900.  

So what has triggered this rally? Well you can say Powell has ignited it although technically we already knew in advance that this was coming. If not Powell, then for sure would be something else! I must say, the poor Powell must be very confused now!!

If I told you months ago that FED would cut interest rate soon, would you believe me? You probably would think I was so stupid to even think about it. But it appears I’m not so stupid now. Indeed I did tell you so black and white in January: "As I said, the market has basically priced in no rate hike in 2019 and it is even thinking there is a higher chance to cut rates than raising rates." While I’m not so stupid, I’m also not so smart that I can figure this out myself. I cannot but I can listen to what the market is telling us and decipher their hidden message. Back then, the bond market was telling us that there was a high chance that FED would cut rates or even another round of QE in not so long the future. You see, Powell was quite hawkish prior to Oct last year saying that more rate hikes were coming. He spooked the market and got “the color to see see..”. He then made a total about-face with a complete change of tone towards dovish. That’s when I said “Powell is scared”. The market loved what Powell did and has made a moonshoot in the first 4 months with new highs. Powell must have thought: Wow, this was great and my job had been done effectively to cheer those people on Street! Not so fast, Powell. More demand is coming. If not met, poor Powell will see more colors on the way. He must be so confused now what else he needs to do. Well, he may have finally figured out that the only thing he can do is to give in and give what the market is asking: to cut the rate. That’s exactly what he did by effectively telling the whole world that rate cuts are coming. The bond market has basically priced in nearly certainty that at least one rate cut by the year end!

After watching what FED has been doing in the context of what the market has been predicting, I’m really wondering why we need FED anymore. For any major moves by the FED in the past 15 years, it seems the bond market has always predicted precisely what FED would do way in advance. Maybe someday in the future, the human FED will indeed be eradicated and replaced by Robot FED, just taking in the order from the Market and implementing it. Maybe sound like a joke but I won’t be surprised to see something to happen to this effect in reality! 👀 🙏😇